Chapter 4
Revitalizing Performance

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Overview

Performance management has been much misunderstood, misused, and abused, thereby preventing too many organizations from reaching their potential. Before performance measures can work, an organization needs to be conversant with the foundation stones and facets of performance management. This chapter explores the foundation stones that need to be in place to revitalize performance and the various facets of performance management that need to be mastered. It goes on to answer the question “What is more important, staff aligning themselves to their organization’s critical success factors (CSFs) or having the right performance measures?”

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An accredited coach pointed out to me recently that I had not made it clear enough as to why the senior management team should be interested in performance measures.

Winning KPIs are part of the bigger picture to succeeding with performance management. I have developed a model to help organizations see where KPIs fit within the larger picture of revitalizing performance management, see Exhibit 4.1. It is my hope that this model will help identify why organizations are failing to meet their potential and why many performance-management initiatives, like the balanced scorecard, fail.

Exhibit 4.1 Revitalizing Our Performance Management Model

I believe that performance management has been much misunderstood, misused, and abused, thereby preventing too many organizations from reaching their potential. Before we can get performance measures to work in organizations, we need to understand considerably more about performance management.

This model is based on my current knowledge in this space and I thus apologize now to all the paradigm shifters who have been omitted through my ignorance. Your contribution will be acknowledged in future editions as my knowledge expands.

For the past 20 years I have believed that every model needs to separate out the fundamentals, the givens, the nonnegotiables from the features or facets. I currently believe there are five performance management foundation stones and over 10 facets or features (see Exhibit 4.1).

You will note that I do not consider KPIs to be a foundation stone. Rather I see the ascertaining of critical success factors and ensuring that they are conveyed to the staff and used by them to plan and execute their daily activities. Previously I have argued in “Should We Abandon Performance Measures?”¹ that it is better to remove all KPIs than it is to work with dysfunctional measures.

Five Foundation Stones

In order to succeed with any rejuvenation of performance, I recommend that you have five foundation stones in place. These foundation stones provide a sound platform from which you can juggle all the many facets of better performance (see Exhibit 4.1).

The foundation stones are so important that I can guarantee you will have limited success without them in place.

Foundation Stone 1: Applying the Traits of Winning Leadership

Any revitalization program will hinge on the effectiveness of the leadership. It is thus important to understand what makes a good leader and apply these skills and attributes.

How do you obtain the qualities and character that make people want to follow you over the top of the trenches? The answer lies in understanding and applying serving leadership which was first pioneered by Robert Greenleaf and Larry Spears in their groundbreaking book, Servant Leadership: A Journey into the Nature of Legitimate Power and Greatness.²

There are many books on leadership and you can spend your entire life reading them. But they will make you more confused than enlightened. So in my book, The Leading-Edge Manager's Guide to Success,³ I created a simple model for serving leadership that can be easily understood and hopefully is straightforward to implement. It was based on my understanding of the leadership exploits of Sir Ernest Shackleton, Sir Winston Churchill, and some modern-day leaders such as Jack Welch, former CEO of General Electric.

You can access my analysis of these leaders from my website www.davidparmenter.com and you will understand why winning leadership is being “a Viking with a mother's heart.”

Foundation Stone 2: Applying the Knowledge of the Paradigm Shifters (Peter Drucker, Jim Collins, Jack Welch, Gary Hamel, Tom Peters, Robert Waterman, Jeremy Hope)

Many performance management initiatives will fail simply because the organization is still wedded to antiquated and broken management systems. There have been many paradigm shifters who have for years laid out a new pathway for management. Unfortunately, for many reasons, much of middle and senior management are either unaware of the new approaches, unable to gather enough momentum to change, or simply too busy to make a change process work.

Peter Drucker is considered the father of management. His work contains many gems that have been overlooked. Alongside Drucker there are some brilliant writers like Jim Collins, Jack Welch, Gary Hamel, Jeremy Hope, Thomas Peters, and Robert Waterman who have now taken the baton. The only problem is that many of us are too busy to read and absorb their work.

The impact these great thinkers and writers can have, if one spends enough time understanding their wisdom, should never be underestimated. To assist you on your journey of discovery I have summarized some of their major lessons that relate to performance measurement and your KPIs.

