Often performance management is viewed far too narrowly, is that it is just a bunch of dashboard measurement dials plus better financial reporting. It is much broader than that and includes robust integration of typically disconnected information technology (IT) systems. A Forbes.com article described this as “The old model of the enterprise was purely financial, focused on costs…. The modern practice of performance management has replaced this outmoded process with the equivalent of a corporate nervous system that shows what is happening right now in a company and can avert problems in the future.”
Another concern is performance management's name—it is really about performance improvement; this implies the need for analytical support for better decisions—another distinction of performance management. Finally, although performance management's scope is broad, my belief is that its main purpose is strategy execution rather than strategy formulation. Executives are quite competent with the latter, strategy formulation, and they often engage consultants like McKinsey to assist or validate their strategy. Executives' frustration and challenge comes in successfully implementing and managing their strategy. This requires greater linkage of strategy to operations in the top‐to‐bottom direction and the alignment of the work and priorities of the workforce in the reverse, bottom‐to‐top direction.
Almost every conference PowerPoint presentation begins with that almost‐obligatory slide of a circle with arrows pointing into the circle—each arrow representing a pressure. Performance management is about helping executives to understand how to react to these pressures and then to select and take necessary actions. Selecting the right actions and then completing them is the tough part of management. To complicate matters, transforming an organization is somewhat like having heart surgery while running a marathon (except there is no finish line). The goal of sustained long‐term improved performance is a balancing act of many dimensions. One aspect is balancing pursuit of the short‐term goals demanded by external bodies, such as capital market investors, with long‐term strategic objectives.
External forces are producing unprecedented uncertainty and volatility. The speed of change makes calendar‐based planning and long‐cycle‐time planning with multiyear horizons unsuitable for managing. Pursuits in both time frame horizons involve change:
Short‐term goals require agility to maintain linkage of a constantly adjusting strategy with operational execution while complying with and meeting aggressive performance level expectations of stakeholders (e.g., quarterly financial earnings reports). Stakeholders can include customers, taxpaying citizens, investors, and government regulators.
Long‐term strategic objectives require continuous innovation, foresight of risk and opportunity, relentless process improvement, an eye on recruiting and retaining a motivated workforce, and leveraging partnerships and alliances of all kinds for interdependent mutual benefits.
Executives are gradually shifting their perception from a common acceptance that their reengineered processes should be sturdy and resilient to a new view that they must be flexible and agile. Along with this change in perception comes one involving an economic structural shift wherein their view of their organization's cost structure, including its employees, as being highly fixed relative to volume is changing to a view that its capacity is variable—that capacity is adjustable in the short term. With uncertainty and volatility rising, there is little choice to think otherwise.