Q&A On Performance Management Matters: Sustaining Superior Results in a Global Economy

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PwC's Philip Townsend and Stuart Smith discuss the recently released report "Performance management matters: Sustaining superior results in a global economy" by PricewaterhouseCoopers (PwC) in collaboration with the Telfer School of Management at the University of Ottawa and the Canadian Advance Technology Alliance (CATA).

With increasing demands on their time, management teams must prioritize effectively and focus maximum attention on activities that drive superior performance. To assist with this, many organizations have implemented a wide variety of performance management practices, but there have been varying degrees of success. This has caused some to question whether or not a strong performance management approach has sufficient payback to merit a significant degree of management focus.

In addition, all organizations are currently being challenged to manage effectively through the current economic recession brought on by the global financial crisis. As a result, the importance of effective performance management (PM) practices has been heightened even further.

To provide further insight into the performance management and the results of the survey, we sat down for a Q&A with Philip Townsend, PwC Partner, National Performance Management Services Leader and Stuart Smith, PwC Vice-President, Performance Management Services.

Why did you feel the need to produce this survey?

Philip Townsend: While there have been many studies that define leading practices in managing certain aspects of performance, there has been limited research that looks at performance management in a comprehensive and integrated way and correlates specific practices with superior strategic, competitive, operational, and financial outcomes. Our objective was to fill this gap.

What does the report discuss?

Stuart Smith: The report examines some fundamental questions:

  • Do effective PM practices play a significant role in driving superior performance?
  • If so, what aspects of PM contribute the most value to these results?
  • Do these practices contribute equally in both good times and downturns?
  • Is PM the same for everyone or does it need to respond to unique issues in different sectors or sizes of organization?
  • What do you need to do from a very practical, pragmatic perspective to implement an effective PM program?

Who did you survey and when?

SS: We conducted a comprehensive online survey of over 400 senior leaders in both the public and private sector. We followed this up with 12 in-depth interviews to explore certain key issues in more detail. The survey was conducted in late 2008, as the global financial crisis created an unprecedented sell-off in stock markets around the world, and the interviews were conducted in early 2009 in the midst of the global recession.

What was the number-one finding?

PT:What emerged loud and clear from the study is a call to action for all organizations — regardless of their current level of performance, or whether the economy is thriving or in a financial crisis — to implement or improve performance management into their organization because effective performance management practices drive superior performance.

SS: In fact that's one of our key conclusions. The study found that high performers outperformed low performers by 54% on average across seven different key objectives. For example, the high performers were:

  • 67% more successful in entering new markets
  • 61% more successful in generating growth through innovation
  • 51% more successful in introducing new products

What is driving that success?

PT: We found that high performers were 26% more effective on average across 46 specific leading practices related to planning, analytics, performance measurement, talent management and use of technology. While low performers were employing or attempting to employ similar strategies, they were not as effective.

SS: Not only are high performers executing more effectively on their performance management practices, they are achieving much greater benefit from these efforts. High performers rated the contribution of these practices 31% higher on average across 11 different strategic, competitive, operational and financial outcomes. The focus on effective performance management practices is a key driver in generating these superior outcomes.

What were the seven objectives?

SS: As we noted, high performance is driven by seven key PM practices. They include:

  1. Take a broad, holistic approach
  2. Create linkages, integration and alignment
  3. Build broad support for the PM effort
  4. Adopt high value planning practices
  5. Turn analytics into a competitive advantage
  6. Develop advanced PM technology capabilities
  7. Avoid making it too complicated

PT: There is a clear correlation between effective PM practices and superior performance versus the competition. Low and average performing organizations therefore should examine their overall PM approach, particularly in the seven key practices we identified as having the greatest impact. However, our analysis indicates that there are still considerable opportunities for even high performing organizations to improve overall performance through further improvement in PM practices.

How does Canada fair versus the rest of the world?

PT: The survey found that Canadian PM practices are less robust than in the rest of the world (RoW), but Canada is better at overcoming potential barriers. In particular:

  • Taking a broad, holistic approach — RoW high performers placed 14% greater importance overall on a broad array of business drivers, and in addition, report 5% higher overall effectiveness of their performance measures and management reporting related to these drivers
  • Adopting high value planning practices — Canada lags by 8% overall, with the largest gaps noted in use of value stream mapping and environmental or social responsibility plans
  • Turning analytics into a competitive advantage — Canada lags by 3% in this area
  • Developing advanced PM technology capabilities — Canada lags by 8% in this area
  • SS: On the other hand, Canadian high performers were more effective than RoW high performers in the following key areas
  • Creating linkages, alignment and integration — Canadian high performers outperformed RoW high performers by 3% in terms of ability to overcome barriers in this area
  • Building broad support for the PM effort — Canada outperformed RoW by 11% overall in this area, most notably in the area of senior management support for the PM effort
  • Avoiding making it too complicated — Canada outperformed RoW by 12% in terms of avoiding this potential barrier to success
  • These findings suggest that there is further room for improvement in the high performer groups in both Canada and the rest of the world

What about public versus private?

PT: Actually, PM in the public sector is not as different as you might think. Many of the same concepts still hold-public and private sector organizations have strategies and plans, they must execute effectively against those plans, they measure and report on performance, and they need to attract and retain good people to help them achieve their goals.

Many of the characteristics of high performing public sector organizations were similar to high performing private sector companies.

So then how does a company implement effective PM programs or practices?

PT: A practical, pragmatic approach is to start by defining a clear vision that describes how performance will be managed within a realistically achievable timeframe (i.e. one to three years depending on size and complexity of the organization), and then identifying the gap between this vision and the current state of the PM approach. A sound implementation is typically based on a step-by-step approach to closing the gap in smaller, manageable components that deliver new capabilities and value on a regular basis every two to three months. The first few steps in this journey should focus on addressing the gaps related to the seven key PM practices that drive the greatest overall value.

SS: This systematic, step-by-step approach to implementation delivers short-term value and clearly establishes the "ROI". In addition, it builds momentum and consensus across the organization, and makes it easier as each step is taken. Organizations that attempt to do it all with a single "mega" project ending in a "big bang" of change often end up with a costly and ineffective result.

As the organization grows and changes, the details of the PM approach need to evolve with it and a continuous improvement effort is necessary. Many organizations have responded by implementing a chief performance officer (CPO) role to provide guidance on the ongoing evolution, and to ensure that each component of the program, in all parts of the organization, is properly aligned and integrated with all others.

Based on your experience and the additional insights learned from this study, if you were to be asked to use one word to describe performance management in terms of what it could and should benefit an organization, what would the word be?

PT: If I had to choose only one word, it would be "alignment". The power of performance management is unleashed when management actively manages the organization for alignment between its strategy, its tactical plans, the initiatives that are launched, the way these projects are managed, the way that the organization measures its overall performance and the way that it rewards, recognizes and compensates its people. To the extent this "alignment" is achieved, it will dictate whether an organization is able to sustain high levels of performance.