Peter Drucker's Performance Management Lessons

The more I read Peter Drucker's work, the more I realize that his wisdom will transcend time. We will look at his writing the way we look at Shakespeare's work and we will say, shaking our heads, “How did he do it?”

Exhibit 4.2 provides a quick overview of some of Drucker's statements that have an impact on performance management.⁴

Exhibit 4.2 Peter Drucker's Lessons for Performance Management

Peter Drucker's Wisdom	Impact on Performance Management
Know your customers. Explicitly defining customer groups is the foundation stone of an outside-in perspective. One charity Drucker noted had 46 customer segments.	This will impact measurement because we can now measure the key segments more frequently for revenue, satisfaction, growth, and so on.
Have an outside-in focus to your business. See the operation from your customers' perspective, especially the perspectives of your important customers.	Outside-in initiatives will be measured, particularly as a future-orientated measure. For example, date of next customer feedback survey. Implementation of survey recommendations being monitored weekly after the survey report is issued.
Focus on your noncustomers. Which of your noncustomers should you be doing business with?	We will need to measure the success we have in doing business with new targeted customers.
Look for opportunities as if your life depended on it. Drucker emphasized the importance of innovation.	Measurement of innovation will be very important.
Management versus Leadership. Management is ensuring that staff are doing things right and leadership is ensuring that staff are doing the right thing.	Measurement of the progress with leadership training and development will be very important.
Recruitment is a life-and-death decision. Drucker was adamant about the significance of recruiting the right staff.	The recruiting of the KPI team should be done very carefully, ensuring they have the right mix of knowledge, experience, and credibility within the organization to be successful. Many organizations focus on “recruiting the right people all the time” as a critical success factor, and they will need to develop specific measures to track recruitment processes.
Do not give new staff new assignments. He referred to these jobs as widow makers, jobs where the incumbent did not have a chance to succeed.	In this KPI project, it is important to ensure that the project team is made up of experienced staff who know the critical success factors and the members of the senior management team. Bringing in consultants to manage the KPI project will, more than likely, lead to failure. Drucker told you so.
The scarce resource in an organization is performing people. Drucker highlighted that these scarce resources need to be specifically monitored and not taken for granted. Their goals should be challenging enough to stretch them and keep them interested.	Performance measures will be designed to monitor high performing staff.
Outstanding performance is inconsistent with a fear for failure. Without the will to take risks, to venture into the unknown and let go of the familiar past, an organization cannot thrive in the twenty-first century.	Measuring the go-forward nature of the organization and the measurement of the mistakes will flag whether we are moving quickly enough. Mistakes are seen as necessary learning experiences.
Today's advanced knowledge is tomorrow's ignorance. Drucker saw it as very important to harness knowledge in every aspect of the organization.	It is necessary to measure the extent the organization is gathering, sharing, and using knowledge.
Abandonment. Drucker said: “The first step in a growth policy is not to decide where and how to grow. It is to decide what to abandon. In order to grow, a business must have a systematic policy to get rid of the outgrown, the obsolete, and the unproductive.” He also said: “Don't tell me what you're doing, tell me what you've stopped doing.” Measuring the extent of innovation and abandonment will help focus management's attention on these two important areas. Abandonment is a sign that management is recognizing that some initiatives will never work as intended and it is better to face this reality sooner than later.	Promote Peter Drucker's concept of abandonment. Many existing measures should be abandoned along with processes and reports. The KPI project needs space to work. Other systems need to be abandoned to allow enough time for the KPIs to function properly. The amount of abandonment will need to be measured.
Collaborate with other organizations, even your competitors. Jack Welch turned GE into a powerhouse by striving to focus on what GE was good at. This led Welch to follow Drucker's advice on collaboration, and he pointed out that “Your back room is someone's front room.” In other words, if others can do a job better than you can, subcontract to them rather than diverting energy to be good at everything, a task that is impossible to achieve.	We will need to measure the extent to which collaboration is happening. The date of the next collaboration meeting, the date of the next shared collaboration, the date of the next agreement to contract out a service can all be measured.
Know what information you need to do your job and from whom you need it. When and how? By answering these basic questions, we can streamline much of the reporting formats, dispensing with those reports that add no value.	We can measure the reports that have been removed from circulation.
Understand the importance of self-renewal. Drucker emphasized the importance for leaders to have balance, to have interests outside the work environment that help them maintain a balanced perspective.	The chief executive officer (CEO) should monitor the extent to which the senior management team and their direct reports are investing in self-renewal.
Have three test sites. Drucker pointed out that to do one pilot was never enough.	On a KPI project, we should follow the sage's advice and pilot the KPI project in three entities.
Place people according to their strengths. Drucker was adamant that you focus on what people can do rather than focus on what they cannot do well.	The selection of the KPI team should focus on the candidates' strengths. Organizations can highlight those staff members who are not in the right place (e.g., not performing) and take action to reposition them or assist them to find the right job elsewhere.
Generate three protégés for each senior position.	Status of succession planning for all key positions should be monitored on a quarterly basis. Following Drucker, any shortage from the three protégés for each senior position should be reported as an exception once a month.

