There are many different views of what performance management really means inside of the organizations we manage. Some view performance management as simply the tracking and reporting of corporate performance. Others view it as a formalized process for benchmarking and best practice identification. Some even view it in its broadest context, extending PM well into the implementation of best practices and operational improvements.

While there are no “right” or “wrong” answers on the charter of the performance management function, there are some clear advantages to looking at the function more holistically… from the identification of current performance, all the way to tracking the impact of implementing key changes on the business. By looking at performance management this way, companies can begin building the PM discipline into the very culture of their business.

When we work with clients on their Performance Management process, we try and look at it as a key ingredient to each part of the management cycle- Plan, Do, Check, Adjust. Performance management plays an essential role in each part as illustrated in the examples below.

In planning, the role of performance management is to inform the process. We think of this as a periodic inventory of performance. How are we doing against internal targets AND external benchmarks? What gaps exist? What do the gaps mean? What practices could we/ must we implement to close these gaps? These answers form the basis for the strategic and operating plans of the business. A good analogy for this phase of PM would be the kind of preparation done in the two or three weeks preceding a superbowl or similar championship event. During this phase, the team pours over statistics, films, historical performance in similar situations, and other information necessary in helping it prepare its plan of attack. It’s the performance management function that provides the data and analysis necessary in building that kind of comprehensive and bulletproofed gameplan.

In the “DO” part of the management cycle, the role of performance management takes a back seat to the daily tasks of operating management who are ultimately responsible for implementing the plans of the business. During this phase, the role of performance management is to provide support to operating management in terms of routine performance reporting vis a vis the control limits established in the operating plans. The purpose of these reports is to enable deviations to be quickly detected and resolved. The analogy here is what happens on the field during the big game. Teams are always making small mid course adjustments, often between plays, but frequently during the key plays themselves. Even though they work within the construct of the overall gameplan, the quarterback is always processing information, and making slight corrections to keep the ball moving downfield. Performance management provides the information necessary for operating management to identify and execute these mid course corrections.

In the CHECK phase of the cycle, Performance Management takes center stage once again. It’s the equivalent of the halftime briefing. Management looks at performance versus plan. They analyze key gaps and variances. Why did they occur and what could have been done differently? They use this data to make adjustments to the plan, and inform the team of what aspects of the overall plan must change in order to achieve success. It is a critical analysis activity that is driven by those who are constantly looking at the data and trends, and culling the insights necessary in making effective halftime decisions.

The last part of the cycle, ADJUST, puts management back in the drivers seat to implement the adjustments and changes identified during the halftime briefing. Once again, performance management moves back into a support role, continuing to provide critical indicators that allow management to keep the plan on track without disrupting execution.

While the realities of business are not always this simple, the above analogies are useful in illustrating how the role of performance management changes as the process of management is implemented. At times, performance management takes a very strong leadership role by providing a framework for understanding strengths and weaknesses, and providing the data to support that learning. At other times, they must step out of the way, allowing management to implement their plan, while continuing to provide the information necessary in helping management identify those small but important mid course adjustments.

When viewed from this type of holistic perspective, performance management is more likely to be seen as an integral part of the business process, rather than a distraction or periodic activity that management must endure. It becomes a part of the business culture, rather than another staff activity whose value is questionable to bottom line results.

From one performance manager to another, that’s what we’d call the Holy Grail of PM.

As you walk through life today, look around you. While there are some notable exceptions, it seems to me that more and more people and institutions (from health care to education; municipal services to private business) are turning to mediocrity as the benchmark standard for performance.

Despite the great strides made in customer service and quality during the 80’s and 90’s, we seem to have slipped as an industry. Of course, that’s the opinion of yours truly…someone who has very few “completely satisfied” bones in his body. That notwithstanding, the acceptance of mediocrity is something that, if left unchecked, will destroy whatever culture of innovation still remains alive and well.

So what drives people and companies to accept mediocre performance? What if I told you that the answer lies in the very reward systems that are designed to drive innovation and excellence? Yup, that’s right. The very systems we implement to drive innovation are the very systems holding back the next wave of performance gains we so desperately want.

