Performance Management – Why Now?
Helen Mallovy Hicks
Philip Townsend, a PwC Advisory Services partner, and Kevin Wennekes, vice-president of research with the Canadian Advanced Technology Alliance (CATA), discuss why performance management is important in both good and bad financial times.
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.
Dean: The current state of the economy is understandably of great concern for most Canadian businesses. This series of audio podcast discussions with a variety of subject matter and industry guests are designed to help your business weather the storm by exploring some of today's hottest issues related to the economic crisis.
Dean: Joining us for part one of our two part serious of performance management are Philip Townsend, a partner in the advisory services practice and leader of the performance management group. Also, Kevin Wennekes, vice president research for the Canadian Advanced Technology Alliance.
Helen: PricewaterhouseCoopers and CATA, the Canadian Advanced Technology Alliance as well as the Telfor school of Management, University of Ottawa has just completed a study on performance management. Philip maybe you can tell us a little bit about the study, who did you study and what were you studying?
Philip: Performance management means a lot of different things to different people and in this area we believe that performance management is a key tenant to good management, whether you’re in the private or public sector. We felt that it was important to do some research to really root out what are the key performance challenges that organizations are facing and what are they doing that seems to be really working well. In structuring the study we wanted to answer five fundamental questions. Do performance management practices play a significant role in driving performance? And if they do, what aspects are contributing the most value to the organization and to their results? Do these practices contribute equally, in terms of organizations facing challenges in the marketplace, as well as in buoyant economies? Is it the same for everyone or is it different in terms of the impacts on different industries, different size of organizations and ultimately what you need to do, what is the most practical way to implement a performance management system that will drive results and help us with performance.
Helen: And what corporations participated in your study? I think you had quite a number, where they Canadian? Public? Private?
Philip: There were actually two surveys. One was focused on the private sector and the other on the public sector. It involved organizations from around the world, somewhat Canadian centric. We had over 400 respondents to the survey, large, medium and small organizations. Publicly traded and privately held, it presented a good cross section of industries across the entire spectrum.
Dean: Did you see varying results across that spectrum of participants in the study?
Philip: To some extent we did, but what also struck us was that it wasn’t so much different across industries although there were some unique differences. But organizations that are in what we defined to be high performer groups are basically doing the same things as a category in they are also doing them really well and they’re seeing the benefits of those exercises and focused on using performance management to drive the results.
Dean: So be it big or small, good companies are doing similar things and that’s why they’re good.
Philip: Absolutely, there are some challenges as you get larger and maybe later on we’ll talk about differences in terms of scales, but we’ve also found that organizations as they get larger face more challenges and there’s a bit of a tipping point somewhere around that billion dollar revenue where organizations have to really get more sophisticated about their approach on performance management.
Helen: So Kevin, maybe you can tell us, big picture – what did you find from the study? Do effective performance management practices actually lead to superior performance?
Kevin: Yes, I would say unequivocally yes. We find that high performers across the board compared to low performing companies are much more effective in entering new markets, developing new products and across a number of different PM practices consistent applications by higher performers that was over and above our low performer competitors set.
Helen: And what sort of performance manager characteristics did you find contributed to this superior performance?
Kevin: Well we identified through the study seven key areas of performance management practices. Just to very quickly to list them, taking a broad holistic approach, creating linkages in integration, building broad support for the PM effort, adopting high value planning practices, turning analytics into competitive advantage, developing advanced PM technology abilities and avoid making it too complicated were very clearly the seven areas that we found the high performance were most effective in implementing and measuring and managing.
Dean: Did these high performers realize that they were doing all these things or did it just happened, engrained in their processes over the years?
Kevin: There is some clear intent to engage in performance management practices so the organizations made a concentrated effort to engage in these particular practices. The actual findings in these seven categories identified by the analyst team and looking at the overall results and identifying where were consistent application of practices and how can we define that in these broader categories. So yes, these companies were intentionally setting out to engage in a number of these initiatives but I wouldn’t say there was a single company that engaged in all of them and could be held up as a shining example. But certainly most high performers were conducting most of these seven key PM practices.
