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Five principles of performance management: Insights from performance champion Bob Paladino
Delaney Turner 270002T14M firstname.lastname@example.org | | Tags:  cognos business_analytics scorecards
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Today's feature article features insights from performance management champion Bob Paladino, delivered this spring at the IBM Cognos Government Executive Roundtable in Ottawa.
In his best-selling business book, Five Key Principles of Performance Management, Bob Paladino tells us that nine out of ten companies fail to implement their strategies. Nine out of ten fail.
What makes that ten percent succeed? Paladino believes what they have in common is strategic self-knowledge: they set goals, understand their own performance against them, and can act on this insight. The author should know—he’s worked for and consulted with loads of organizations that understand performance management analytics, and have the awards to show for it. His new book, Innovative Corporate Performance Management (to be released this fall), examines the DNA common to performance powerhouses.
Both Paladino’s books and presentations offer a practical field guide to analytics grounded in real-world experience. His stories and tips cover best practice examples and executive insight from award-winning organizations. Below, Paladino’s principles and stories create a kind of how-to guide for using business analytics to become a high-performing organization.
Why so many organizations fail to reach strategic goals
Paladino cites four reasons:
The attributes of high-performing organizations
First, they set strategy and rally around it. You can’t be a strategy-focused organization without all employees knowing how they’re performing against strategy at all times. High performers also appoint a leader responsible for performance management (PM), someone with a direct line to the executive level. And they engage employees in PM, get their input on what to measure and ensure everyone knows how they are contributing to strategy.
Why you need analytics and performance management
Many organizations have spent the last few years in survival mode. With revenue pressures in both public and private sectors, who has time to take on a new project such as analytics? On the other hand, perhaps we should be asking: Why do the organizations that implement analytics win awards and consistently outperform their peers? Could there be a correlation?
Whether your goals be shareholder value, the liveability of your city, higher revenues or better service to your constituents, becoming one of those fact-based, performance-driven organizations will help you reach your goals without burning out your people. Business analytics can help you cut cycle time, get constituents onto e-channels and ensure your budget is supporting your goals.
How to roll it out
Paladino describes the move to a PM-based organization as a two- or three-year process. You may start with only one person and one scorecard, then build the family. Here are his five key principles of getting PM in place:
None of these principles is novel in itself. They all cleave to standard management practice. But they represent a strategic ideal, and given so few organizations do either strategy or performance management well, it’s worth highlighting some key points under each category.
Establish an officer: Leaders required
For Paladino, the first order of business is the leader, the CPM officer. Nothing will happen without a leader who has the ear of the CEO and is willing to log the air miles to roll it out.
Says Paladino: “As a CPM officer or Chief Performance Officer or whatever your title, you have to ask yourself: “When I call a meeting, will people show up? When I ask for work to be done, will they submit it on time?” Executive sponsorship ensures this. You can’t be two levels down from the CEO.”
Establish an office: PM specialists
The PM group brings PM to the people. They must be senior employees with deep experience in the organization who understand the political topography. They can see how PM fits into the organization, and they want to learn and expand their skill set. PM specialists may be loaned across different offices as the wave travels through.
“It’s like fielding an infield. You need to have someone on quality, someone on measurement, someone on balanced scorecard, and so on.”
A typical day may include
Refresh strategy: How often?
Referencing Charles H. Fine’s book Clockspeed, Paladino advises to follow the clock speed of your industry when refreshing strategy and plans. In the dynamic telco market, budgets are out of date in two months. In the alternative energy industry, technology is evolving so fast that once a year planning might be not enough. Should you review plans and budgets monthly? Strategy bi-annually? Your industry’s clock speed will guide you.
Cascade strategy: Engage employees
To quote Paladino in Five Key Principles:
“Most enterprises fail to effectively translate their strategies to operations, and communicate their strategies to employees ... Most employees are neither conversant with nor comprehend their role in driving the organization's strategy.”
Setting up performance analytics naturally includes deciding what to measure. “The best ideas come from the field, from the people doing the work. To get their insight on what to measure, you must engage and involve them. This becomes cyclical and symbiotic: their insight informs measurement and their involvement helps them see their role in strategy.”
