Creating the Performance Driven Organisation - Paul Lim
- 1. iForce Consulting Creating the Performance Driven Organisation Whitepaper (April, 2002) Paul Lim
- 2. 1 Decisions are made and actions are taken at every step in the analysis of a business and of its economic dimensions. Insights are converted into tasks and work assignments. At every step of the analysis there should be measurable results. But for full effectiveness all work needs to be integrated into a unified program for performance. Peter Drucker – Managing for Results (1964) THE CASE FOR PERFORMANCE MANAGEMENT Question: What is the top priority of any Chief Executive? Sales? Profits? Growth? This paper’s premise is that the top priority for any corporation is to “enhance corporate performance.” When leaders understand this to be their key personal mission to their respective companies a program for success is guaranteed. Jack Welch’s 20 year reign at General Electric is a case in point where the company succeeded by creating an organisation that focussed on results based metrics. Peter Drucker’s words of management wisdom are still as relevant today as when executives were first introduced to them almost 40 years ago. In today’s hyper competitive environments performance management is the key imperative for corporate survival. The increasing pace of business, the escalating demands for better customer service, and the requirement for more efficiency and better returns are forcing companies to fine-tune their technologies and business processes. We have all heard executives blame their company’s poor performance largely to market forces. A study by consultants at Booz, Allen and Hamilton of over 1,800 companies with a market capitalisation of more than $500 million in 1994 found that industry growth rates were completely unrelated to the growth rates of individual companies, as measured by the 10-year return on shareholder equity. Similarly, a recent study undertaken Organisation for Economic Co-operation and Development (OECD) compared productivity growth of 10 affluent nations in 1987-92 and 1992-97. It concluded that 50-85% of total productivity growth in each country is driven by what actually happens within existing companies and shifts in market share played a minor role. Much research shows that individual companies are the true productivity drivers of economic wealth generation, not macro variables. This highlights the importance having of corporate strategies translate into realistic and manageable corporate performance programs. Business success hinges ultimately few key drivers of success, the success drivers in turn must relate to the competencies of the firm, which in turn must relate to the value proposition the firm makes to its customers. It is the job of management to lead a process in which these key success factors are translated into actionable agendas, measurements developed and refined, and requisite resources harnessed. Before a performance management program can be implemented a dialogue must exist between the key corporate decision makers to first ask the basic questions of what beliefs, values and assumptions are held about the business? The first steps are to map these assumptions about the current business and how the future is perceived. Once there is congruence on the understanding of the business model can the development the performance program begin. Ultimately, organisations need integrated performance management systems for the following reasons: To have the ability to make rapid informed business and strategic decisions; To provide a means to execute strategy throughout the organisation; To certify the entire organisation is aligned towards reaching corporate objectives; To ensure performance visibility throughout the organisation; To link corporate and functional decisions with corporate success drivers; To guarantee the correct parties hold accountability for the right metrics; To ensure that company wide effort is correctly prioritised; To enable continuous tracking of business results; To integrate work processes with a performance management framework; To have the ability to review and optimise prioritised effort.
- 3. 2 MAPPING YOUR BUSINESS One important part of designing your performance management program is the mapping of your strategy into causal relationship and how they relate to the ultimate mission of the firm. In the following diagram we mapped (a subset of) the causal relationships for an international recruitment firm for them to uncover their understanding of how their business operated. Capture Market Share Generate Awareness Available profiles Partners Online Database Online Advertising Customer requirement fulfillment Position Value Added Services Networking Events Email Campaign Meetings Databse of customer segments Direct Calls Personal Network Become member of key industry affliations Identify types of verticals that can benefit from our solution space Strategy Causal Map for an International Recruitment firm Identify the best value proposition to each selected customer segment Identify Niche Segments Identify other products/services for identified customer segments Reseller complementary HR products Identify value added partners Country 1 Country 2 Websites Presentation Corporate profile Mission Key Success Drivers Preconditions Promote inhouse consulting services Payroll processing Performance assessment From the diagram there must be one ultimate mission (for a desired period of time) that is driving the performance of the organisation. With our client their 12-month mission was to capture market share from the market (a competitive strategy). They had existing methods in place but discovered multiple areas where they needed to excel at. They found that in order for them to improve their market share their were subject to three core success drivers, namely (1) to generate awareness, (2) to get more customer engagements while having the requisite skill sets available and (3) to differentiate themselves with value added services. Again, their success drivers in turn were subject to necessary preconditions to achieve them. This mapping was used for the process of designing the performance management system for their overall organisation. The greatest benefit claimed was the clarity of the assumptions that prevailed from looking at the organisation from an execution and causal framework. Every company has a unique way of executing their strategies and two competitors in the same industry may have different significance for the same metrics depending on their corporate policies, strategies, structure, timing, etc. Certain initiatives do vary in their order of importance and need to be prioritised in a company’s evolution, thus for example, an initiative to grow the value of certain brands may take precedence over a need for operational efficiency. THE ACHILLES HEEL OF PERFORMANCE MANAGEMENT Many companies have spent much effort developing performance management systems which have been experienced with mixed success. When implementing the programs it is key that you work with a team that knows the risk involved in implementing the right performance programs. From our experience and extensive research, performance management success hinges often on this key points: Focussing corporate wide effort on the correct performance indices. This statement looks so obvious as to be unnecessary to mention, but, firms often sidetrack themselves into copying behaviour (e.g. benchmarking a competitor’s processes and metrics) while not paying enough attention to the unique drivers of their business. For example, Analog Devices, one of the first firms recognised as implementing the integrated Balanced Scorecard experienced the following. Over the three-year period between 1987 and 1990, the electronics
- 4. 3 company made an order-of-magnitude improvement in quality and on-time delivery performance. Outgoing defect rate dropped from 500 parts per million to 50, on-time delivery improved from 70% to 96%, and yield jumped from 26% to 51 %. Unfortunately these breakthrough improvements in quality, productivity, and customer service did not provide substantial benefits to the company. During the same three-year period, the company's stock price fell to one-third of its July 1987 value. The considerable improvements in manufacturing capabilities (at that point in time) had not been translated into increased profitability. A lesson drawn from Analog Devices is that they were essentially measuring value added variables, however they were highly internal and not prioritising (weighting) corporate effort behind other key success factors of rapid product introduction and market expansion. This may again relate back to a corporate preference at the time towards improving efficiencies and responsiveness (or benchmarking against competitors’ best practices) instead of product and market development. However, today, the company’s strong endorsement of performance management has ensured it has ultimately delivered long-run value1 . Companies need to identify key success factors correctly and put effort behind the right programs. The identification phase of what to measure should be considered the most important aspect of any performance management program and cannot be taken lightly. It implies a true understanding of the elements will make the company successful and where energy and brain power will be focussed. From our internal research at iForce we have identified that over 80% of unsatisfactory performance is due to the incorrect identification and prioritisation of the performance metrics. 1 It is important to note that today (2002); Analog Devices is still outperforming all major indices by at least 100% over a five-year period, including the semiconductor index. Please visit www.marketwatch.com.
- 5. 4 INTRODUCTION TO VISIONBRIDGE Through multiple engagements with customers and our understanding of best practices in performance management we have developed a core value creation methodology for organisations. Often we have developed this solution as part of an ongoing effort to develop performance programs that actually produce measurable results. VisionBridge is a methodology for business and technology implementation of performance management programs. Divided into three phases, Identify, Design and Execute. Each phase has its own unique Approach and may differ depending on the company and industry. Below is the outline of the methodology. VisionBridge IDE Identify Design Execute Stage 1 Uncover Assumptions Business operations mapping Risk analysis Current & future projections Stage 2 Performance Drivers Corporate Objectives Functional Objectives Key Success Factors Key Performance Indicators Stage 3 Performance Design Required business processes Measurement frequency Performance assessment structure Performance cockpit Execution roadmap Stage 4 Implementation Solution implementation Performance tuning KPI refinement Copyright: iForce Consulting, 2002 Various techniques are used from business operations mapping to scenario analysis. Once a clear picture of the business is developed; key success drivers are identified to be used to link in to the key performance indicators of the business. This is done in a cascading fashion starting with the highest corporate priorities through to the working level of the organisation. Once the Identify stage is complete the Design of the performance management system is initiated. This stage is characterised by mapping key business processes that may span across functional units. There are two types of processes that we identify – Key and Support. A Key business process is a process that is necessary to sustain the value proposition and revenue drivers of the company to its respective customers and markets and often is closely linked to the key competencies of the organisation. The execution phase is where the system gets developed and integrated into a company’s existing applications and work processes. This stage is also considered a feedback stage to assess the effectiveness of the selected key performance indicators (KPIs).