Philip: It’s a very interesting question and for the purpose of the study to support basically our hypothesis is that we divided the organizations that responded to the survey into three categories, low, medium and high performers. And we really focused on understanding the low and the high and for the purposes of the study we ask the question of the private sector – How are you doing against your competitors? How are you doing in your space in terms of market share? And on the public side we asked, how are you doing against your budget? In terms of trying to asses and classify them into those categories? And what was interesting is that it became very clear in based on the analysis of the data, that high performers were doing certain things as compared to the low performers group and they were doing them much better.
And they also threw the questions that we asked in the survey were clear to identify that they were seeing the benefits the outcomes, the way it was impacting their organization. What was also interesting that we couldn’t get out of the data through the survey were the interviews with senior executives, where they through an hour and a half, two hour discussion with us clearly communicated that they were doing these practices and applying these practices within their organizations for a reason. That they were very calculated and they were in fact seeing the benefits of that and many of them commented on how they haven’t done so badly in this downturn. And many of them said that they’ll be stronger when they’ll emerge.
Helen: All of our companies now in the downturn are concerned about costs. So what about the cost associated with the performance management practice? Does it make sense to either implement a PM practice of system or how is that system going to help the company in the downturn?
Philip: I think through the survey and actually going into the study as well as the way we felt about PM generally before the study, it’s applicable in good times and in bad. And an organization that responded to the survey, the discussions we had through the interviews said that cost cutting is not the ‘be all end all’ and in fact it can be very, very detrimental to the organization. It can actually reduce or take away the company’s ability to perform at a higher lever as a result of cutting to the bone basically in some cased or even further. So I think it’s a question of using performance management to think strategically but act tactically.
Dean: Just to get back to the study for a second. I’m a big fan of human behavior. So you have these high performers and they’re not high performers by accident and that’s becoming quite clear through the study. Your low performers, did you have any dialog with people where they kind of rated themselves as a high, low, medium performer and if you did, or if you didn’t would the low performers be surprised that they were low performers?
Philip: The way the survey was structured was that we asked a series of questions across 46 different performance management approaches and tools and we asked each of the respondents to basically self rate themselves. And that was the basis for classifying those companies and organizations into high, low and medium. I think those organizations that were low performers, are not surprised that they’re there. And those organizations that are high performers, they’re there because they’re doing these activities and they’re doing really well.
Helen: And did they understand that these activities were what made them perform on the high end of the scale?
Philip: I believe so, because they clearly understand that market share is important. Closeness to the customers and really understand what is driving value to their customer is top of mind, front and center in terms of focusing their energies, initiatives, their planning and strategy. What was already interesting in the high performance group there was a clear delineation between how their vision and mission was driving behavior the way that it resonated internally as well externally and these were all key to getting the alignment between their strategy, their plans, their initiatives and the way they measure and reward their people.
Dean: The participants in the study, was it generally top people that were responding to this or was it throughout the organization. There’s variance throughout the bottom to top in an organization.
Philip: The survey was open to anyone that was interested in participating. But what we were very struck by was the representation of the top people; right to the board was extensive. In excess of 50-60% of respondents were them and about 14% of were in the board of directors. So it was obviously something that they were interested in and we also had no problems getting times with executives to probe deeper. In some cases we spent two or three hours talking to some very, very senior people in the Canadian business community to get their perspectives.
Helen: Kevin, where did you find from your study where there were aspects of performance management practices that contributed more to value? Are there more critical practices that really ought to be followed by more organizations?
Kevin: Putting a judgment call on that, coming from the industry I would say I do. There is probably a greater need for companies to adopt technologies solutions in the management of their performance programs. We found a huge number of technologies that were not being used at all in the implementation and a very large reliance on spreadsheets and paper reports to measure the impact of performance measures. So, I would say that more effective use of technology would certainly enable an organization to be more effective in measuring their performance.
