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Performance Management Demystified
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Difficulty in Tracking History: Despite their backward-looking nature, without context and captured commentary about organizational trends, BI systems cannot provide a useful history for organizations. The right performance management system, on the other hand, archives comprehensive, contextual historical information to function as valuable "corporate memory."
Data Characteristics: With its focus on structured quantitative data, BI misses out on unstructured qualitative data - comments, initiatives, and the objectives themselves - critical to providing the context described above. Without it, it is not possible to get a true and meaningful gauge of organizational performance.
Relying on BI alone in an attempt to manage performance is akin to driving while looking in the rear-view mirror, not knowing what your ultimate destination is, and not knowing which route you should be taking to get there. In contrast, performance management ensures that your organization knows where it is going and how it will get there, while providing a 360-degree view as you navigate the course.
Likewise, although metrics also play a supporting role in performance management, be careful not to mistake them alone as substitutes in managing performance. As alluded to above, looking at metrics in isolation actually can be dangerous to organizational progress, as it doesn't take into consideration what the organization is trying to achieve overall. Without strategic context, an accurate assessment of whether performance is improving or deteriorating is impossible.
Three Pillars of Success
Now that you know what isn't performance management, what does effective performance management look like? A successful performance management program rests on three essential pillars: approach, technology, and domain expertise.
Organizations may choose among any number of approaches and methodology frameworks to guide their performance management programs. Some of the most well known include the Balanced Scorecard, Logic Model, and Six Sigma; many organizations modify one of these to suit their particular situation and/or goals.
(a) Balanced Scorecard
Widely attributed to Kaplan and Norton's 1993 Harvard Business Review article, the essence of the Balanced Scorecard (BSC) approach was used as early as 1987, when a team at Analog Devices developed it to track non-financial performance measurements vital to their strategic plan. Heralding the need in the modern competitive environment to go beyond financial measures in taking an organization's pulse, the BSC is now one of the most prevalent methodologies in use today. Central to the BSC methodology is formulating strategy and managing execution based on the perspectives of key constituents/stakeholders of an organization's strategy, such as Financial, Customer, Internal Process and Learning & Growth/Employees. Together, the perspectives "tell the story of a strategy" in understandable terms to all of an organization's stakeholders, helping motivate them to achieve objectives. Another important aspect of the BSC is employing leading indicators - not just looking at past results - to gauge how well an organization is positioned to perform in the future, which then enables it to refine strategy and execution accordingly.
(b) Logic Model
Though it dates back to the 1970s, the Logic Model gained prominence in the 90s largely in response to the Government Performance and Results Act (GPRA). Now a widely accepted management tool in the public and nonprofit sectors as well as the international arena, the Logic Model is a roadmap or picture of a program that shows the logical relationships among inputs (what an organization invests); outputs (what an organization gets done); and outcome-impacts (what results or benefits happen as a consequence). Logic models are useful for program design and planning, program management, communication to stakeholders and performance management.
(c) Six Sigma
Originally developed by Motorola engineer Bill Smith; Six Sigma is a quality management and process improvement methodology particularly well suited to process-intensive industries like manufacturing. A basic tenet of Six Sigma is that the higher the variation of a process, the higher the frequency of defects. It measures a given process by its average performance and the standard deviation (or variation) of this performance, aiming to reduce the occurrence of defects in a given process to a level of "Six Sigma" outside the norm; no more than 3.4 times per million. Reducing the variations in the process and progressively improving its performance accomplish this goal.
While the overview above is by no means comprehensive - and in fact, many organizations adopt their own brand of strategic methodology that may be a blend of approaches - it should begin to paint the picture of the objective-focused, forward-looking, holistic (i.e., beyond financial measures) purview of performance management.
While the right approach provides the conceptual framework for your performance management program, actually enabling alignment across the organization requires technology to support it. Besides ensuring it supports your methodology framework of choice, the performance management solution you choose to support your efforts should effectively facilitate communication and collaboration across the organization.
As mentioned previously, beware of vendors who apply the performance management label to dressed-up iterations of the same reports and metrics that already overwhelm organizations, providing no strategic context and way to actually align employees toward organizational goals. An effective performance management solution not only helps communicate objectives, but also facilitates collaboration across the organization to achieve them. Toward these ends, your performance management technology should include capabilities for creating and sharing strategy plans; developing and collaborating on initiatives that tell how the organization plans to achieve its strategic objectives; along with other mechanisms, such as scorecards, dashboards - and yes, reports - for intuitively monitoring and understanding ongoing progress toward goals. A solution also should assist with the critical task of prioritizing tasks, to help managers determine where to strategically apply limited organizational resources.
III. Domain Expertise
Too many organizations have learned the hard way that deploying a successful solution entails much more than installing the latest software. Just as even a sound strategy is useless if not incorporated into organizational execution, so too is a performance management solution rendered ineffective if not rolled out successfully and used regularly across the organization. To ensure that your performance management program reaps tangible improvements - and starts doing so sooner rather than later - look for a performance management provider who, along with technology, provides the domain expertise to foster a successful deployment. In addition, get a feel for a provider's philosophy; for example, do they promote a "big bang" or "top-down" approach, in which the entire organizational strategy is cascaded down from the executive level throughout the organization? Or do they support a more incremental approach, in which an organization starts small - perhaps with just one strategic objective in one group within the organization thereby having the opportunity to test and refine before rolling out on a wider scale? As you may imagine, deployment philosophy has wide implications, including time to results, cost, and ultimately, the overall prognosis for success of your performance management program.
Making Vision Reality
Performance management offers big promise for organizations as they face the evolving challenges of today's new economy. Though it can yield powerful benefits, performance management does not have to be an overwhelming proposition. In fact, unlike some of its predecessors in the business and technology world - whose data excess often created more fog than clarity - performance management, approached correctly, actually distills information down to the essential, sharpening an organization's focus on the critical path to achieving its goals, both short- and long-term. By consistently harnessing the full potential of organizational resources in the direction of goals, organizations can make good on their strategies, bringing their ambitious visions into the realm of reality.
As Chief Executive Officer and President of Pilot Software, Jonathan Becher is chartered with providing the overall strategic direction of the company. Leveraging his 15 years of operational expertise managing and growing technology companies focused on analytics, scalable computing and pattern recognition, Jonathan leads the company's efforts to deliver relevant and innovative performance management solutions to the market. He is a frequent speaker at industry conferences, an active member of the performance management community, and author of multiple papers on a wide range of subjects. Jonathan can be reached for feedback at firstname.lastname@example.org