Corporate Performance Management in Volatile Times

Here is an interesting article from Research & Technology Executive Council about consideration for improving and managing corporate performance:

Corporate performance outstripped many people’s expectations in 2010 and, as a consequence, senior executives have been given oversized 2011 growth goals that are consistent with a recovering business cycle. The problem is that we are not yet in the midst of a runaway recovery.

Although the article is focused on financial performance management, the ideas discussed are also valid for other disciplines (including R&D). Here is what I learned about robust performance management process:

1. Target setting: Use stretch targets judiciously. Take into account factors that the team can control and those they can not.  For example, if the entire market declines by 20%, the stretch goal of increasing revenues by 20% might not make sense.  Another approach would be to use competitive benchmarks to decide targets (Stretch goal is at least 10% better than my closest competitor).
2. Metric selection: Right metrics that support the targets are extremely important.  As we have seen in the past, there is a strong temptation to fudge the metrics to get rewards.  We should focus on developing dashboards that encourage an appropriate level of risk taking and reward good decision making.
3. Use of IT to provide visibility: Automated performance management systems to help teams focus on performance targets and metrics is useful.  IT can help with dashboards as well.  However, one has to balance those benefits with costs of setting up and feeding/maintaining such systems.  Many times IT leads companies focus too much on the logistics instead of the actual results.
4. Creation of a ”performance management culture”: Leaders should help setup a culture that uses performance management to drive organization success and discover hidden sources of value.  The process should probably incorporate non monetary / financial rewards.