Dean: Measurement is important right? So you can’t manage what you don’t measure. But I find a lot of organizations that get analysis paralysis data just coming out of everywhere and they don’t know what to do with it. So do you find some similarities on high performers and low performers just around that aspect and how they deal or how they cope with it?
Kevin: Certainly we’ve found that analysis paralysis to be an issue. In fact one of our key seven findings is to avoid making performance management too complicated and one way that readily happens is looking at seven different measures, one product line, and one service line and cascading that out to too many employees. So, yes you have to certainly keep that as concise a measure as possible, very controlled and again using the technologies that are available so companies could get away from the manual liberations’ of spreadsheets compilations, manual headcounts and move to more of a technologically innovated approach to measuring performance and allowing these enterprise wide dashboard systems to help you synthesize and with a very quick snap shot take a clear picture of how your organization is functioning at this moment in time.
Dean: And I guess Phil it just goes back to the point you made earlier, when a company gets to a billion dollar in sales it becomes a little bit more complicated along the performance management matrix. I guess the systems of technology that you’re speaking about become even more integral in that aspect for a large company because engagement of your employees, of your management and what’s happening on a day to day basis becomes a little bit more challenging to manage.
Phillip: Absolutely, I think organizations when they’re small, the executive, managers and the owner can walk the halls and get a pretty good pulse on what’s happening. But at some point you get to a certain time and complexity that you can’t do that anymore. I think part of the key top success is making better decisions, faster and if you don’t have information and you don’t have the data support for the information you aren’t going to do that. You’re not going to be able to detect the early warning signals that are coming at you in terms of changes in the market, changes in your customer base, what’s creating value, what’s not creating value anymore? I think that without some of the tools that Kevin has referred to that can be served in an efficient, timely, real time way, without that, I think you’re going to have a tough time competing against those organizations that we would classify in the high performing group.
Helen: Phil you mention that there are possibly different tools or different needs depending on the size of the organizations. What about performance management tools or systems, are they any different, are there any key aspects where companies should be focusing on now in a downturn that might be different from an upturn for instance?
Phillip: Where you need to focus is really where making sure that your metrics are focused on what is creating value for your customers? And have that outward focus in terms of how that value is being created, where is it being created and who is it being created by? And use that as basically your mantra to design your measures that you need to look at and understand on how the business is performing. It’s a challenge in it of itself to implement the technology, but you can’t implement the technology, if you haven’t applied the right measures and you can’t define the right measures unless you understand what is really driving your business fundamentally.
Helen: Okay, I think we’re running out of time and I think what I would like to do right now is ask Philip and Kevin if you each could leave our audience with your thoughts on key findings from the study.
Phillip: If you take all of our findings from our study and sort of synthesize them down, some organizations are well on their way to embracing and implementing performance management, others haven’t even started the journey. I think do have to look at is as part of the journey. And to get started and sustain performance management you have to have support from the top. It’s the tone of the top, it has to have that executive and it has to have that board behind this and to the extent of those people are behind it and sustain it, this will help your organization into that high performer group. If you don’t have that support, don’t start but also face that reality that you may fall into that low performing group whether you like it or not.
Kevin: From my point of view, again performance management can and should be implemented by any size organization, our alliance skills with Canadian industries of all size and quite often you’ll hear them say “We’re such and such size, so performance management isn’t really issue for us. We can just count how many heads showed up and what our sales are at the end of the day.” But as mentioned before, using instinct to manage a performance, I think is definitely on its way out as more regimen, as more practices require keeping your organization afloat, especially during these hard economic times. I think organizations big and small should be looking at how we can rationalize and how can we implement a performance management process that’s right for us. This study can certainly help provide some guidelines and a framework to work from in comparing what are we doing and what do we need to do in the future.
Dean: Philip and Kevin thank you very much for joining us today. For information on performance management or to download a copy of the 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 www.pwc.com/ca/managinginadownturn.
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