7 Practices that Drive Superior Results
Helen Mallovy Hicks
Release date: July 2, 2009
Hosts: Dean Mullett and Helen Mallovy Hicks
Guest: Stuart Smith and Gregory Richards
Running time: 19:42 minutes
Stuart Smith, a former vice president in PwC's Advisory Service practice, and Greg Richards, the Cognos Professor of Performance Management with the Telfer School of Management at the University of Ottawa, discuss the seven key practices of an effective performance management strategy.
Dean: Welcome to Strategy Talks with Dean and Helen, part of the PricewaterhouseCoopers Managing in a Downturn podcast series. I'm Dean Mullett, co-head of our Restructuring and Distress Strategy Group, and a member of our Credit Crisis Task Force.
Helen: And I'm Helen Mallovy Hicks, a Partner in the Advisory Practice of PricewaterhouseCoopers in the Dispute Analysis & Valuations group.
Helen: Joining us for part two of our two part series on performance management are Stuart Smith, a vice president in the advisory practice of PwC Canada and Greg Richards, the Cognos Professor of Performance Management with the Telfer School of Management at the University of Ottawa. They discuss the seven key practices of an effective performance management strategy. Welcome Stuart and welcome Greg.
Dean: So today we take a deeper dive. Why don’t we take a closer look at the seven key performance management practices that drive superior performance? Stuart why don’t you kick us off with the number one?
Stuart: Sure the first one as we’ve referred to it as taking high holistic approach. What that means is when we compare the high performers to the low performers that pretty much everybody was focused on some core things, like having a competitive price structure and focusing on managing their cost structure. What we found was that the high performers took a much broader view of their business and focused more on a much broader range of business drivers. So on an overall basis they in fact placed 17% higher importance across this broad range of business drivers.
Dean: So when you say they placed more importance on it, the lower performers didn’t focus on these areas at all or just didn’t rate them as being important hence in drive the performance they were looking for?
Stuart: Yeah, they didn’t rate them as important which there for they weren’t focusing on those areas as much.
Helen: Greg, the second key performance management highlighted from your study was creating linkages, integration and alignment; what does that mean?
Greg: It’s a theme that’s common in organizational performance management. We talk about aligning vertically and horizontally through the organization. What it means specifically in terms of the findings for study and there are a number of areas that are important but probably the top one is this notion of cascading accountability. So what it means specifically is that measures that are relevant and controllable people are cascaded from the organization through the team through the individual level. So people can fundamentally see how what they’re doing contributes to organizational goals.
Dean: So part of it is that each individual has a personal plan and that ties into organizational overall plan to low linkages there. Their grassroots activity supports the overall big picture.
Greg: That is correct and the outcome of that really is that people aren’t wasting time on doing things that don’t influence the objectives of the organization.
Helen: Cascading sounds like vertical alignment, what about horizontal alignment and practices? Anything important from that aspect?
Greg: Similar the idea, you’re realizing that when you’re cascading down, you’re cascading down from something. The something is the organization’s mission or strategy or what have you so this horizontal comes into play that all units are aligning what they’re doing to that over all mission.
Dean: Successful companies as the third of the seven objectives aligned build broad support for the performance management effort, what does that exactly mean and how do companies achieve it when perhaps some people have their own agendas, their own objectives etc?
Greg: You hit the nail on the head with that. It starts with the tone from the top, so it has to be driven from the most senior level of the organization. The senior executive team needs to be aligned in terms of what is there strategic direction and how are they going to employ performance management to drive that.
Helen: How about the fourth key finding, Adopting High Value Planning Practices, are there planning practices that are higher value than others? What do we mean by this finding?
Greg: The approach here is when we talk about alignment we talked about it in terms of cascading and so on. Here though the planning practices that we’re talking about are organizations that are very good at taking their missions and their vision of values and ensuring that everyone in the organization has a good understand of those things. So high value planning practices ensuring that the processes that we put in place understand our outcomes and our drivers of our outcomes are very well understood. Low value planning practices where year to year we take a budget and we increment it by 5% and say that’s what we’ll do next year. High value planning practices are always thinks to bring the customer in, low value planning practices tend to be internal, moving out and that was just increment our budget as opposed as to really thinking hard of what we should be doing.
Helen: The study found some interesting data that these planning practices found that performers reported 31% greater effectiveness overall with high value planning practices. How do you measure something like that?
Greg: Well what we asked them is how effective are these practices in your organization? So the low performers were basically telling us that they not very effective and the high performance were saying very effective and we’re getting some value out of them.