For management to undertake their role without an in-depth understanding of Drucker is like deciding to sail around the world with your family without having completed a harbormaster's course. Yes you can do it, yes you may arrive safely, but you have put everybody at risk.

Jim Collins's Performance Management Lessons

I am a fan of Jim Collins's work. His analysis, understanding, and communication of his concepts are outstanding. His books are must-haves on the thoughtful person's bookshelf (see Exhibit 4.3).

Exhibit 4.3 Jim Collins's Lessons for Performance Management

Jim Collins' Wisdom	Impact on Performance Management
	By measuring the next occurrence of balanced feedback on key managers (360-degree feedback) we will ensure managers get appropriate feedback on their leadership.
Getting the right people on the bus. Collins emphasized the need for organizations to place more emphasis on recruiting.	The recruiting for the KPI team should be conducted carefully. Organizations can measure a manager's rate of success at recruiting. Managers who have a record of failure should be retrained or relieved of recruiting duties.
Getting the wrong people off the bus. Collins is very consistent with Drucker. Move staff on if they are a poor fit with the organization's values.	Organizations can highlight those staff members who are not in the right place (e.g., not performing) and take action to reposition them or assist them in finding the right job elsewhere.
The “hedgehog” concept. Collins points out that organizations need to know what they can be the best in the world at, what they are deeply passionate about, and what drives their economic engine. Organizations need to translate that understanding into a simple, crystal clear concept that guides all their efforts.	By understanding an organization's critical success factors and deriving performance measures from them, you will create an alignment that is consistent with Collins' thinking.
The flywheel effect. This refers to forward steps consistent with the hedgehog concept. The resultant accumulation of visible results will lead to a lineup of people energized by the results.	By measuring within the critical success factors, we will be consistent with Collins' thinking.
Big Hairy Audacious Goals (BHAGs). aJim Collins and Jack Welch are at one here. They say incremental improvement will never stretch your thinking. We are asking what would we need to do to achieve this BHAG. It is not implying that falling short of the BHAG is a failure or that bonuses will not be paid.	The KPI team needs to set some BHAGs for the project that will stretch the KPI team's thinking.
The silent creep of impending doom. Collins warns us about the first stage of decline, “hubris born of success,” excessive pride leading the management team down the slippery slope. An organization always needs to focus on its economic engine, make sure its flywheel is turning, and maintain a profound understanding of the fundamental reasons for success.	The highlighting of the critical success factors coupled with the KPIs will ensure the senior management team focuses on what matters to their flywheel.
Try a lot of stuff and keep what works. Collins points out that visionary companies often made their best moves not by detailed strategic planning, but rather by experimentation, trial and error, opportunism, and, in some cases, by accident. Collins compared innovation to branching and pruning. Clever gardeners let a tree add enough branches (variation) and then prune the dead wood (selection).	The CEO and senior management team need to encourage innovation. The number of innovations by teams should be measured. The benchmark is Toyota, which has an average of ten implemented innovations per employee per year.
Risks above or below the waterline. Collins specifies that, when making decisions, you need to know if they will affect you above or below the waterline if they go wrong. Those below the waterline will obviously sink the organization. Government and nonprofit agencies are protected by their surety of annual income from the public purse and, hence, are so easily blind to these risks.	The focus on the right measures will give clarity and purpose.
Grasping for salvation. Collins points out the propensity for organizations in this stage to bring in an outside CEO to be the savior. These initiatives fail more often than they succeed. As Welch observes, to bring in a CEO from outside is a sure sign that your organization failed to nurture protégés. In the public sector, it is even worse where excellent protégés are deliberately overlooked to bring in an external person. In the private sector this stage of decline is categorized, as Collins points out, by the silver bullet, a massive merger that will turn the organization around. Naturally enough, less than one in six of these mergers ever breaks even.	It is important for all organizations to revisit their values and to include a bold statement that indicates they should develop their own leaders. The progress in this development of in-house leaders should be measured. We can also measure the number of protégés for all senior positions.