In particular, there are two aspects of our performance management systems that can cause such an unwanted and unexpected outcome:

The first, relates to how we set goals. Many organizations use external benchmarks and internal data to build their performance targets for a particular reporting period. The problem is that there is a big temptation to look at performance against the average or median of a particular reference group. Sure, we might look at top quartile or top decile, but in the end its human nature to shrug these off as coming from companies that are “way too different from us”. There’s also a tendency to err on the side of “achieve-ability” or “attain-ability”, the notion that we shouldn’t set the bar so high that no one will achieve it and subsequently end up discouraged and de-motivated. No doubt, setting the right goal is an art, and setting goals too high can get you into trouble. But erring on the short side of target setting can be equally destructive. The key to getting this right is to simply have two progressive sets of targets – one based on driving a smaller set of incremental improvements, and other at creating major “jump shifts” in performance. When combined with the right reward mechanisms (discussed below), the two-tiered goal setting philosophy can really help drive that next level of innovation.

The second factor driving performance mediocrity is the reward system itself. That is, what happens when the goal is attained? Our old friend B F Skinner had a lot of great insight on this subject…enough to fill a small library. But here are a few highlights to chew on. Is your reward system based on punishment (the infliction of a negative consequence for failing to meet targets) , negative reinforcement (absence of a negative consequence for achieving targets), or positive reinforcement (giving a positive consequence for achieving results)? Is the schedule for reinforcement (when, where, and how much reinforcement is delivered) predictable or varied? Do you reward different tiers of performance differently? Is the gap between average performers and superstars too small? Is there an implied ceiling in your reward system where there is no benefit for pushing farther?

These and other factors drive what disciples of Skinner call “just enough to get by performance”. For example, the difference between punishment or negative reinforcement (e.g. “achieve this level of performance and you get to keep your job”), and a positive reinforcement (a sliding bonus schedule for meeting, beating, and exceeding expectations) can be enormous. The former keeps the employee’s eye on the standard that will allow him to not lose his job- usually nothing more, nothing less. Not exactly what you want if a paradigm shift is what you’re looking for.

Similarly, having a varied and unpredictable element to your reward schedule can also be a big help. Skinner showed clearly that while “static interval” reward schedules do work, they tend to drive “hockey stick “ performance in which performance accelerates toward the end of reporting periods. If, however, a more unpredictable schedule of reinforcement were added to the scheme, a more sustainable and increasing level of performance would be observed (anyone remember Skinner’s pigeons?).

Some would say these kinds of tactics are a bit too manipulative. To me, that a load of #$%^@!. Human beings react to rewards, punishments, and any other kind of scheme you throw at them. In fact, you probably already have reward systems with these elements built into it. The only difference in what we’re describing here is that we are deliberate about it. We name the ambitious performance levels we want to attain, and we design the reward system to accomplish it. Manipulative? You bet.

So as you visit your local grocery store, doctor’s office, kid’s classroom, or your place of business- look, listen and learn from their mistakes. Then try applying some of these principles. The possibilities in performance are endless. We just need to be smarter about how we set targets, and how we reward those who achieve them.

How many timeshas your company asked you “What is ‘Utopia Limited’ doing well in the area of asset management?” Or “How does ‘Neighbor Industries’ manage its supply chain?”. “What about Perfecto International?- what are they doing in the area of employee retention?” Sound familiar?

Hey, there’s nothing wrong with wondering how other companies approach certain areas of there business. After all, we’re taught by our leaders and mentors to be open to new ideas…to be “out of the box” thinkers! So why do I poke fun at this kind of best practice exploring?

The short answer is that the pursuit of best practices should not begin with looking at practices. Sound strange? Ironically, best practices should be the last thing on your mind when you begin your exploration. Why? Because industry is littered with companies who have implemented ideas they “think” might work, with little or no grounding to them. In reality, many of these practices end up failing miserably. But because they are implemented within big name, or strong brand organization, they are picked up by their peers without a second thought. After all, who’s gonna argue if you implement a practice straight from the management of Perfecto International?

