Measuring Performance - Oliver Wight Americas

Measuring
performance
In part six of his series on managing and leading people,
Jon Minerich, Principal, Oliver Wight Americas, Inc.,
discusses the importance of performance measurement,
and in particular, ensuring that the right things are measured
6 www.bus-ex.com December 08

S t r a t e g i c m a n a g e m e n t
Introduction
Measuring performance is a perennial
topic in the executive suite, in
board meetings, and at meetings of
management scientists. To paraphrase
Dr. Deming, measuring performance
is good; measuring the right things is
the trick executives must learn.
Today’s demanding business
environment requires executives to
regularly evaluate how they measure
their company’s performance. Many
CEOs spend significant time asking
themselves what is the proper
performance measurement process
and structure, and what measures
should we be using to drive business
success?
In this final article in our series on
managing and leading people, we will
explain how to create a performance
management process that any CEO can
use to 1) align performance measures
to the company’s strategic objectives,
2) create a performance culture, and
3) cascade metrics to align, engage,
and focus the organization on the
company’s vision.
Step 1
Align your performance measures
to your strategic objectives
In our first article, “Achieve your
company vision by developing your
people strategy and leadership style”,
we discussed how the vision was
‘true north’ for your business, that
strategies were the roadmap of the
journey to the vision, and how values
were the guideposts to decisionmaking
along the way.
When designing a performance
measurement process, CEOs should
begin by asking:
1. Are the performance measures
integrated and consistent, and do they
drive performance toward the delivery
of our vision?
2. Do we have a balanced suite of
measures that focus on the desired
outcomes of our strategies?
3. Do we have a structure that allows us
to cascade our strategic performance
goals down to the lowest level in our
organization, enabling us to link
progress on strategic objectives to the
daily operation of the business?
December 08 www.bus-ex.com 7

4. How do we evaluate whether or not
we are living our corporate values?
It is important to understand that
CEOs must align their people and
processes to the company’s vision
and strategies. One way to do that
is through performance measures. A
second way is to ensure that everyone
in the organization is living the
company’s values.
Please remember; company values
guide decision-making. The types
of decisions employees make on
a daily basis directly impact the
performance of the organization. So
when designing their performance
measurement process, CEOs should
include a regular assessment, via
surveys or other tools, about how
well the values are demonstrated by
everyone in the organization.
CEOs must determine how to measure
organizational success at the strategic
level before they develop measures at
the operational level. The definition
of organizational success must also
include the definition of organizational
behaviors or culture of the company.
How well leadership models define that
culture is the most telling indicator of
performance over time.
Step 2
Create a performance culture
Performance management is the
responsibility of the CEO and his/her
top management team, not the HR
department. The CEO must realize
that operational or organizational
performance drives financial
performance and that appropriate nonfinancial
performance measures must
be developed. CEOs should begin by
defining a performance culture for their
companies.A performance culture is one
that is success driven, process focused,
and where everyone lives the company
values every day. A success-driven
company is one where everyone, from
executives down to the administrative
worker, has high expectations of
performance, where failure is planned
for and accepted, and where the good
of the organization comes before the
success of any individual.
A process-focused company
continuously improves its business by
simplifying business processes, where
fact-based decision-making is the rule,
and where routine things are done
routinely. Finally, a performance culture
is one where, as mentioned above,
everyone demonstrates the values in
their day-to-day decision-making.
CEOs should ask the following
questions when evaluating their
organizations’ culture:
Success driven
1. Do we expect success in everything
we do, or are we risk adverse in our
decision-making and goal setting?
2. Do we plan for and accept occasional
failure when driving to achieve our
vision?
3. Do the compensation system,
performance appraisal process, and
company recognition system support
team or individual success?
Process focused
1. Does the top management team view
end-to-end processes as critical to our
future success, or do we still think in
terms of functional organization and
functional management?
2. Do we continuously improve our
business processes by measuring
the velocity or agility of them? Do we
continuously streamline and simplify
our processes by eliminating the nonvalue
added activities?
3. Are decisions made and justified
using relevant performance measures
and accurate supporting data? (A quick
test for CEOs is to closely watch the next
management meeting. Do executives
spend the majority of time discussing
issues leading to a decision, or do they
spend substantial time debating the
data used to support decisions?)
4. Do we have well-defined business
processes, with clearly defined
roles and responsibilities, where
employees are empowered to make
decisions without executive support,
or do employees regularly request
clarification of rules and procedures
when attempting to make decisions?
Demonstrated values
1. Do members of our management
8 www.bus-ex.com December 08

S t r a t e g i c m a n a g e m e n t
team, both individually and
collectively, model the behaviors we
want to see in our company?
2. Do our strategies align with our
company values?
3. When operating under stress or in
“gray areas,” do all employees truly
understand what types of decisions are
acceptable and what types are not?
Step 3
Cascade your measures to align the
organization
Once they have defined the desired
outcomes for each of their strategies, CEOs
must create a performance management
process that focuses, aligns, and engages
the entire organization on implementing
their strategies. The diagram below gives
a simple framework to use in designing a
cascade process.
How a CEO measures performance
can be as important as what they
measure. Performance measures
should be clearly identified as either
1) learning or 2) compliance. Learning
measures are trend measures. They
show CEOs how well the company is
improving or progressing over time.
Compliance measures determine how
well the company is operating within
the “rules” or guidelines required by
the board of directors, leadership
team, or outside regulatory agency.
At the strategic level, metrics
generally focus on measuring progress
over time toward strategic objectives
and the company’s vision. Therefore,
they are learning in nature. As
measures are cascaded down through
the organization, metrics become more
process focused and are a combination
of both learning and compliance
measures. Savvy CEOs will ensure that
performance measures are balanced
between both learning and compliance.
Every CEO should ask these key
questions:
1. From the strategic level on down
to the lowest operational level, are
the performance measures mutually
supporting and integrated?
2. Do we have a balanced set of
measures that include both learning
and compliance metrics?
3. Is it obvious to employees how their
performance measures are linked to
and support strategic goals?
4. Do key performance measures focus
on supporting end-to-end business
processes necessary to compete in
today’s business environment or are they
predominantly functionally oriented?
5. Are our performance measures
focused on meeting changing
customer and market requirements,
or are we just measuring our internal
improvements over last year?
Conclusion
Measuring organizational performance
is not easy. CEOs should put into context
how their business must perform in the
future state or vision they have defined.
They should align their performance
measures to the strategic objectives
they have set to achieve that vision. A
critical component to achieve the vision
is a performance culture. Defining this
culture is critical to long-term success.
Finally, performance measures
must focus, align, and engage the
organization to achieve both the
company’s vision and strategic
objectives. They must be cascaded
down throughout the organization so
every employee clearly understands
how their performance is linked to and
impacts the strategic objectives of the
company. Accomplishing all of these
things is not easy and CEOs must
spend significant time developing the
performance management process.
Throughout this series, we built
a framework for CEOs to follow in
developing their “people strategy”. In
it we have covered six key areas:
1. Strategy & leadership
2. Designing & developing your
organization
3. Change management & learning
4. Developing people
5. People in teams
6. Measuring performance
Our intent was to foster thoughtful
discussion in the executive suite
on a topic that is critical to every
organization—managing and leading
people. We encourage executives to
go far beyond the boundaries of this
series and create their own competitive
company in these challenging times.
Good luck! We would be delighted to
hear about your success!
December 08 www.bus-ex.com 9