This article was written with the Performance Management Team.
"Even the best strategies do not implement themselves" is the pithy opening sentence of this article which probably deserves a place in an anthology of business quotations. The authors suggest that many management systems come up short because they focus too narrowly on measurements and results. Measurement is not management, as they put it. Instead, they argue in favor of the Booz-Allen system, Performance Management, that continuously analyzes decision-making and draws on intra-company relationships rather than delivering a bald account of good or bad results.
A model-based management system, Performance Management incorporates a number of effective tools and processes that focus on linking operating decisions to financial performance. The model is upgraded as the business evolves - and its information communicated to all levels of management. Among its attributes are the capturing of knowledge across a company's business units which enables managers to emulate the successes of the best performers. In essence, therefore, Performance Management goes directly to the heart of a company's behavior.
The starting point for Performance Management is the creation of a new set of measures to connect business goals to each line manager's accountability. This permits managers to measure actual performance against the true potential of the business, helping them choose between short-run and long-run financial returns when making critical operating decisions.
Comparing Performance Management with the Balanced Scorecard -a well-known performance and accounting system - the authors say that, while a scorecard can be important in assessing management performance, it is not a decision-tool for enhancing performance. With Performance Management, decisions are linked to performance targets, which in turn must be linked to action plans designed to produce the intended results.
Even the best strategies do not implement themselves. One reason is that most management systems--planning, budgeting and internal reporting--are simply not very effective. These systems often fall short because they focus narrowly on financial measures and results, rather than on the real drivers of business decisions. The concept of a broader, strategically focused measurement approach is illustrated in Exhibit I, taken from a presentation by the managing director of a major global energy services company.
A Strategic View of "Measurement"
What Do I Measure?
How Do I Use the Measurements to Get Results?
Source: Norman Chambers, Managing Director
Brown & Root Energy Services, Europe and Africa
But measurement--while critically important--is not management; it is merely an element in a modern performance-focused management system. Effective management systems must meet four broad design tests:
- They must set fair "stretch" targets. The effectiveness of a management system depends upon its ability to set stretch targets that drive performance to the maximum potential. The credibility of the system rests on its ability to set targets that are achievable and fair.
- They must manage the "drivers," not the results. Traditionally, commitments have been expressed in dollar terms. With this type of accountability, it is inevitable that management will attempt to influence financial results directly. This can produce highly dysfunctional outcomes. As a result, it is vital to shift the emphasis of commitments from narrow financial goals to operational drivers. With targets expressed as operational measures, a meaningful operational analysis can follow. Without this shift, performance measurement is a marginal activity.
- They must be able to focus their analysis on an understanding of root causes.
- They must reward good decision-making, not just good results. High-performance management systems have another function. They must facilitate what we call multidimensional connectedness within companies. By connectedness we mean these systems must create links between: