Apply the strategic performance management ...

Measuring Business Excellence Successful performance management? Apply the strategic performance management development cycle! André A. de Waal

Article information: To cite this document: André A. de Waal, (2007),"Successful performance management? Apply the strategic performance management development cycle!", Measuring Business Excellence, Vol. 11 Iss 2 pp. 4 - 11 Permanent link to this document: http://dx.doi.org/10.1108/13683040710752698

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Successful performance management? Apply the strategic performance management development cycle!


Andre´ A. de Waal

Andre´ A. de Waal is associate professor at Maastricht School of Management, Leiden, The Netherlands.

Summary Purpose – This paper seeks to provide a method which increases the chance of successful implementation and use of a performance management system (PMS). This method should incorporate both the instrumental and behavioral sides of performance management, be based on a solid theoretical foundation, and have been proven in practice. Design/methodology/approach – The method is called the strategic performance management development cycle, which consists of three stages: design a strategic management model; design a strategic reporting model; and design a performance-driven behavioral model. The workings of the cycle are illustrated with a case study of a publishing company which used the method during the implementation of a new PMS. Findings – Applying the strategic performance management development cycle makes it possible for an organization to create in a short time period a new PMS, which will then improve the organization’s results dramatically. Practical implications – During the implementation of a PMS an organization has to expressly pay attention to all three stages of the strategic performance management development cycle, in order to increase the chance of a successfully implemented and used PMS. Originality/value – It has been reported that 56 percent of PMS implementations fail, meaning that these implementations do not result in a PMS that is used regularly by all people in the organization. This article describes an implementation approach which is based on a solid theoretical foundation, has been proven in practice, and will give organizations a better chance of a successful PMS implementation. Keywords Performance management, Publishing Paper type Conceptual paper

Introduction It is said that this is the age of extreme competition in which the combined pressures of global competition, technology, interconnectivity and economic liberalization make life for organizations tougher than ever before (Huyett and Viguerie, 2005). As it is the task of every manager to realize the goals of the organization by achieving outstanding performance in the unit they are responsible for, they are under great strain to deal effectively with these pressures. They are forced to ‘‘adapt faster and faster to growing international demands for flexibility and speed and to compete simultaneously on the basis of development cycle time, price, quality, flexibility, fast and reliable delivery, and after-sales support for their products’’ (Kasarda and Rondinelli, 1998). As a result of the aforementioned pressures and under influence of significant shifts in society, governmental agencies too are subject to change. They have to rapidly reshape themselves into nimble and flexible organizations which center on serving the interests of citizens, a movement which is known as New Public Management (Zeppou and Sotirakou, 2002; Pollitt, 2003).

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VOL. 11 NO. 2 2007, pp. 4-11, Q Emerald Group Publishing Limited, ISSN 1368-3047

DOI 10.1108/13683040710752698

In order to deal more effectively with the pressures and changes, organizations are looking for effective management techniques. There is growing consensus that effective approaches to management offer organizations competitive advantage (Lawler III et al., 1998). An increasingly popular management technique in this respect is strategic performance management. It has been calculated that new publications about strategic performance management have been appearing at a rate of one every five hours of every working day since 1994 and that there are now more than 12 million sites dedicated to this topic (Marr and Schiuma, 2002). Research has shows that regular use of a performance management system (PMS) leads to improved results (Hoque and James, 2000; Ahn, 2001; Sandt et al., 2001; de Waal, 2002; Bauer et al., 2004; Malina and Selto, 2004).


The strategic performance management development cycle Unfortunately it has also been reported that 56 percent of the performance management implementations fail, entailing that these projects do not result in a PMS that is used regularly by all people in the organization (de Waal and Counet, 2006). An important reason for this relatively low rate of implementation success is, according to many authors (Holloway et al., 1995; Brookfield, 2000; Franco and Bourne, 2002; Bassioni et al., 2004; Chenhall, 2004), the fact that too often behavioral factors of performance management are ignored. They are of the opinion that addressing these factors is crucial for the successful implementation and use of a PMS. It is therefore time to turn to a implementation method which incorporates both the instrumental (i.e. developing performance indicators) and behavioral sides of performance management, is based on a solid theoretical foundation, and has been proven in practice, in order to give organizations a better chance of reaping the full benefits of performance management. Such a method is the strategic performance management development cycle, depicted in Figure 1 (de Waal, 2007). The strategic performance management development cycle consists of three stages. In stage 1, design a strategic management model, the organization establishes the strategic structure which is the foundation for the development of the PMS. The starting point of each PMS is setting up a consistent responsibility structure. It is essential that there is consensus throughout the organization on ‘‘who is responsible for what’’. The roles and responsibilities of each management level are made clear, and the chosen management style is applied consistently throughout the performance management process. Based on their accountability, managers and employees can set up action plans for their own area of Figure 1 The strategic performance management development cycle

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expertise. High-performance organizations deliberately create clarity and a common understanding of the company’s mission, strategy, strategic objectives and strategic goals, which results in a commonly held strategic mind-set among organizational members. These organizations create a firm-wide understanding of individual, group, departmental and divisional contributions toward achieving the strategy, and clarity of purpose and action. They also make sure to build robust, resilient and adaptive plans by applying scenario thinking and ‘‘what-ifs’’ and drafting resilient strategic execution plans. In stage 2, design a strategic reporting model, the organization establishes the reporting structure with which the execution of the strategy and the progression of key business processes are monitored and adjusted. This stage consists of developing critical success factors (CSFs) and key performance indicators (KPIs); developing exception and action reports; developing a balanced scorecard (BSC); and setting-up a management information technology architecture. The implementation of CSFs and KPIs combines non-financial, leading indicators with financial, lagging indicators in one system. This way it offers management a balanced (scorecard) overview of the organization’s performance and a means to check whether the organization’s strategy is being executed successfully. The art of management is not to know everything that is happening in a organization, but to know what the key issues of the business are, keep track of them, and take action on them. Focusing on what is truly important entails: focusing on CSFs and KPIs that are crucial to the business; focusing on exceptional events or figures; analyzing financial and non-financial results; making corrective action plans; and estimating the impact of those action plans. A good performance management ICT architecture supports this process adequately. In stage 3, design a performance-driven behavioral model, the organization establishes the culture needed to become a performance-driven organization. By ‘‘performance-driven’’ it is meant a combination of performance orientation and professional excellence (Edis, 1995). This stage consists of establishing the characteristics of performance-driven behavior; aligning personal objectives with strategic objectives; and linking performance management with competency management. For an organization to thrive, organizational members must be able to get things done, to deliver on commitments, to follow up on critical assignments and to support and hold people accountable to their promises. Organizational members need to replace passive reporting performance measurement with proactive, results-oriented performance management. For this, they need performance-driven behavior. ‘‘Performance drive’’ is defined as a strong performance orientation of organizational members resulting in a drive for continuous improvement and better results. Human resource instruments (performance review, incentives, training, and development) are geared to help every organizational member to deliver outputs that are aligned with the mission and the strategy of the company. Implementing the strategic performance management development cycle is not done overnight. It is a gradual process in which organizational members need to be convinced of the merits of performance management and then get used to the new way of managing. It therefore requires a structured project approach. Figure 2 depicts the main steps of the approach for applying the cycle.

Applying the cycle in practice[1] With a turnover of more than 7.3 billion euro, achieved by approximately 48,000 employees, the graphical media industry is an important sector in Europe. In addition, graphic companies are large investors: almost 90 percent of them invests each year in new or updated graphic machinery. The number of companies has shown a slight decrease since 2001, the graphical media industry now numbers 3,200 firms. Publishers Ltd is the result of a merger of three publishers, creating one of the biggest publishing companies in the country[2]. The company is active as publisher of daily newspapers, free local papers, magazines, general and educational books, and magazines for specific market segments. Main problem for Publishers Ltd is the shrinking market. The circulation (number of paying subscribers) is decreasing and there are fewer advertisements which has a negative effect on revenues. The company is clearly operating in a saturated market with tendencies to overcapacity. This has resulted in increased price competition, pressure on the margins and

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Figure 2 Project plan for applying the strategic performance management development cycle

more focus on efficiency and innovation. Therefore the most important challenges for Publishers Ltd are increasing productivity and profitability, keeping up with technological developments, and developing new products and services. An important unit of the company is Publishers Printers Ltd (PPL) which prints two major daily newspapers and distributes these over the country. The unit has recently occupied a new building in Rotterdam with state-of-the-art printing and packaging facilities. Just as the parent company, PPL focuses on increasing efficiency and productivity in order to achieve cost reductions. The primary production process follows a line structure which means that each process follows the previous one in a sequential order, and the output of one department is the input for the next department. Unfortunately there are five different production systems with five different steering systems, on which each day five different progress reports are issued. This causes information overload which PPL is trying to solve by implementing a new PMS which should collect all data in one concise management report. PPL has a hierarchical structure but people interact mostly in an informal way. However, the management style – particularly on operational levels – depends a lot on the individual managers. In PPL much has been automated but people are still a crucial factor to produce the newspapers according to the unit’s motto: ‘‘The paper has to be ON time (not too early and not too late).’’ A strength in this respect is that nothing is too much for the personnel to get the paper out on time, which can be done because they are well trained and have a lot of expertise. A weaknesses is that people are not really motivated to change. This is characteristic of the printing industry as a certain degree of rigidity is necessary because the newspaper has to be produced on time day after day. The balanced scorecard project People on all levels in PPL lacked information to adjust and improve the primary production process and to achieve the strategic objectives of the company, which are to increase performance, efficiency, quality, and employee satisfaction. The many progress reports were not sufficient to report on the performance of each department in a concise way. In addition, there were crucial data missing regarding KPIs like Production Loss (papers unsuitable for sale) and Production Speed. To solve the information problem, a BSC was implemented. Unfortunately, this implementation was not a success because the company made several mistakes. It did not establish a great enough sense of urgency. Nor the entire management team nor managers on lower organizational levels were convinced that using the BSC would help them, and as a result they were not actively using the scorecard. Also,

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management seemed to have underestimated how hard it was to drive people out of their comfort zones in order to get them to change. PPL also did not create a powerful enough ‘‘guiding coalition’’. Not enough of the most influential people in the company shared a commitment to the BSC. A strong coalition of these influencers should have been formed, with shared commitment to excellent performance. Finally, PPL under-communicated the project. The implementation plan was not communicated below the level of the management team. As a result, employees were caught by surprise by the BSC. No effort had gone into warning them, giving them time to prepare for and adjust to the new PMS. As a result, resistance arose and people did not have the intention to measure anything. The implementation of the BSC got stuck and basically failed. A new attempt


Because the information and resulting management problems of the company had not been solved, PPL decided to undertake another attempt at implementing a PMS, this time using the strategic performance management development cycle. The main activities PPL undertook are described briefly. In stage 1 an updated strategic management model was devised and implemented. Main activity was to create a consist responsibility structure which spells out who is responsible for what in the organization (de Waal, 2007). The parenting style within PPL was a mixture of strategic planning – in which the management team is heavily involved in planning, developing and monitoring the execution of the strategy at all levels in the company – and strategic control – in which the management team monitors the execution of the strategy, while planning and development of the strategy is done by the departments. This created much confusion in the departments because these were not sure what they were allowed to do one day, which after all could differ from what was expected from them the next day. As PPL was operating in an increasingly competitive environment, it made sense to shift completely to the strategic control parenting style so front-line people got more responsibilities and authority to act quickly. As a logical consequence, people in the department from now on were more involved in both scenario planning and setting of strategic objectives and goals. This led to greater employee commitment to the strategy of PPL since they all helped constructing it. In stage 2 a new strategic reporting model was constructed and implemented. Core of this model were the CSFs and KPIs of PPL, derived from the updated strategic objectives. Figure 3 gives an example of these CSFs and KPIs for the Packaging department. The CSFs and KPIs were put in an updated BSC which was based on a new strategy map as depicted in Figure 4 (Kaplan and Norton, 2004). In stage 3 a performance-driven behavioral model was designed, to increase the chance on a successful BSC, i.e. a scorecard which would be regularly used by everybody in PPL so that the company’s performance would increase in a sustainable manner. In this stage, PPL paid specific attention to several issues. The BSC was designated to be the main platform for implementing PPL’s strategy, strategic objectives and strategic goals. This immediately increased interest and attention of people in all departments on the scorecard. Implementation of the new PMS was this time expressly supported by PPL’s senior management. A pilot at the Packaging department was used to gain experience with the Figure 3 Performance information for the PLL’s packaging department

