2017 Q1-2 Linking Performance to Strategy

The source of frustration for many managers is the failure of the company to implement its overall business strategy. This is not uncommon because 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. Employees need to understand the explicit expecta­tions required of them and how it interfaces with the business strategy.

By following a 3 step process you can significantly increase your chances of implementing strategy.

  1. Communicate strategic direction and business strategy.
  2. Establish a strategic measurement system based on key success factors.
  3. 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 is a vision, mission, key success factors and overall 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, often times called 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. For example, if your company’s vision is to become a technological leader in your industry then it is imperative to establish the key success factors and performance measurements that will help you accomplish it.

Typically 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. 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. Performance agreements become part of the performance appraisal process and tie directly to performance based compensation.