Dean: So just a second, people are saying that they’re not getting any value out of them but they’re still using them?
Greg: Of course, that’s the definition of low performers isn’t it?
Dean: I guess maybe you should have mirror when you go see some of these people so they can look in the mirror and see how silly that might look.
Dean: If we take a look at perhaps analytics, a lot of companies spend a lot of time, invest of money in analyzing situations, analyzing data yet do they do anything really productive with this analysis? I guess we can talk about creating competitive advantage with analytics.
Greg: Sure, I guess everyone asks about analytics. And we asked about a whole series of analytical practices and what we found is that the high performers focused more on three specific types of analysis and they included – data mining, so they had rich data sets to explore to gain insights about opportunities for improvement or potential risks that they were facing and take more proactive action against them. The second on was one that they used alerts and early warning systems. Which is a technique or a tool that leverages your data and your understanding of your business drivers to give you an earlier sense of things requires proactive management attention. The third one was around driver based forecasting. They used driver based forecasting both as part of their planning practices and as well a part of their analysis and even their strategic planning practices. So from those three what we found is that the high performing organization were far more effective in the way that they used those compared to the low performers.
Dean: On our previous segment we talked a little bit of technology enabling you to gather this data and analyze it etc, I’m assuming then by data mining early warning systems there’s got to be a big technology and to that as well to make it easy and effective for the organizations doing.
Greg: Yes, absolutely and that leads us into our sixth major key performance which is developing advanced performance capabilities. What we did learn is that most organizations good and bad still make extensive use of spreadsheets and that as far as we can see won’t go away anytime soon.
Dean: Manual spreadsheets?
Greg: Manual spreadsheets, yes. However, having said that the high performers were making far greater use of some of the more advanced tools such as dashboards. So back to your comment about the analysis, if they results of the analysis are served up to you in a dashboard that focuses you on those items that require your attention then you’re much better informed in making a better fact based and timely decision.
Dean: When we look at these seven key principals and you look at various industries or various public organizations, government organizations versus private organizations, are you seeing a difference in these performance management areas and are they common, the seven the same throughout these organizations?
Stuart: Yeah you’ve hit on an interesting part on our report that we refer to as universal truths versus key differences. We have sliced and diced the data across a variety of dimensions. We looked at industry, size, public sector versus private sector and we looked at Canada versus the world. What we found was that the seven key performance practices applies equally in all of those scenarios but how you go about implementing the details is where we saw some differences. So for example, in some industry certain drivers of performance are much more important than other industries and therefore those industries tend to build their measurement more around a different set of drivers. But they’re still doing that measurement in a very effective way, that’s where the commonality is.
Dean: Greg, around the public sector side of thing, what Stuart is saying there does it still apply to the public sector?
Greg: Yeah, we separated that sample set into high and low performers as well. The high performers basically indicated that they did in fact apply the seven practices. A thing that challenges the public sector environment is this notion of alignment that we’ve talked about earlier. That the bottom line is often not there in a private sector environment you have a profit and loss statement. Public sector environments don’t tend to have that. So one of their challenges is figuring out what is a proxy for bottom lined measures so they can go ahead with that alignment, without the measures it’s very difficult to align.
Dean: And what type of proxies do we see public organizations using to guide themselves by?
Greg: It depends, being in mind when we say public sectors we’re talking about a wide range of organizations. So think about your municipal level where they’re clearing snow for example. We can measure whether or not your streets have been cleared and you’ll certainly know when you try and get out of your driveway, yes? So some organizations can create very quick measures and others if you think about national defense for example, what measures do we have to tell us that we are using a good job? That we don’t get bombed to smithereens? So those organizations have to think hard about what proxies we put in place to tell us we’re doing what we need to be doing.
Helen: Having heard the seven key performance practices and thinking about organizations that maybe don’t have a good performance management system, what do they need to think about from a very practical, pragmatic perspective to implement an affective performance management program.
Stuart: What we found is the first absolute must have is having that commitment from the top of the organization and if you don’t have that it’s difficult to get started. So that is the starting point in the broad based consensus in buying that we talked about. The second I think is that some organizations fall under the trap of saying “If this integration and the alignment piece is so important maybe we should try and fix it all at once.” And that becomes very difficult, if not impossible to do and it becomes an overwhelmingly large and complex project. So what we suggest to organizations is that they think about where they want to be in one to three years in terms of where they are today and where they want to be in terms of their performance management practices and then they start to break that down into smaller manageable chunks.