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Figure 4 The new strategy map for PPL

BSC before introducing it unit-wide. It was made crystal clear that the BSC was not to be used as a tool for strengthening hierarchical control in the company. Its main focus was to be a tool for signalling possibilities for improvements. This was explained many times to employees, since they tended to believe otherwise. This time the need for training and communication was not underestimated. In respect to the latter many different communication channels were used like letters, meetings, emails, and ‘‘coffee machine talk’’ by senior management with employees. Focus of both training and communication was on PPL’s strategic objectives and their link with the strategy map and the CSFs and KPIs. The BSC was also kept simple, there was no strive for perfection but the 20-80 percent rule was used. Finally, employees were expressly involved in executing all stages of the strategic performance management development cycle, thereby creating a lot of commitment to the BSC and at the same time increasing the quality of the developed CSFs and KPIs. The result of applying the strategic performance management development cycle was that PPL in a short time period created a new PMS, in the shape of a BSC, which was supported by people on all levels of the organization. Because of this, the company was able to better steer and manage the company, improving its results dramatically the first two years after implementing the scorecard. PPL is now in a better shape to survive and thrive in the challenging environment of the printing industry.

Conclusion The majority of performance management implementations in organizations fail which is a big problem as an effective PMS results in better competitive performance. When studying

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the failures, it becomes apparent that the biggest issue is not in defining CSFs, KPIs or a BSC but in getting people in the organizations to actually start, and more important, keep using the system so sustainable benefits are gained. Therefore it is imperative that organizations pay attention to the instrumental and the behavioral side of performance management. When applying the strategic performance management development cycle in a systematic way the organization will be sure it works on all aspects of a successful performance management implementation: in the first stage establishing the strategic structure of the PMS, in the second stage designing the reporting structure, and in the third stage creating the culture needed to become a performance-driven organization. As it is a cycle, these stages are basically iterative steps in which improvements are made to the strategic and reporting structures and the culture, based on what the organization learned during the execution of the stages. Applying the strategic performance management development cycle results in a performance-driven organization in which all people work towards achieving the best performance possible.

Notes Downloaded by MAASTRICHT SCHOOL OF MANAGEMENT At 12:50 23 March 2016 (PT)

1. The author gratefully acknowledges the kind permission of Jonas Neelemaat, Jeroen Berger and Jasper Roozendaal to use their design project (Neelemaat et al., 2005) as the basis for this section. 2. The company wants to remain anonymous.

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Sandt, J., Schaeffer, U. and Weber, J. (2001), Balanced Performance Measurement Systems and Manager Satisfaction, Otto Beisheim Graduate School of Management, Vallendar. Zeppou, M. and Sotirakou, T. (2002), ‘‘The stair model: a comprehensive approach for managing and measuring government performance in the postmodern era’’, in Neely, A., Walters, A. and Austin, R. (Eds), Performance Measurement and Management: Research and Action, Cranfield School of Management, Cranfield.

About the author Andre´ A. de Waal MBA is associate professor at Maastricht School of Management, The Netherlands and director of the Center for Organizational Performance, The Netherlands. His latest book is titled Strategic Performance Management: A Managerial and Behavioural Approach (Palgrave MacMillan, 2007). He can be contacted at: [email protected]

To purchase reprints of this article please e-mail: [email protected] Or visit our web site for further details: www.emeraldinsight.com/reprints

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