Why Some Corporate Performance Scorecards Don’t Drive Performance

One of the hardest challenges in executing strategy is how to align employees towards a common business objective and focus on the key performance drivers of the company’s business model.

Recent research by the Institute for Corporate Productivity (www.ic4p.org) has revealed that “much of what drives alignment at high-performing organizations has a great deal to do with engagement.”  To enable the process of engagement, the workforce must understand the strategy, what’s expected of them and how achieving those performance expectations will help the business achieve its goals.  Engagement is the result of purposeful alignment of culture, strategy, capabilities and performance management systems, and combining these in specific ways to execute the business strategy.

However, one of the most important parts of the engagement process is having employees understand organizational goals, business objectives, value chains and leading indicators of the business model. This points directly to a solid corporate performance management system and how managers help their teams establish and remain focused on their key performance indicators to achieve the strategic performance objectives or goals of the company.

There are many approaches and practices to plan and implement a corporate performance management system. In fact, a recently published book, Corporate Performance Management Best Practices (2013), by Bob Paladino, defines 5 key principles of corporate performance management that provide a good benchmark.  However, the process of defining and tracking enterprise performance metrics (aka KPIs) can be very tricky.  There are five pitfalls that I have experienced over 20 years that must be constantly be checked and monitored to ensure employees do not get dis-engaged by a poorly designed performance management system.

Pitfall #1. No clear business strategy to link performance measures to

  • The business strategy and goals must be clearly understood and have a direct one-to-one linkage with the top core metrics (or strategic performance objectives) of the business.  Performance measures must also include monitoring the uncertainty of the external environment on key indicators (e.g. international currency exchange rates) that could change key assumptions about the viability of your strategy.

Pitfall #2. Too many measures obstruct good judgment

  • The annual KPI development process must not get out of control by cascading or developing so many metrics that no one understands how to interpret the actual performance information to make critical improvement decisions.  They key is to keep the critical core metrics and the direct linkages all the way down the organizational chart very visible.

Pitfall #3. Measures don’t reflect value drivers

  • Strategic value chain mapping should be used to simulate the business model for causality of performance towards what the customer values. This will create coherence and causal linkages to the leading indicators of performance within a given work process. At minimum, managers must understand the value creating set of activities/processes that produce competitive advantage and value for the customer. But remember, even when causality exist, there may be an unknown or un-quantifiable time lag between actions and impact.

Pitfall #4. Reliance on control features which are not rooted in the organization

  • The most important factor is to assign individual accountability to each KPI starting at the top and cascaded all the way down. Getting buy-in and ownership of the KPI (especially shared metrics) is sometimes ignored as part of the change process. Individual accountability to performance is usually a major shift in culture and the current control systems of the organization. I have also seen organizations where corporate financial planning cycles not in sync with rate of flux in the market.  The impact is that KPIs and target metrics are not updated fast enough to make a difference and become obsolete or irrelevant.

Pitfall # 5. Metric definition does not equal metric execution/implementation into the system

  • When implementing a KPI the first time, “the means” of how to achieve the metric may not be known at the time the target is set.  This may require and immediate improvement project to define how the process and the individual can achieve the target. This is a critical problem-solving skill by itself to create a high performing organization being driven by a performance scorecard.

Overall, remember that KPIs must be in the hands of the people that are doing the work because it is the engagement of that person in the system that creates the performance, not the other way around.

WILLIAM MALEK is co-author of “Executing Your Strategy” (Harvard Business School Press, 2008).

Since 1991, Strategy2Reality LLC has helped both small and major companies around the world successfully convert their vision and strategic business plans into measurable results. Call us now at 1-650-387-3036 or e-mail info@strategy2reality.com
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