Performance Management: Foundation for Resilience and Platform for Recovery

Setting the Stage for a Successful Corporate Turnaround

A corporate turnaround may be thought of as a tragically delayed transformation. This need for metamorphosis is driven by a lack of corporate resilience, which permits an organization to change and adapt as necessary. This article examines the core elements and principles of ‘performance management’ and provides meaningful and useful information for organizations seeking recovery and those hoping to prevent difficulties.

Corporate Resilience

Corporate resilience depends upon an organization’s ability to ‘pivot’ or reinvent business models and strategies as circumstances change.

The notion of corporate resilience is founded in critical thinking and requires organizations to be able to face and overcome denial, nostalgia, and arrogance in their pursuit of a rebound and ultimate success. It requires organizations to be willing and able to reallocate financial and human resources to where they can be optimized while balancing these changes with strategic renewal.

At its core, corporate resilience requires a culture of performance management. Such a culture provides a steel spine and can also provide a foundation where recovery or turnaround is needed. An effective performance management culture exists where employees use practical tools to set targets, measure performance, and implement concrete action plans to meet objectives.

Many organizations, however, tend to set targets that drive the core engines of the business while neglecting operational and strategic factors that make the implementation of a performance management culture impossible.

Typical symptoms of such an organization include:

• A lack of rigor surrounding the cash management process.
• Poor or even nonexistent controls for manufacturing, planning, and procurement.
• A disconnect between financial measurements and key performance drivers.
• A lack of accountability within management ranks.

These symptoms indicate a lack of critical thinking, slack corporate discipline, and negative or even destructive behavior.

The Core Elements of a Healthy Performance Management Culture

Companies that have implemented and sustained a performance management culture exhibit three essential traits: leadership, accountability, and capability.

Leadership

Leadership is paramount. The leader’s role is to generate clarity around strategy and provide focus on the critical priorities and activities needed for success. Sound leadership also ensures that the executive group, as well as the processes and systems that translate action into metrics and results, are aligned. Without sound leadership, it is unlikely that a performance management culture can be implemented or a turnaround accomplished.

Above all, leaders must “walk the walk and talk the talk.” In other words, the best way to lead is by example. The effective leader will also create an environment that fosters transparency and open communication. This creates fertile ground for the information flow that is so necessary in a resilient corporation.

Poor morale or corporate malaise are telltale signs of ineffective leadership. This will also be evident in the range of conflicting objectives and priorities seen among sales, manufacturing, and marketing teams. Lack of executive alignment in these areas will become particularly pronounced when a significant shift occurs in the external environment prior to a crisis.

Effective leadership, however, manages expectations, supports employees in achieving targets, and deals with performance issues.

Accountability

A performance management culture is only complete when all employees are held to the same standards.

The most powerful way to reinforce accountability throughout an organization is by example, specifically through leadership’s commitment to adhere to a single guiding principle. In the end, ownership of results belongs to everybody.

This ‘culture of accountability’ becomes the norm when:

• Individuals set specific objectives and targets for their respective functional areas. With management’s support, their focus will be on key measurables that drive strategic goals.
• Those same employees are empowered to take meaningful action that can directly affect the targets set.

Capability

Most workforces possess a high degree of knowledge about specific issues or areas. For example, sales teams know their customers, and press operators understand their equipment. Capability, however, refers to the workforce’s ability to solve issues that evolve daily by applying functional knowledge. Without an adequate base of skills, employees will not be able to resolve business issues as they emerge. Common examples include marketing staff not understanding segmentation or value proposition or sales staff not understanding contribution margin.

Capability itself is not enough. Management must be committed and show leadership by removing barriers that inhibit employees from dealing with problems and issues they encounter. A management team that achieves this will also create a culture of accountability.

Performance Management Implementation

Before undertaking any performance management initiative, an organization must first have a well-thought-out and tightly-knit strategy with total buy-in from the executive group. Once this healthy foundation is in place, work on devising and implementing a performance management initiative can begin. This work should focus on the following four activities:

Identify Core Drivers

The first step involves defining the current performance drivers and indicators that management uses. Typical examples include production output, units of measure, and sales revenue. This activity will most often expose a lack of agreement within the management ranks on issues such as a common measure or profitability. Opposing management goals should come to light during this process as well.