Once the measures are agreed on, people need to own them, in whole or in part. Your HR department will recognize that there will be a transition. “Some people will be happy to take on the responsibility. Some will leave. And some will like PM so much, they’ll want to move into a leadership role. So you’re building future leaders.”
Of course job descriptions must reflect expectations. And compensation should be tied to performance—just not in the first year. Awards should reinforce behavior on a sliding scale (50% to 150% of goal), not in a circuit-breaker fashion. But Paladino has found non-monetary rewards to be more motivating. “One organization gave out Olympic medals, days off and parties to the winners, which created a lot of energy. All measures went up between 10 and 400%.”
Improve performance: Focus on success
Taking on too many projects hurts employee satisfaction, service levels, operations and revenue. Use analytics on project and financial data to trim down and focus projects, saving those with the highest return on effort.
Plot projects on a matrix of impact versus complexity. High impact, low complexity projects are quick wins. High complexity, low impact projects should clearly be avoided. Only choose projects that contribute to goals. Are there seven projects that share the goal of helping customers? Are customers getting seven calls from you? Collapse them into one.
Improve performance: How to run a meeting
In one of Paladino’s companies, management meetings dragged on for days every month and centered around large binders full of data. “They weren’t meetings, they were beatings. Data is not the meeting. Solving issues and replicating successes should be. ”
Now with scorecards, the execs deal with data on an exception basis. Meetings are two hours a month. The data points out the issues. “Where should we fish? We can’t fish the whole river.”
Scorecards help you recognize patterns. “When all agencies are red on the same measure, it’s a systemic issue. If there’s variation, how can Indianapolis help Chicago improve this measure? A one-hour meeting should have at least two strategic outcomes.”
Improve performance: How to make a right turn
Your organization needs to make a right turn. You may need to respond to a changing marketplace and appeal to a growing population segment. You may need to change the ingredients of all of your consumer products to respond to customers’ increased health consciousness. “To get to the new paradigm you need a strategy map. And you need to track your progress on that map. Along the way you work out the most efficient way of reaching those goals.”
Improve performance: How to create a liveable city
A southern U.S. city uses a scorecard to track important metrics such as crime, fire stats, transportation and development. They are so confident in their data that the city manager sends it monthly to every citizen. Once a low performer, the city is now recognized as being vibrant and liveable. It has won numerous awards over the years, including "Best Place to Live in America" by relo
Leverage knowledge: How to improve processes
Process improvement comes in small steps. In one organization, it took 25 days to close the books. The general ledger owner self-targeted to reduce cycle time by one day per month. “It took two years, but he got it down to five days.”
Nor can processes be reformed in the same way across the boards. In one legal department, the contract turnaround time was too long because a custom document was created every time. This was warranted for higher value contracts, but not for lower. The measures evolved to account for cycle time based on contract value.
Leverage knowledge: How to get the measures right
Getting the measures wrong is more common than you’d think. One company set up awards for the best accounts receivable balances. The first award went to the office with no sales. Thereafter, they changed the measure to DSO (days sales outstanding).
Another example is IT measuring system uptime. Everyone who uses the system assumes it’ll be up. What users care about is latency or server time. “The trick is to ask the customers what they want from IT. That’s the measure.”
Sometimes measures work against one another. “Sales is measured on deals, but when you’re selling like crazy, legal may not be able to meet their service level agreement.” In a real estate company, the CFO incented sales to get long-term, 20-year leases. The result was big deposits, but lower monthly payments. “The unintended consequence was that income fluctuated wildly. So they changed sales incentives to reward long-term steady income instead of big deposits.”
Faster process is a common PM goal, but this goal isn’t effective in some cases. Public sector procurement departments, for example, are measured on how they deal with risk through the appropriate authorizations. In procurement, the best measures should vary with the purchase amount, allowing the time to gain approvals at higher levels for bigger contracts.
“In one company, of our initial 25 measures, only four survived. We changed that many. It’s best to constantly ask your employees if you’re measuring the right things.”
About the presenter
Thought leader and implementation practitioner in Corporate Performance Management (CPM), Bob Paladino focuses on "Implementing for Results." His professional service firm, Bob Paladino & Associates, offers CPM services for implementing and integrating the Balanced Scorecard, six sigma, knowledge management, activity based management (ABM) and customer survey programs to drive breakthrough results.