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Performance Management: Making It Work:
The First Barrier to Performance Management: How Do We Get Started?

online columnist Gary Cokins     Column published in DMReview.com
June 2, 2005
  By Gary Cokins

I have personally had the fortune to travel extensively around the globe with my job. As a result, I am getting a fresh view of the issues and concerns facing executives, mid-level managers and those in the project team trenches. This year I have already visited roughly 20 countries in Europe, Asia-Pacific and South America, and one question has repeatedly emerged: how do we get started? At my gray-haired age, I'm not sure why I have overlooked this fundamental and basic issue, but it's becoming more clear to me now that a key barrier preventing organizations from pursuing their vision of performance management ‑ regardless of their vision of it ‑ is that they do not know how to get started. There are other barriers too, such as the false perception of some senior executives that the benefits from performance management do not exceed the administrative effort and expense, but the behavior of senior executives is a topic for another day. For today, let's talk about why the barrier that prevents organizations from getting started has slowed the adoption rate of performance management.

Performance Management: An Enigma or Simply Ambiguous?

There will be confusion for a long time to precisely define performance management and how it may be different from enterprise performance management or strategic performance management. In my mind, the good news is this: performance management is not a brand-new methodology that everyone now has to learn, but rather it is the assemblage and integration of existing improvement methodologies that most managers are already familiar with. Collectively, these methodologies are interdependent, working together to manage the execution of an organization's strategy. And most organizations have already begun to implement some of the performance management portfolio of methodologies, such as the balanced scorecard, but not enough of them have reached that flash point where substantial synergy kicks in.

Some executives and many mid-level managers have misconceptions about the components of the performance management suite. For example, many believe that the high accuracy in calculating product and service-line costs requires employee timesheets recorded at 15-minute intervals, when in truth the major and dominant determinant of cost accuracy is much more influenced by better mapping of how work activities are uniquely consumed by outputs. Regardless of the misconceptions, and there are many since most managers have yet to see or experience an organization that is nearing the complete vision of performance management, the problem is that these misconceptions prevent an organization from making progress - from moving ahead!

One proven way to break through this barrier and to get the ball rolling for good is to use the approach of rapid prototyping coupled with iterative redesign and remodeling. Rapid prototyping works because within two or three days you have successfully accomplished it! The getting started is over before you hardly knew it had begun!

Rapid Prototyping of Activity-Based Cost Management (ABC/M) and the Balanced Scorecard (BSC)

Those who remember the miscues of the early 1990s in implementing activity-based costing systems can now with hindsight realize those ABC/M implementations that fell short of expectations were way over-designed and over-built. The diminishing returns in additional accuracy were not worth the exponentially burdensome level of administrative effort required to collect and calculate the cost data. Worse yet, it took forever to create that gargantuan cost model. These implementations collapsed under their own weight long before the employee teams and managers could ultimately use the cost data originally promised.

While ABC/M answers eternal organizational questions such as: Where do we make or lose money, What does something cost now and What will something cost if something else changes? What has rescued this initiative is the application of rapid prototyping. Since calculating costs is not bookkeeping but rather a modeling exercise to transform spending expenses on resources (e.g., salaries, travel, power, supplies) into the calculated costs of the consuming outputs and outcomes (ultimately the costs of products, channels and customers), then the first model can be scaled at a high level. The prudent approach is to build the first complete scope ABC model in two days using estimates from only four or five cross-functional employees who are familiar with their areas. On the third day, these folks brief a peer group ‑ and maybe, but cautiously, an executive or two ‑ so more people can get a vision of what an ABC/M system could eventually look like in their organization.

Of course the cost data in this initial model is not accurate, but the next iteration becomes more accurate and granular by taking a few more days, going deeper and replacing estimates with fact-based data in a few crucial areas. You benefit from making your design and assumption mistakes early on, not later when it will be much more difficult. Better yet, during the coworker briefing that follows each iteration, people internalize what they are seeing and can immediately relate it to their problems. Project teams need two parallel plans: 1) the implementation plan, and 2) a communication plan. The second is much more important than the first! Resistance to change is what stops progress, and this can be overcome when the buy-in process starts out in a good way.

Can a strategy map and its associated balanced scorecard be completed as quickly? You bet, but only if the executives are willing. Some balanced scorecard consultant facilitators are mastering rapid brainstorming methods. Some are as simple as having the executive team take four short hours to have each executive individually fill out 30-40 SWOTs (an organizational strength, weakness, opportunity and threat assessment) on Post-It notes and paste all of them on panels divided into focus areas using frameworks such as the Malcolm Baldrige Award, the European Foundation for Quality Management (EFQM) or Norton-Kaplan. Next, they manually cluster the sticky SWOTs into common groups with similar characteristics, and then they finally describe each cluster on a larger Post-It in words reflecting a goal or objective. That's it! These larger Post-Its can be pasted on a wall-size poster board, and the executives can return to their offices.

Next, the core process managers from the next managerial level take over. In the next day or two they identify the few and manageable projects or initiatives that can be accomplished (or the area of their process they must excel at) for each strategic objective, and then they define those vital few key performance indicators ‑ three at most ‑ for each project or process specified. Voila. The initial strategy map, key initiatives and vital few (rather than trivial many) relevant measures are then done. And as a bonus, many of those middle managers will for the first time have learned the senior executives' strategy in a way that they can understand it.

Is a Ready, Fire, Aim Approach All that Bad?

Rapid prototyping achieves the benefits advocated by W. Edwards Deming, the popular quality management guru, with his plan-do-check-act (PDCA) iterative cycle. This is all about accelerating organizational learning rates. Typically, people don't like taking responsibilities for decisions, so they don't make any. What is needed is the courage to make decisions; this is what differentiates leaders from mere managers. Managers are adverse to risk, prone to over-planning and under-executing, while leaders take calculated risks knowing they can always adjust. Let's not wait for the stars to align to get started. Nike has the right idea: "Just do it."


For more information on related topics visit the following related portals...
Corporate Performance Management (CPM).

Gary Cokins is a strategist for SAS, a market leader in data management, business intelligence and analytical software. He is an internationally recognized expert, speaker and author on advanced cost management and performance improvement systems. He is the author of five books, An ABC Manager's Primer, Activity-Based Cost Management: Making It Work, Activity-Based Cost Management: An Executive's Guide (Wiley), Activity-Based Cost Management in Government and his latest work, Performance Management: Finding the Missing Pieces to Close the Intelligence Gap (Wiley). You can contact him at gary.cokins@sas.com.

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