CORPORATE PERFORMANCE MANAGEMENT

The performance management system may be a system in its own right, or it could be a part of a wider corporate performance management system. Some of the more popular approaches include:

• Scorecards

• Dashboards

• 7-S Model (McKinsey)

• Performance Prism

• Lean Six Sigma

While the focus of this module is on performance management (a human resource perspective) it is important to locate performance management within the wider scope of managing organisational performance, as this has implications for implementation and monitoring and control.

The next table provides a high-level view of each of the above, including some of their strengths and weaknesses and implications for employee performance.

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TABLE 9: HIGH-LEVEL VIEW OF CORPORATE PERFORMANCE MANAGEMENT SYSTEMS

Type Description Strengths and weaknesses Implications for

performance management

Can be fully customised to the organisation.

A display of various data that provides up-to-date information on current status of the business, eg an Inventory Dashboard that provides part numbers, actual, planned, variances and status (eg red is danger level). when all the variables in the model are aligned. Recognised (useful) as a strategy

implementation and change model, three out of the seven are

"hard Ss" (Strategy, Structure,

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Focus on stakeholders – quid pro quo – stakeholders expect something from the organisation but the organisation also wants something in return. Focus is on what changes must be made to the organisation's strategies,

Broadly it is a measure of quality that strives for near perfection can be used in any process that provides something that is supposed to add value to the customer.

(Peters, 2011; isixsigma.com, 2013; Ryan, 2012) Organisations continue to invest in business intelligence and analytical tools such as dashboards are becoming more commonplace. While performance reports (financial and non-financial) have provided useful data, management consider that these are no longer sufficient for effective performance management. BlumShapiro (2013) for example argues, "The numbers need to be accompanied by how and why so that managers know what to do next."

Business intelligence derives from computer-based techniques used to spot, dig out, and analyse

"hard" business data such as sales revenue by product type and the associated costs. The objective is to understand internal strengths and weaknesses; understand the relationships between different data for better decision-making; and detect opportunities for improved performance.

(Business Dictionary, 2014) Dashboards and scorecards are not mutually exclusive. Some organisations use both as a hybrid tool (BlumShapiro, 2013) with dashboard metrics providing a link to department or business unit objectives and scorecards including dashboard graphics to improve readability.

Whichever approach is adopted, the information must allow you to drill down to get to the performance issue (the What, When, Where, Who, Why and How that is driving or not driving the desired performance).

© Regenesys Business School 82 Our high-level view includes two other well-known performance management approaches, namely the McKinsey 7-S Model and Lean Six Sigma. Both of these view strategy and performance from different perspectives.

Watch the following video to understand the purposes behind the McKinsey 7-S Model:

MindTools, 2012, 'The McKinsey 7S Framework: Learn How to Align all Parts of Your Organisation', [video clip] http://www.youtube.com/watch?v=7EqXqUDL47c (accessed 10 April 2014).

Read the following transcript of the interview between Michael Cyger (founder and publisher of iSixSigma.com) and Rick Murrow (from AirAcad.com):

iSixSigma.com, 2013, 'What is Lean Six Sigma?'

http://www.isixsigma.com/wp-content/uploads/transcripts/What-is-Lean-Six-Sigma-on-iSixSigma.pdf (accessed 10 April 2014).

Despite the Performance Prism by Adams and Neely being perhaps less well known, it does draw attention to the significance of stakeholders. This is something that is not always present in performance management systems.

Task Questions

1. After carrying out your own desk research into the four approaches provided in the high-level view of corporate performance management systems critically evaluate the strengths and weakness of each. In your analysis, determine if the approaches are industry specific or not.

2. Given that variation in the way a service is performed impacts on the customer, argue for the implementation of a Lean Six Sigma performance management approach over other approaches.

3. In the Lean Six Sigma interview, Rick refers to the "value stream" – the connection of processes that eventually add value to the customer (support functions like HR, IT, Finance). Discuss why this "value stream" is so important to the understanding of performance management.

4. In Lean Six Sigma the objective is to enhance the intellectual power of the working force, as they are the process owners. What does Rick mean by this and what are the implications for performance management?

5. Lean Six Sigma aims to enhance the culture of exchange of ideas so that processes upstream and downstream talk to each other. What are the implications of this for performance management (specifically around silos and culture)?

© Regenesys Business School 83 A performance management system helps to reduce information asymmetry between the corporate centre and its subsidiaries, departments or business units, teams and individuals. As we saw in the previous table, organisations implement a wide range of tools to ensure information symmetry (ie from scorecards to Lean Six Sigma).

Corporate Subsidiaries and Performance Management Systems

The motives for decentralisation are to increase flexibility for subsidiaries to react to market demands and create the freedom for subsidiary managers to respond to these demands. Contrary to this is the argument that a performance management system is a key instrument for subsidiary control and that it can help to overcome the problematic characteristics of the principal (eg a holding company) and an agent (eg a subsidiary) relationship (Schlegel and Britzelmaier, 2011).

Contingency theory argues that there is no best way of structuring an organisation and its management systems. Optimal design depends on situational factors (contingent factors or contextual factors) and these impose constraints on the organisation (Schlegel and Britzelmaier, 2011). As Schlegel and Britzelmaier (2011) point out, management should be concerned with aligning contingent variables and the management system to achieve good fits:

• Reflect on standardisation versus differentiation in performance management systems across a holding company and its subsidiaries.

• Characteristics of subsidiary performance management should not be universal across the company groups but designed individually for each subsidiary depending on the respective situational factors. Do you agree with this statement?

• Can subsidiaries in two different economic zones have the same performance management system when these subsidiaries may be controlled by different economic factors and consequently have different strategies to deal with these? (Refer to Porter's generic strategies).

One subsidiary, for example, might have a "build strategy" to increase market share at the expense of short-term financial performance (may even be cross-subsidised by another subsidiary).

(Adapted from Schlegel and Britzelmaier, 2011) From the reflection points above it becomes clear that subsidiaries might be independent in their strategic aims. This has consequences for organisation-wide performance management design.

Subsidiaries with high-uncertainty strategies are likely to have KPIs, such as high level of innovation, creativity and staff involvement (Schlegel and Britzelmaier, 2011). Conversely, subsidiaries with low-uncertainty might focus on financial performance (eg cost reduction).

© Regenesys Business School 84 Task Question

Read the following excerpt and then critically evaluate the argument proposed:

"For subsidiaries with high-uncertainty strategies, there is a limited possibility to plan in advance and predict targets accurately so budgets are more of a short-term planning tool rather than a tool for control. The system in general is more informal and there is a participative decision-making environment instead of a top-down determination of targets. In contrast, controls of subsidiaries with low-risk strategies are tighter with an emphasis on budget achievement. Furthermore, procedures are more formal, standardised and centralised."

(Schlegel and Britzelmaier, 2011) Identify companies with subsidiaries in different markets – reflect critically on the implications for performance management.