All joking aside, I’ve spent a lot of time in the power industry, and have watched the likes of Duke Energy, FP&L, PG&E, and others in the big name class, dominate discussion at best practice sharing forums. I’m not saying these companies are not good at what they do, nor am I saying that some of their practices are not downright super. What I am saying (with quite a bit of experience behind it) is that if you only looked at these companies, you’d be selling yourself way short. And you’d be implementing many practices that have a lot to be desired in terms of the value/ cost tradeoff. Our research has shown less that 20% of true “best practices” originate from big brand companies. Most emanate from their smaller and far more nimble competitors. Real food for thought if your in the business of finding best practices.

What we preach extensively to our clients is that companies should start with a good picture of relative performance. From there, you can isolate two or three companies that really stand out. I’m not talking about companies that look 5-10% better on the surface. I’m also not talking about companies that achieve high marks simply because they are four times your size and have an implicit scale advantage. I’m taking about companies that, all things being equal, stand out like huge anomalies. (aside: normalizing comparisons here is a BIG MUST and will be discussed in future columns), You poke and prod at these indicators and when you’re relatively confident that its not some structural difference driving the gap, then you’re probably onto something. Talking to a company about practices at that point will not only yield a treasure chest of ideas, but ideas that are also likely to have some real economic value to them.

Why don’t more companies do it this way? Well, like anything else, it takes time, skill, and patience. And in a world that moves at lightening speed, we all look for short cuts. But in the end, the right approach usually prevails. In this case, that translates into fewer implementations that go south, fewer false starts, less time aimlessly searching for ideas and more time understanding the practices that count.

As you move forward in your hunt for best practices, try starting with the data, and allow the benchmarks to be your “tour guide”. It will save you a lot of time, and generate far more valuable results.

The other day, I wrote quite extensively about the importance of PM communications in building alignment and effecting change. Here’s a little ditty to drive home the point.

Yesterday, my wife asked me to run an errand and pick up a few items from the local “Target” (which she mockingly pronounces Tar-jey out of respect for my beautiful French heritage!). I needed to get in and out quickly, so I waited by the door and entered at 7:30 sharp, just as soon as the doors opened. As I walked briskly toward the dairy section, I heard an interesting announcement over the loudspeaker: “Would all Target staff report to register 8 for the ‘morning huddle'”.

I got my stuff and headed toward checkout (register 8, of course), and found myself surrounded (quite literally) by about 50 people, with enthused expressions on their face, awaiting this “huddle thing”. The woman at register 8 checked me out and quickly rejoined the group, trying not to miss much. It piqued my interest, so I decided to eavesdrop a bit.

What amazed me was not the concept of the daily meeting- most every manager that’s worth his salt does something similar to this. No- what was unique was the content and style of the meeting. Here’s a brief summary of what I observed:

– a brief and focused rundown of what I suspect were Target’s Targets (Sorry for such a bad pun!)– a highly focused set of performance indicators that appeared to align with what was important to their store’s short to mid term success- weekend sales, product turnover goals for specific inventory items, signup goal for one of their store credit cards, results of a recent CSAT snapshot- things like that.

– reports for each indicator were presented by different staff members– many were obviously “bought into”, and directly involved in the management of these goals

– It was quick and painless– everyone standing- it didn’t drag on. Not a lot of discussion of what worked and didn’t (with the exception of a few important items from the front line), but rather a quick “here’s where we are NOW and what we need to do going forward (SHORT TERM)”.They kept the analysis and detailed discussion for later, probably off line. This was a communications meeting, but with the involvement of many.

– The focus stayed on the customer– never for one minute (even though I was a bit “engulfed” by this attentive group) was I “left hanging” during the checkout process. Nearly everyone smiled, said good morning,…then resumed their attention to the team leader. Two or three of them were ready to man whichever register I decided to walk toward.