Following this, management assesses the current drivers and indicators to identify their effectiveness. This requires a hands-on approach, exploring what the target departments and areas of operation perform daily. Activities could include external and competitive benchmarking and time-based studies in production.

Throughout this process, disconnects between what the company needs to execute and what it is really focused on will become apparent. Typical examples of such ‘disconnects’ include:

• No accurate measurement of contribution margin. This will likely be evident in situations where a company is producing and selling both profitable and unprofitable products.
• Ineffective production measurements that can be easily manipulated to meet targets.
• Lack of or ineffective tracking of market shares of major products.

An important and revealing question that each person participating in these discussions should answer is, “How do you know you have done a good job?” Anything short of a definitive answer points to a lack of clarity and accountability.

The next step involves developing an understanding of what the core drivers should be. Several groups or teams of individuals from management and line functions should form to identify the appropriate performance drivers and indicators. These should meet the following criteria:

1. Measurable: Quantifiable data is the focus, not targets such as ‘happy customers.’
2. Controllable: A person or group of persons within the company needs to be able to affect the outcome.
3. Relevance: The drivers and indicators should directly link to key business objectives defined in the strategy.

This process will generate a clear understanding of how specific parts of the business need to be managed. It will also allow any lack of alignment between executives and management to surface.

Set Targets

Once the core drivers are established, the next step will be to set specific targets. In many companies targets are set based upon historical data, devoid of any meaningful analytics. They also tend to be set by management and, thus, have limited front-line ownership. Often, they are developed from budgets that may not hold any view of reality.

The following parameters should be used when setting targets:

1. Attainable: Internal studies, benchmarking, time studies, and discussions should define what is both achievable and obtainable.
2. Grassroots: The individuals and groups who complete the internal studies and benchmarking should be in a position to set effective targets.
3. Accountability: Because both line employees and management set the targets, the right individuals who can affect their outcome own the results. This engenders accountability and is crucial to effective management.

Implement

A performance management culture succeeds when the right information is highly visible, timely, and in the hands of the right people. This usually means establishing an effective reporting system, which will be used to compile results and track performance; a typical report would include the drivers and indicators, along with the targets that have been set.

Implementation requires training individuals in each area. Thus, companies need to devote adequate time to training employees on the principles of performance management along with an explanation of their responsibilities and the company’s expectations. Actively engaging the groups and teams that have assisted since the initiative’s beginning will be critical to developing competency and fostering a supportive environment.

In the end, reporting and accountability will move to the individuals and teams directly responsible for the outcomes. For example, sales reports would move from the hands of senior executives into the hands of managers and front-line staff members who are responsible for meeting targets.

Review

This last step provides a formal mechanism that will tie the whole performance management system together, making an effective culture possible.

The purpose of reviewing results with the appropriate individuals in a timely manner is to generate specific and actionable activities with a sense of urgency for those who are accountable for the results. In this way, employees will move from a passive to an active role, identifying and capturing opportunities and issues and developing specific action plans to implement a solution.

Documenting this review will be an elementary but important activity. Essential information to capture during this process will be identifying ‘who,’ ‘what,’ and ‘when.’ With this approach, employees and management will develop a strength for not only thinking through activities that will help them meet their desired targets but also for action.

The Importance of Investing in Performance Management

Organizations that lack a performance management culture suffer from a lack of rigor in cash management, poor controls, a disconnect between measured data and its relevance, and a general lack of accountability. Organizations that embrace a performance management culture demonstrate strong leadership, accountability, and capability. These organizations are able to effectively identify salient drivers, set targets, execute, and review.

Performance management is the core of a resilient organization. Such an organization is dynamic and has an inherent ability to adapt to change as necessary. For organizations faced with a crisis or actual turnaround, a well-established performance management culture will be the platform for recovery and the seed of resilience.

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This article was originally published on August 12, 2024.]

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