Your company wants to grow and hit its profit targets, right?
So how does it get there?
Have a listen.
Hitting growth and profit targets requires a good understanding and active management of the many factors that drive performance. Traditional performance management systems focus on performance results using a range of largely financial metrics such as margins, return on investment and sales. These results-based measures of performance are important for a range of reasons, but they don’t identify opportunities for improvement or provide an understanding of the root cause of underperformance.
Poor results compared to plan will initiate a cycle of investigation. Results that are on target or better than expected will seldom trigger a proactive search for further improvements – a necessity for a high-performing business. Traditional performance management systems therefore favour the status quo and can limit innovation within the business. This is a serious threat in today’s trading environment and global economy.
Planning and budgeting are periodic activities; our businesses operate in an environment of continuous change. The time lag between performing day-to-day operations and understanding the results from these operations is a further source of lost potential because a negative trend can develop progressively before it becomes a disruptive wake-up call for the business. Many successful organizations have lost their market position because they fail to keep pace with external change or notice that their market is being eroded by a new product, business model or channel. Continuous forward monitoring through multiple lenses is essential to understanding options for improving performance.
Companies also need to maintain strategic focus and clarity of direction while encouraging constructive challenge and new ideas – fundamentals for the high-performing organization.
Performance management and reward systems are key drivers of culture because measurement systems drive employee behaviours and feedback systems reinforce these behaviours.
Performance management systems should therefore focus on more than just the rear view mirror. They should report on a range of lead, lag, internal and external indicators directly related to the successful execution of strategy and achievement of a company’s key performance indicators.
Few businesses successfully convey the relationship between the drivers of performance, day-to-day roles and achievement of results to their teams. They consequently fail to tap into the latent potential of their people. Many readers will be familiar with the original “seven wastes of lean” and others with the eighth: the waste of human capital. Reducing the eighth waste accelerates growth and performance, but to achieve this, individuals and teams need a good understanding of the link between their jobs and corporate results.
When employees understand the strategic goals and the drivers of performance in the context of their roles, they can see beyond their functional silos and channel their knowledge and experience to increase their value to the business.
Strategy translation tools such as the Balanced Scorecard or the European Foundation for Quality Model have helped to reshape performance management systems. Scorecards are effective strategy translation and communication tools that help people understand the drivers of profitable growth and link these to corporate results.
A good performance management system will institutionalize strategy and connect day-to-day roles with the handful of characteristics that make your business distinctive.
To determine how many people in your business know how to drive profitable growth, ask them. Arrange a few breakfast meetings with a cross-section of employees, and informally assess whether your people are really empowered to help you achieve your vision.
When employees understand their priorities and are empowered to succeed, companies can build a powerful execution capability and harness one of the primary drivers of growth: human capital.
