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Creating Value with Corporate Performance Management

Originally published July 11, 2005

Once upon a time, as the story goes, six blind men left their corporate village to visit an elephant. 

 “The elephant is a wall," said the first (from marketing) who felt the elephant’s broad side.

"No!” cried the one (from sales) who touched the smooth, sharp tusk.  “It’s a spear.”

"It’s the trunk of a tree,” opined the man (from operations) who felt the craggy knee.

“No. It’s a fan,” insisted the one (from Human Resources) who touched the broad, silky ear.

"You’re all wrong. It is a rope,” insisted the one (from IT) who felt the grainy tail.

“Not at all,” said the sixth (from finance) who felt the slithering trunk. “It’s most certainly a snake.”

Like the parable of the blind men and the elephant, different corporate stakeholders each have their own perspective on corporate performance management (CPM). Marketing managers see it as a means to enhance customer focus. Sales people view it as a way to increase sales revenues and commissions. Operational managers view it as a way to sort out performance issues, pay increases (and pink slips, if need be). Human Resources view it as a resource management, development and segmentation tool. IT sees it as a data sharing and warehousing solution. Financial executives view it as a planning, budgeting and control process. And last, but not least, shareholders and senior executives view it as a way to increase shareholder value and management accountability under Sarbanes-Oxley.

Does your company suffer the elephant problem?  Take this simple test to evaluate your approach to Corporate Performance Management (CPM).  On a scale of one to five how do you rate your company?

  1. Our blind men are stuck in the corporate village parking lot.
  2. Our blind men understand and communicate their own functional perspectives.
  3. Our blind men share information across perspectives and plan with a shared purpose (to stay in business).  
  4. Our blind men “see” the form of the elephant – building alignment and engagement most of the time.
  5. Our blind men truly “see” the elephant – using clear strategic alignment and strategic engagement to drive results and long-term value.

A successful corporate performance management redesign effort must address these and other competing perspectives. All too often, performance management redesign results in not satisfying anyone as it tries to address the internal agendas of the different perspectives. “I’ve redesigned the system half a dozen times without real success,” says one frustrated Fortune 500 HR Director. But technology may be changing what’s possible—and most critically, what is world-class competitive.  

Stepping up to World Class

The need to address global business challenges, “will compel many enterprises to abandon their siloed approaches of the past for the more strategic and holistic corporate performance management approach,” says the Gartner Group, a technology research and consulting firm. Gartner defines corporate performance management broadly—as the “management processes, methodologies, metrics and technologies” used to monitor and manage the business performance of the enterprise. (“Use corporate performance management to Integrate the Enterprise View.”)

Gartner asserts that 40 percent of top 2000 global companies will adopt a corporate performance management framework by 2005—and many of these will outperform their peers as a result.  Technology will be the major driver of these new corporate performance management initiatives, as enterprise resource planning (ERP) players with HR functionality broaden their service offerings and business performance management (BPM) players with expertise on the planning and financial management side broaden their offerings. (“Corporate Performance Management Connecting the Dots.”)

Yet technology is not enough to drive success as many early adopters have discovered. Corporate performance management project leaders must put two key requirements front and center .  The first is strategic alignment—which typically deals with the systems and infrastructure needed to succeed. Examples of strategic alignment functions include planning, measurement, accountability, evaluation and pay. The second requirement is strategic engagement of people—which typically deals with leadership and management issues. Examples of strategic engagement functions include goal setting, feedback, coaching, mentoring and recognition.

Alignment answers the question “What needs to be done?” Engagement answers the question, “But why should I do it?” Simply put, alignment and engagement are the two sides of the corporate performance management coin required to build a successful corporate performance management strategy and long-term business value. This is shown below:

Maximizing Alignment and Engagement

What happens when alignment and engagement are not in partnership? The last decade and current events continue to offer considerable evidence. Our alignment—engagement grid portrays four different possibilities based on our alignment engagement index. These include:

“Cash in the Chips” (high alignment, low engagement) In the last decade, CEO’s, CFO’s and corporate shareholders, often assisted by consulting firms, focused on the shareholder value perspective. Executives promoted downsizing, consolidation, mergers and acquisitions, restructuring, and EVA alignment, to enhance profits and “unlock” shareholder value.  While important, a singular focus on shareholder value and short-term cash flow, at the expense of engagement and real leadership, often has led to disastrous consequences on the “people” side of business—in talent turnover, low morale, lost productivity, lost performance, and in the most extreme cases (Sunbeam, Enron), corporate demise.  Because this form of shareholder value alignment only benefited a few lucky (and thus highly engaged) shareholders at the top, sustained value building was rarely a result. Ultimately, these executives must cash in their chips quickly as their lack of leadership catches up with them.

“Fun While It Lasted” (low alignment, high engagement). In contrast, stand the companies with high employee engagement but little alignment around a clear corporate business strategy. Many of the “Dot.bomb” companies of the 1990s, for example, had highly engaged technically skilled employees, motivated by leaders promising a vision of the new economy and internet age. Unfortunately, few of these companies developed the disciplined financial systems and infrastructure to align the business vision with the business financial reality. On another level, are companies that simply lack a clear business strategy aligned with effective planning, measures, accountability and performance-based pay. If you engage people who are not properly aligned with a clear business strategy, you will have many really busy, off-task people. In fact, they may be doing the wrong things—very well and still get paid highly for it.  Engagement without strategic alignment rarely leads to return on talent management or long-term building of shareholder value.

“Sell Off the Parts”(Low alignment, low engagement). If you’ve ever worked for one of these companies, you’ve probably kept your resume well updated. These companies have neither a clearly aligned business strategy, nor do they have engaged employees with the motivation to succeed.  They may have a continual strategy of cost cutting to stay in business short-term. Their pay systems rarely align with performance. If public, their managers spend time fending off hostile takeovers. If private, their managers tend to be highly secretive. They don’t last long as independent entities because more aggressive and creative executives target them for takeover, sell off the pieces and undertake general housecleaning. 

“True Blue Value Builders”(high alignment, high engagement) Clearly, smart companies with an interest in building long-term value should aspire to be in the “magic quadrant” of high alignment and high engagement. These companies are long-term performers. As an investor you want them in your portfolio. (They provide fewer surprises.) As an employee, you can be comfortable about committing your time and energy. And if you perform, you can have a long-term career. But how does a company get there and remain there?

Teaching the Elephant to Dance

In the past, a high degree of fragmentation and competing functional perspectives—the elephant problem—had hindered meaningful integration of the performance management process. But technology and competition are driving new requirements for integrated corporate performance management. This can only be done through aligning resources as well as engaging people broadly. corporate performance management is ultimately not just about integration of functions but about transforming a corporation with performance leadership—giving people the tools and motivation to focus, grow and perform their very best.

For additional information concerning planning in a fluid economy please reference the web seminar on Incorporating Financial Planning into Operational Plans.

  • Amelia Armitage

    Amelia is an experienced consultant and a principal with CLG. Armitage specializes in the design of corporate performance management related audits, educational workshops and process improvements. Amelia can be reached at aarmitage@clg.com.

 

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