- 6. 5 ARCHITECTURAL FRAMEWORK VisionBridge taps on best of breed technology to develop the most sophisticated performance management programs for an organisation. The key strength is the design, which has been refined through our own in depth understanding of performance measurement applications. The technology architecture is unique to our approach. The following diagram highlights the VisionBridge technology architecture. Best of breed concepts are included in the architecture, some of which include activity based monitoring, real time workflow assignment and event triggering. VisionBridge Application to Application Communication Priority Scheduler Rules Engine VisionBridge Database Event Monitor User Interface VisionBridge IDE - Technology Architecture Copyright: iForce Consulting Business Intelligence & Reporting Engine User Interface Each user will have a different interface depending on the data they will be able to see. Often implemented solutions only focus on visibility. The User Interface is designed depending on what information is needed by each decision maker and is linked via a cascading mechanism. Priority Scheduler The priority scheduler is a system that has as inputs at work-schedules and KPIs to advice managers which activities need more attention. It is a combination of events, rules and data. The Priority scheduler uses work scheduling algorithms. VisionBridge Application to Application Communication Often, a performance management solution needs consolidate information from various heterogeneous systems and thus application adaptors are used to input this info into the VisionBridge Database. These are a series of adaptors used to link various data that may reside of different systems throughout the organisation. Key selected information gets stored in the VisionBridge database for evaluation and decision making trend analysis purposes.
- 7. 6 VisionBridge Database The database serves multiple purposes from data consolidation to the triggering of predefined rules. The design of the table structure is essential to support the various applications that will use the data. Rules Engine The rules of your performance management system will depend on what are considered important trigger events. Dynamic rules are set for triggering events, which people to receive given information and critical points for KPIs. Event Monitor Events are monitored and triggers are generated based on certain rules. The event monitor is used to track exceptions and monitor in real time the actual progress of the parties concerned. For example when a large account is initiated an even may be triggered to notify the right people who may be interested or involved in a given event based on certain rules. This entry could be in a Siebel CRM system or a custom application. Alternatively the even monitor may work closely with the rules engine to trigger events such as late payments or notify parties when certain KPIs are below expected targets. Business Intelligence and Reporting Engine. This is the engine that updates the KPI and does various trend analyses. It examines correlations among KPIs to find patterns of behaviour. It also examines possible processes that may be sub optimised due to the achievement of certain work rules. The learning generated can be used to do scenario testing and KPI fine-tuning. For example, KPIs may be tested given certain values and others can be viewed in this light to see if other processes are sacrificed at the expense of maximising others. SYNTHESIS This paper was written to highlight that organisations need to explore the deeper issues of how to drive their organisations towards higher effectiveness. Research highlights that corporate success is primarily internally driven rather than externally dictated. In this paper we have outlined the need for and method in which we assess and design performance management programs for corporations. Corporate leaders and stakeholders are the ultimate owners of the performance management system and have the responsibility to drive performance initiatives throughout their organisations. Performance management should not be viewed as a one-time quick-fix solution but needs to be ultimately ingrained into the working DNA of the corporation. Finally, the quality of organisational results ultimately hinges on the quality of the people designing and driving their organisations. The VisionBridge methodology allows leaders to bridge their visions by ensuring the entire corporation is aligned to reach their desired goals. Before all this happens, developing the understanding to drive results is key and is implied by this paper’s opening quote, that success starts with a single insight and is realised through concentrated action.