-The environment was very “open book“. This wasn’t a closed door session or a set of “confidential management-only reports”. In stark contrast, this was done right there out in the open, by the front registers, which I concluded was very deliberate.

-The communication was undoubtedly continuous. This was a daily exercise…part of their routine. As a result, I bet very few breakdowns have time to fester given the apparent frequency of these meetings and reports.

Those are just a few of my observations. Skeptics would say “we do that too”, or that this was probably just part of their “honeymoon period”. Maybe so. But there are enough differences between what I observed here, and what I see playing out day by day inside the organizations with whom I work. Enough so, that I was compelled to watch, listen, and identify some of the differences.Food for thought. Take what you like and leave the rest.

Oh yeah- and Eat Your Heart Out COSTCO !!!

Several years ago, I was given the challenge of facilitating part a company through a large scale restructuring initiative. One of the main reasons that our firm was selected had to do with our considerable expertise in the area of performance diagnostics- a fancy way of saying that we were pretty good at “sizing up” hidden value (cost savings or service level improvements) that could be released through various process improvement initiatives.

As was the practice at our firm, the principal consultants on the project each took part of the business and led their respective team(s) through a process of defining appropriate measurements, baselining their performance, benchmarking them against “best in breed” competitors, analyzing gaps, assessing best practices, and building improvement plans. For consultants, this drill is pretty routine.

Well, the routine was about to change, and did change for me the minute I stepped foot off the airplane to start the engagement. You see, while all of the other consultants were given typical business functions as ‘their team’ to facilitate, your’s truly was given a few real winners- Internal Auditing, Risk Management, and Corporate Planning. I’m rarely one to whine about the cards I’m dealt, but this was a little nuts. How would I even begin to define measures for these functions, not to mention the later stages of baselining, benchmarking, and gap analysis? Someone either had a lot a faith in me, or was setting me up for something nasty.

Ironically, it turned out to be one of my favorite assignments. While the team I led was about as excited as I was, we all decided to approach it as a challenge…a chance to break some new ground.

While there are probably as many opinions about how to measure these types of functions(functions that are distanced from the end customer, with workload that is largely discretionary, and few if any tangible “widgets” produced), we decided to focus on what we eventually referred to as the three C’s: Customers, Competencies, and Critical Path.

Customers: For us, this was a logical place to start. Since these functions were quite removed from the end customer, we needed to define a surrogate customer of sorts- constituents whose business performance and survival was dependent on the business function being measured. The audit committee of the board, plant managers with P&L accountability, Business Unit Leaders, for example. From there, a service level agreement complete with performance standards served as the blueprint from which our baseline and benchmarks were then derived. In many cases, this was the first time the real customer had been identified- so it wasn’t uncommon to find a number of key functions that weren’t even on the customer’s radar screen. Some would fall off the board all together, as the customer would deem certain functions (often performed for years prior!)unnecessary going forward.

Competencies: Most functions like these require niche professional skill- truly unique disciplines. So the next logical place for us to go was to build a competency profile. For example, if the company wanted to have a “crack” internal audit staff (to serve the workload demanded by their customer of course!), a good yardstick of progress would be a performance measure that indicated the presence of specific competencies and expertise. These could be “soft” measures such as the presence of certain skills, or “hard” indicators like training hours or continuing education credits.

Critical Path: This was simply an indicator of progress against critical projects that emanated from the customer’s expectations. These indicators were different from the rating given by key customers and/or performance against negotiated service standards. Critical Path indicators dealt with very specific and key initiatives that were central to that function’s annual plan. While these may have been redundant in some cases, the team felt they were worth the added weight and specificity in the overall framework.

In the end, we had a balanced set of measurements that provided a clear picture relative contribution. Measures that could be clearly identified, counted, benchmarked, and used as a guidance system for gauging their long term performance.

Some would say it’s not perfect, and few performance management frameworks are. But it did serve the purpose of getting these functions involved in the restructure in a positive way, and initiated a significant improvement in the business contribution of these functions.

A far cry from – “you can’t measure us, we’re too different!”