Management of Performance Across a Network

When a business operates in a network of closely interrelated, though legally distinct, organizations, it cannot pay attention only to its internal operations. Its performance management initiatives should focus on the impact that all of its various stakeholders have on the organization's results. Instead of asking “How can we optimize our performance for one group of stakeholders?” leaders of a performance management improvement effort should consider the question “What do our stakeholders contribute to our success?” However, this question can be asked only if the organization also considers the opposite question: “What do we contribute to the success of our stakeholders?”

To effectively guide decision-making within a modern, networked business, performance management must be applied between organizations and among parts of the same organization. Companies need to monitor their success within the context of their performance network. They need to understand the nature of the relationships between the organization and its many stakeholders; they need to work on their transparency; they need to develop new performance indicators; and their performance management efforts must focus on building trust, instead of just control.

Nature of the relationship

Relationships between organizations are not all the same, although all are important. Some relationships are very transactional, such as managing the cafeteria or logistics. Other business relationships add more value, and require more advanced management, because they support the core competencies of the firm or lead to innovation through co-creation of products or services. Within a performance network, companies may have three different types of relationships with other businesses: trans-actional relationships, added-value relationships, and joint-value relationships. They must implement different strategies as they manage relationships of the different types.

Within a transactional relationship, performance managers should focus on the way in which use of the partner organization's standard processes enables their company to sell its products and services, profitably, to as many customers as possible. Just because a relationship is transactional doesn't mean that it doesn't involve innovation. Many highly innovative organizations focus on transactional relationships. One example is the way in which Dolby Laboratories licenses its surround-sound system to consumer electronics firms.

Added-value relationships are those that improve a company's supply chain and sales distribution channels. Companies often focus on performance of their added-value relationships as they move from product selling to solution selling, adding services that complement their product. The goal in solution selling is to provide a package that becomes part of the customer's everyday life or business processes, creating a high level of customer loyalty and sustainable customer profitability. Because customers are different, solution selling often requires the solution to be adaptable to buyers' unique needs. A partner network helps make adaptation possible. Think of the numerous third parties that offer Apple iPod accessories, or consider how suppliers to a supermarket can earn preferred status by integrating with the supermarket's logistical systems. Every party in an added-value relationship has its own objectives, but goals are aligned, leading to mutual success.

In joint-value relationships, parties collaborate to create a new product or service that they could not have developed on their own. Their objectives are the same: joint success in the market. Think again of the example of Senseo, a one-touch espresso system for which Philips builds the machine, while Douwe Egberts supplies coffee pads. Each firm brings crucial skills to the product. Section D of exhibit 1 illustrates the way in which value chains merge for two companies working together in a joint-value relationship.

Transparency

In a performance network, no single CEO hands out marching orders that are then cascaded down throughout a cohesive (and hierarchical) organization. Business success is achieved through communication and collaboration. Information is an asset that a company must deploy and optimize within its relationships in the same way it uses assets like capital and materials. Collaboration is impossible without information exchange. Therefore, business partners must share information to optimize relationships, knowledge transfer, and traffic of their other assets. The efficient sharing of information in a performance network enables stakeholders to identify opportunities and bottlenecks in the network and to move from suboptimization to optimization.

Within transactional relationships, transparency consists of the exchange of operational and financial information, derived from the flow of transactions. Operational information typically comprises data on the status of transactions — for instance, tracking within logistical environments or monitoring the approval status of transactions within the back office. Financial information typically consists of invoice and payment information.

Within added-value relationships, transparency requires sharing of management information in addition to the operational information; the goal is to enable other stakeholders to better manage the relationship. Examples of information sharing in added-value relationships include the corporate strategy information that a company gives its shareholders, scorecards its gives suppliers, and sustainability reporting for the general public. However, the killer business case for transparency comes from sharing information with customers, such as a utility company's sharing of energy-use data or a benefits outsourcing firm providing information on activity within a customer's employee benefits program.

In joint-value relationships, transparency consists of a full set of management information, similar to what a company would require from its internal operations teams. These relationships involve the exchange of operational information as well, but emphasis on operations can lead to transactional behaviors. In addition to management information, transparency in a joint-value relationship consists of the free flow of certain organizational capacity. This might include exchange of capital or sharing of skills and staff, materials, or facilities. Asset sharing can be formalized within a joint venture, but that is not necessary. Managing joint-value relationships requires a voluntary and open exchange.