Organizational performance management (sometimes called corporate performance management) is a term used to describe the methodologies and processes that help you define, measure, and ultimately achieve your strategy. Three commonly used forms of organizational performance management are:
The Balanced Scorecard
In our humble opinion, the Balanced Scorecard (BSC) is one of the best types of performance management systems available, and for good reason: 88% of BSC users say the framework is extremely or very useful in helping them achieve their goals.
What makes the BSC unique is that it combines four different business perspectives—financial, customer, internal processes, and people—to help companies understand and achieve their organizational objectives. Some key points about the BSC are:
Its main components:
Objectives—high-level organizational goals that state what your organization is trying to accomplish strategically, broken down according to the four perspectives
Measures—key performance indicators (KPIs) that help you understand if you’re accomplishing your objectives strategically.
Initiatives—key action programs developed to achieve your objectives, sometimes referred to as projects.
It facilitates alignment across divisions and departments because you can link departmental objectives to the overall organizational objectives. You can also see how measures and projects are connected to organization-level measures.
It requires a structured reporting process. Creating a BSC is predicated on reviewing your strategy on a regular basis—and you can only do this if your strategy is organized.
Management By Objectives
Created by influential management consultant Peter Drucker, Management by Objectives (MBO) has many variations. Essentially, it centers on creating a set (anywhere from two or six) of organizational objectives, which are then used as guideposts for creating individual employee objectives.
Some of its key characteristics are:
Objectives are not necessarily linked to one another. (This is different from the BSC approach, where objectives are aligned within an overall strategy.)
Objectives may be defined as part of a collaborative effort between leaders and employees. The idea is that employee participation creates buy-in, and helps clarify the path to obtaining the objectives.
Objectives are the main focus of MBO; less emphasis is placed on how those objectives will be achieved. Organizations tend to rely on either measures or projects (but rarely both). The key to making MBO work is to create a structure that clearly differentiates between projects and measures. They don’t work the same way, so trying to lump them together will inevitably cause confusion.
The term Management by Objectives has been around a while, but you don’t always see it in strategy documents. One way to recognize this approach is by looking at the strategic plan, which might have a set of goals and then objectives. You will also then see a list of activities or actions that the organization is grouping together to try to improve those goals and objectives.
Budget-driven Business Plans
Sometimes, the budget leads the performance management process rather than strategy. In this case, “work plans” are linked to the overall budget of the organization, and spending goes to the projects and programs that deliver results. It is a less commonly used performance management system, but it works for some organizations. Some of its key characteristics are:
Income sources and expenses (line items) may be grouped into categories so leaders can easily identify areas that need downsizing or potential opportunities for investing.
It may involve a combination of ongoing and new projects.
It is driven by finance, which is different from the other approaches that are organized by a strategy department.
The development process usually starts with the finance team providing last year’s spending to a department, and asking the department to list the activities they hope to accomplish within the coming year without changing the budget.
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