2003 Q2 Linking Performance to Strategy
The source of frustration for many managers is the failure of their company to implement its overall business strategy. This is not an uncommon situation since it is difficult for many to see the linkage between the business strategy that senior level managers establish and the performance expected of employees to implement it. Carrying out business strategy requires commitment, accountability and focus by employees; and a strategic measurement system that links performance to strategy. By following a 3-step process you can significantly increase your chances of implementing strategy.
- Communicate strategic direction and business strategy.
- Establish a strategic measurement system based on key success factors and a balanced scorecard.
- Create performance agreements between employees and the company.
Typically, a company devises an overall business strategy as part of its strategic planning process. Included in the strategy are a vision, mission, key success factors and company goals. Although the plan may be well developed it often times fails to be implemented because there is no alignment of the company’s vision, mission and goals at the departmental and individual levels. Without supporting goals a strategic plan is doomed to failure. In conjunction with the alignment process there must be a strategic measurement system, aka a balanced scorecard, which consists of measuring key success factors.
Many companies are tracking measurements that have little to do with business strategy and were most likely convenient measurements that were generated from a transaction processing system installed years ago. Measuring the right things will change just as your business strategy changes.
Frequently, there are four broad categories within which to establish measurements:
- Customer perspective, e.g. quality and customer satisfaction
- Internal perspective, e.g. manufacturing excellence
- Innovation/learning perspective, e.g. technological leadership
- Financial perspective, e.g. profitability and growth
The strategic measurement system should be focused more on measuring those factors that are caused and not a result. In other words, those factors that are controllable by an individual or team. For maximum effectiveness team and individual performance measurements are established using performance agreements. Performance agreements contain the desired results in terms of short and long term goals, guidelines within which to operate, identification of the resources available, and a review process that monitors progress on a regular basis.