Cascading Corporate Goals: The Missing Link in Creating Performance-Driven Organizations
Link individual performance to individual pay. Many management teams assign and measure objectives and evaluate competencies, and have started using this data to more effectively run their businesses. But to really see significant results, performance must be linked to compensation.
Article Tools
Resource Center
Access white papers, product demos, and presentations from companies whose reputations have been built on helping BPM practitioners get the most from initiatives.
- BPM 101: Selecting a Business Performance Management Vendor" -- new white paper from BPM Partners
- "The Finance Challenge of Aligning the Business With Strategic Goals," a podcast featuring Palladium Group's Phillip Peck
- Ventana Research white paper "Decision-Making and Performance: Improving Essential Business Analytics and Technologies"
- “XBRL at a Glance,” white paper from XBRL US
advertisement
If your company is like most, you attempt to correlate performance with pay by using some sort of labor-intensive, error-prone, inflexible homegrown system -- or "spreadsheet farm" -- administered by a staff that is always fighting fires. The results are less-than-optimal performance and a misalignment between your company strategy, your incentive compensation plans, and the desired behaviors of your employees.
However, directly rewarding people for delivering the desired results creates the kind of performance-driven organization that many executives only dream about. The benefits of linking pay to performance are many. Companies can react quickly to changing market conditions by driving individuals' activities through updated pay-for-performance plans. They can drive accountability deeper and increase senior management's visibility throughout the organization. And they can improve job satisfaction and retain top performers by clarifying expectations and rewards.
Making It Happen
Most companies are not ready to become truly performance-driven. Many may lack a culture that tolerates risk, and others fear accountability. Although successful performance management initiatives have many drivers, three primary success factors must be in place for a company to begin the process of becoming performance-driven: Top management must be committed to cultural change, pay must be linked to the achievement of goals and objectives, and the organization must have software that "operationalizes" the concepts behind performance management.
Commitment of top management. Creating a performance-driven organization is ultimately about the corporate culture. Employees need to accept risk, be willing to be held accountable for measurable progress toward concrete goals, and be honest about their ability to meet those goals. Cultural change is a major undertaking that requires dedication, advocacy, and leadership at the top level of the enterprise. Therefore, senior management must be committed to the concepts of performance management and its execution, and must support the performance management initiative at every turn. This commitment must involve frequent communication and reinforcement of the concepts to employees, stakeholders, process owners, customers, suppliers, and partners.
Linking of pay to achievement. Although good communication is essential for success, it is not sufficient to ensure the successful rollout of a performance management strategy. Too often, the missing link in BPM initiatives is a system of employee pay incentives that would promote the successful adoption of required practices throughout the organization. When people see that their behaviors have a direct impact on their compensation, they are motivated to change deficient behaviors. Only when this monetary connection is made do performance management systems really deliver on their potential.
Software that operationalizes the concepts. Performance management strategies provide a structured framework through which all objectives and goals are organized, assigned, measured, and monitored. This framework forces companies to systematically plan, execute, and measure results -- an ongoing process that enables successful firms to maintain their competitive edge.
Organizations that rely on manual processes, that keep data in disparate formats, or that use multiple systems in different departments and business units may not be able to successfully implement performance management projects. To become performance-driven, a company needs an effective software system that easily automates the many integrated processes associated with the 12 building blocks of performance management.
Business concepts evolve as the technology that supports them advances. Today's technologies can create a significant shift in how organizations define performance management and what they can do to become more performance-driven.
The Stakes Are Enormous
Industry research indicates that companies which implement a performance management solution experience a very rapid return on their investment and, at the same time, outperform their competitors. These results are driven by three primary factors that relate to the organization's ability to more effectively execute strategy: the software's improvement of operational efficiencies, its effect on sales productivity and profit margin, and its impact on business change.
To dismantle the prevailing -- and ineffectual -- performance management paradigm, companies must operationalize the five critical components of performance management (aligning, cascading, rewarding, understanding, and optimizing) in an integrated fashion. Then they will be prepared to achieve their full potential.
5 Critical Components of Performance ManagementPerformance management needs to encompass the entire organization and recognize that individual, departmental, and organizational performance are inseparable. 1. Align. An organization is made up of various business units, departments, and divisions. To create organizational alignment between these entities, executives must define the overall vision and mission, the key perspectives, the critical initiatives, and the strategic objectives for each entity of the organization. 2. Cascade. Once strategic objectives are set and organizational alignment has occurred, the next step in becoming more performance-driven is to cascade these objectives down to all levels of the work force. This cascading process involves setting individual goals for each person in the work force (e.g., employees, partners, suppliers). While the align step is about the organization, the cascade step is about the work force, and the cascade process also involves managing work force performance and competencies, work alignments, and production quotas. 3. Reward. To motivate the work force toward achieving their individual goals, senior management must link individual pay and individual performance. Connecting the achievement of objectives, the demonstration of competencies and cultural values, and other measures of performance with an individual's compensation -- whether bonuses, stock options, reward points, merit pay increases, or commissions -- drives each person to change his or her behaviors and helps the organization achieve its strategic objectives. 4. Understand. The effective use of real-time information is necessary to manage the performance of the organization. It helps management see what initiatives are working, what projects are helping to achieve the strategic objectives, and what strategies are producing results. Similarly, providing actionable, personalized information to individuals is the key to helping them understand how they are performing, how they can improve, and how they can help the organization achieve its objectives. 5. Optimize. The use of models, analytics, and business intelligence (BI) to continuously adjust strategic objectives and reallocate resources in a way that optimizes the performance of the organization is the fifth component of the performance management model. |
Mark A. Stiffler is founder, president, and CEO of Synygy Inc., a provider of software and services for creating performance-driven organizations.
