ASMI Speaks with Performance Management Expert
ASMI recently spoke with Chris Soderquist of Pontifex Consulting to learn more about the average organization’s perception of performance management and the common pitfalls they face when trying to incorporate a performance management framework.
What is the common perception you receive from organizations when you inquire about their knowledge of performance management? What tends to be the reality?
The common perception is that they are doing it…and in some respects they are at least monitoring some performance variables. What they consistently lack are two things.
First, they have not taken the time to create a limited, yet broadly inclusive set of important indicators. They usually focus on an overwhelming number of financial indicators…those they have always run the business on…and ignore/leave out intangible measures (e.g. those associated with the learning and growth perspective of Kaplan and Norton).
Second, and more important, they usually lack a “theory of causality” that links the strategy to their measures and desired outcomes. “If I pull this lever, I will see this measure change.” This “theory of the business” is absolutely essential for first establishing the correct strategy, but more importantly, it’s necessary for the implementation of an ongoing improvement process.
For organizations looking to turn towards a strategic mind-set, what advice would you give them as a first step to take? Are there signs an organization should look for when deciding the time is right to take a stronger approach towards implementing for instance, strategy maps or the Balanced Scorecard?
The first sign I’d look for in deciding to take a stronger approach toward strategy is an assessment of the organization’s willingness to transform the incentive (compensation) system. One of the major barriers to implementation is an incongruent compensation system…one that still rewards sub-optimized, short-term performance at the expense of longer-term strategic objectives. In strategic transitions, there is often a “worse before better” dynamic that must occur (it’s in the “physics”) as an organization invests in strategic, long-term capacity. This investment necessarily takes away from the way the business has been performing, which can cause a dip in performance. Without understanding this likely dip, an organization will not have the staying power to make a strategic transition, and so will fall back to the business as usual (sub-system focus) approach.
From your experience, when communicating strategy to the organization, have you felt more resistance from upper-level management (including board directors) or contributing staff?
Although resistance comes from different areas of the organization, the most resistance comes from upper management. There is a usually unsubstantiated belief that most staff understand the strategy. It’s that they are unwilling to implement. Yet if they sampled staff members to describe the strategy, they’d find a majority cannot do so…let alone link how their daily actions link to that strategy.
Once an organization has a strategic system in place, what obstacles do they face in maintaining it?
Besides the compensation system issue mentioned earlier, the second most difficult obstacle to overcome is the “time monkey.” I recently had one senior manger tell me that his executives had the “attention span of a gnat.” They all knew that the system needed better strategic thinking, but couldn’t get off the treadmill of quarterly reports and operational management to maintain a strategic focus. Without consciously delegating urgent and compelling activities to clear the plate to develop strategy, oversee implementation, and use leading indicators to create ongoing learning and adjustment of strategy…the process often turns into a one-off strategy development that needs to be repeated without being integrated in the way the organization does business.