We would suggest based on our research we think about our seven key practices and think about those first because what we have demonstrated that those are the most important ones for driving value. But if you then take what you need to do and break it down into to small manageable chunks that you can deliver additional value to the organizations every two to three months with enhancements to your metrics or a change into your planning process or better linking your compensation programs to your metrics. Then what you will do is build the momentum for the performance management program in a series of manageable step by steps that are leading you towards where you want to be.
Helen: Greg do you want to add something to that?
Greg: From my perspective, just building in with what Stuart was talking about. We have to do with a performance management program what a performance management program does for the organization. This means somebody has to be responsible for it and accountable for growing it and evolving it otherwise it dies on the vine. So part of the approach that is required once you have laid out your wants in your plan, you understand what the key components are that you need to put in place, you need to make people accountable for putting this into play and having it deliver value to the organization.
Dean: Over the last few years we’ve read a lot in the press about productivity gains in Canada versus the rest of the world. So performance management obviously is a key driver of productivity gains and what we saw was that Canada wasn’t keeping pace with some of these productivity gains. The world has kind of flattened out and it’s much more competitive than it used to be. So in your study how did Canada fair against the rest of the world?
Stuart: That’s another interesting question and our findings kind of mirror what you just talked about. What we saw even when we saw high performers in Canada their performance management practices lagged in those high performance in the rest of the world. It wasn’t an enormous amount but it was significant still in our view and suggests that Canadian companies have a real opportunity or a need in a fact to work on bringing their performance management practices up closer to international standards. It wasn’t all bad news for Canada though; we did also see that Canadian organizations are better at overcoming at some of the barriers, specifically around building consensus and getting that commitment from the top of the organization so what it’s saying that people in Canadian companies are thirsting for this. The management teams of those organizations need to move forward a little faster in order to maintain their international competiveness.
Dean: Just as a take away for some of our listeners, Canadian businesses are getting at the sneeze to be focused on, are they getting it from the perspective of it’s key to our survival going forward in the world that we’re in today?
Stuart: Really good question. To me performance management in the long term is a survival issue. In terms of survival in the next one to two months it’s probably not. If you want to do more than do more than survive, if you want to be a leader in your industry if you want to increase your market share, have better margins, have happier more productive employees, these are the tools and techniques that get you there. To me that’s the kind of organization that I would want to work for and I think they’re the ones that will ultimately attract people, the high quality talent that ultimately drives companies forward. It is a very much a self fulfilling and a self reinforcing kind of process.
Helen: So we’ve actually talked about six of the key performance management practices, so I think we need to address the seventh. I think we did addressed it briefly in our first podcast but to our listeners who weren’t part of our first podcast, Greg can you maybe talk about the seventh key finding avoiding making it too complicated?
Greg: So we’ve talked a lot of things obviously related to performance management and it may seem like a big scary thing. The high performers have figured out what the program was and they understood how to keep it simple as they implemented it and move forward with their performance management approaches. I think what happens there is that senior managers who were pushing this have a really good sense of the full field of play, what are the all the pieces that we have to put in play and how to boil down to and take it one step at a time. So this is what we found, generally speaking the high performers were much better at understanding what needs to be done, when and getting it moving.
Stuart: I think the analogy that I often use is that sometimes we talk to organizations is that they say “Yes, we’ve got great of information” and they pull out a book and it’s a foot thick. It’s got answers to every question you could possibly ask. Then we say “Well, who actually reads that?” and they respond “Nobody….” When we are talking about keeping it simple is not producing reams and reams of information but giving people the right information that is relevant to them at the right place at the right time.
Dean: Greg and Stuart, thank you very much for joining us today, it’s been a pleasure. For more information on performance management or to download a copy of Performance Management Study: Performance Management matters, sustaining superior results in a global economy, please visit pwc.com/ca/pmreport.
Dean: This concludes this episode of Strategy Talks, part of the PricewaterhouseCoopers Managing in a Downturn podcast series. I'm Dean Mullett, thank you for listening.
Helen: And I'm Helen Mallovy Hicks. We hope you'll join us again soon for another episode. To download or to subscribe to this podcast series or to find more information on this topic, please visit our Managing in a Downturn website at pwc.com/ca/managinginadownturn.
The information in this podcast is provided with the understanding that the authors and publishes are not herein engaged in rendering legal accounting, tax or other professional advice or services. The audience should discuss with professional advisors how the information may apply to their specific situation. Copyright 2009, PricewaterhouseCoopers LLP. All rights reserved. PricewaterhouseCoopers refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership, or as the context requires, the PricewaterhouseCoopers global network or other member firms of the network. Each of which is a separate and independent legal entity.