Effective performance management practices drive superior performance

"Knee jerk" reactions in the face of economic crisis do not work

June 2, 2009 — Do effective performance management (PM) practices drive superior performance? Absolutely yes, shows the results of a new survey from PricewaterhouseCoopers (PwC) in collaboration with the Telfer School of Management at the University of Ottawa and the Canadian Advance Technology Alliance (CATA), titled, "Performance management matters: Sustaining superior results in a global economy". According to the survey, those who achieved high financial performance were 26% more effective on average across 46 different PM practices.

The survey of more than 400 senior leaders in both the public and private sector around the world showed that not only are high performers executing more effectively on their performance management practices, but they are also 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.

Furthermore, according to the study those who had higher financial performance versus the competition outperformed lower financial 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

"Organizations with weaker PM programs are more inwardly focused, and more concerned about yesterday's results than on the future direction of the organization," says Philip Townsend, PwC partner, National Performance Management Services leader. "As a result, they are less likely to identify emerging opportunities or threats and less able to react in a sound fact-based manner. In addition, they are more likely to react to situations, such as the current downturn, with a 'knee-jerk' approach to slashing costs, which may compromise future success in better times. In contrast, organizations with strong PM programs are better equipped to forecast emerging risks and manage more proactively to mitigate the impact."

Scott McLean, a partner in PwC's Advisory Services adds, "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 PM practices has been heightened even further."

The survey found that, high performance is driven by seven key PM practices:

1. Taking a broad, holistic approach: High performers look at their business from a broader perspective than low performers, and build their PM programs to respond to this more holistic view. They place greater focus on issues such as creating accountability through performance evaluation (26%), brand image/recognition (22%), employee satisfaction (21%), product/service innovation (15%), service quality (15%), customer satisfaction (14%). The only area where high and low performers were comparable was in core issues such as competitive pricing and reducing the cost structure. Townsend notes, "In today's world, these are 'table stakes' that will not create a sustainable competitive advantage in the marketplace."

2. Creating linkages, integration and alignment: High performers were 16% more effective in overcoming challenges related to linkages and integration across their PM practices. In addition, despite their focus on a broader array of business drivers, they were 25% more effective in aligning their measurement and reporting systems with the key business drivers most relevant to them.

3. Building broad support for the PM effort: Cultural resistance is often cited as one of the key barriers to a successful PM program, and the survey results supported this view. High-performing organizations were on average 13% more effective in obtaining senior management support, building consensus and buy-in, overcoming cultural resistance and the fear of change, and breaking down internal silos to achieve agreement on what needs to be done.

4. Adopting high-value planning practices: Three specific planning practices were noted where performers reported 31% greater effectiveness overall. These included value stream mapping, vision, mission and values statements, and environmental or social responsibility plans.

5. Turning analytics into a competitive advantage: High performers are 43% more effective in their use of alerts or warning systems, driver-based forecasting and data mining. Townsend comments, "These techniques enable them to manage by exception and be proactive rather than reactive to emerging issues and opportunities."

6. Developing advanced PM technology capabilities: While basic spreadsheet tools are still predominant across all groups, high performing organizations report 23% greater effectiveness in their implementation and use of some of the more advanced forms of PM technology, such as dashboards and business intelligence tools that enable them to turn analytics into a competitive advantage.

7. Avoiding making it too complicated: While high performing organizations employ a wide variety of advanced practices and tools, part of the reason they are successful is that they avoid the potential pitfall of overcomplicating things.

"Our research demonstrates that organizations that apply integrated approaches to performance management clearly experience higher levels of performance on sustained basis," says Stuart Smith, PwC vice president, Performance Management Services. "Shifts in market forces and demographics will continue to compel organizations to find ways to engage their customers and people more effectively. Alignment between strategy, tactics and reward are the essential ingredients for success."

Copies of the survey and a Q&A discussion with Philip Townsend and Stuart Smith are available at www.pwc.com/ca/pmreport. For more information on PwC's Performance Management services please visit www.pwc.com/ca/pm.

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PwC Economic and Credit Crisis Task Force

PwC recognizes that a global crisis requires a global and coordinated view.

The PwC Economic and Credit Crisis Task Force (the "PwC Task Force") brings together a Canadian team of senior cross-functional experienced practitioners who understand market volatility and the diverse challenges facing companies today. By leveraging knowledge, experience and networks, the PwC Task Force can advise and guide Canadian companies through a multitude of capital market and economic crisis issues. For more information please visit www.pwc.com/ca/managinginadownturn.