At its essence, becoming "performance-driven" is about motivating the entire work force -- including all employees, partners, suppliers, agents, and others inside and outside the enterprise -- to work collectively to execute the strategy of the organization. Yet most companies fall short in this endeavor. Research by David Norton and Robert Kaplan of the Balanced Scorecard Consortium shows that nine out of 10 companies fail to execute their strategy. What's more, this same study indicates that only 5 percent of the work force, on average, understands their company's strategy; a mere 25 percent of managers have their incentives linked to the successful execution of the strategy; 85 percent of executive teams spend less than one hour per month discussing strategy; and 60 percent of organizations fail to link their budgets to their strategy.

Clearly, companies are not paying close attention to what their employees are doing, which means they don't have a handle on where their organization is truly headed. They don't effectively correlate corporate objectives with individuals' activities, nor do they tie workers' compensation to their achievement of specified targets. Executives are beginning to understand that there need to be tighter links between pay, performance, and business strategy -- but most have no idea how to solve that problem.

Defining the "Who" of Performance Management

Most approaches to business performance management (BPM) focus exclusively on high-level corporate activities and overlook the behaviors of the employees and other stakeholders who execute the company's strategy. If these individuals' efforts are not aligned to the strategy, they can be a significant drag on the organization's overall performance.

To transform their company into a performance-driven business, senior management must:

1. Align the objectives and resources of the different parts of the organization.

2. "Cascade" objectives down into the work force and manage work force performance.

3. Reward individuals for performance.

4. Understand organizational and individual performance using real-time information.

5. Optimize strategy execution using models and analytics.

These are the five critical components of a useful framework for performance management that encompasses the entire organization but also accounts for the inseparable linkages between individual, departmental, and organizational performance. (See the sidebar 5 Critical Components of Performance Management, and exhibit 1 on page 32, for an overview of the components and the 12 building blocks of performance management, respectively.)

Most companies looking to improve their results concentrate on the align, understand, and optimize components of this model, as these most visibly affect enterprisewide performance. As a result, the cascade and reward components -- which drive the behavior of individual employees and align it with corporate strategy -- are often neglected.