^aJim Collins and Jerry Porras, Built to Last: Successful Habits of Visionary Companies (New York: HarperBusiness, 1994).

Jack Welch's Performance Management Lessons

Straight-talking Jack Welch and his book Winning,⁵ co-written with Suzy Welch, is a must-read. Welch was profoundly influenced by Peter Drucker, therefore you are getting another slice of Drucker's wisdom. Welch has not held back any punches, and gets to the point effectively (see Exhibit 4.4).

Exhibit 4.4 Jack Welch's Lessons for Performance Management

Jack Welch's Wisdom	Impact on Performance Management
Candor. Welch has reinvigorated this word and placed it in front of management. He said, “It is a leader's obligation to tell their staff how they are doing and how they can improve performance in a candid way.” As Welch points out, candor allows more people to participate in the conversation, generates speed, cuts costs, and encourages underperformers to reflect on their achievements and move forward or move on.	The KPI team needs to ensure that it is open and honest about performance measurement in the organization.
Jack Welch's 20/70/10 differentiation rule. Tied to candor is Welch's 20/70/10 differentiation rule. The top 20 percent of performers should be promoted into jobs that are a good fit for their strengths, assist the next 70 percent to better meet their potential, and make it clear to the bottom 10 percent that their future lies elsewhere. Good communication will see these staff members moving on to better pastures for themselves; failing that, these staff members need to be assisted in moving on.	It is important for organizations to measure the handling of poor performers. Staff in the wrong positions may be a significant issue for the organization. Organizations can measure managers' success rates at recruiting.
A cluster of mentors. As Welch says, “There is no right mentor for you; there are many right mentors.” He sees mentoring more holistically. A mentor can come from a staff member many levels below who passes their knowledge on to you. In Winning, Welch was forever grateful for the young human resources (HR) advisor who patiently helped him master e-mail.	Ensure that all KPI team members have appropriate mentor support. Measures need to be developed to monitor take-up of mentors by management and staff. First, target senior managers who do not have a mentor.
Read, read, read. Great leaders have a thirst for knowledge and are constantly looking at ways to move their learning on; they are continuously reinventing themselves. Welch was an avid reader of the financial and management press and journals. He makes it very clear that it is a leader's role to be up to date.	The KPI team will need to read the books indicated in the epilogue. Organizations can measure the extent to which the senior executives are maintaining their learning, especially the CEO.
Raise the profile of human resources in your organization. Great leaders like Jack Welch have always recognized that the human resources team are vital to the organization. At GE, the head of HR was a member of the senior management team and	The KPI team should work closely with the HR team. The HR team will be able to help sell the required change and get more senior managers on board. In some organizations, the balanced scorecard has been implemented by the HR team.
the team was involved in all recruiting, promoting, training, and disciplining processes.	Performance measurement initiatives will work much better with skilled HR input. Leaving human resources to a young graduate to write meaningless policy inserts for a never-read manual is a surefire way to run down an organization.
Make innovation work. Welch was a champion of innovation. He wanted innovation to be part of the culture. Workshops were held called “work-out process” where groups discussed better practices and at least 75 percent of all recommendations from the brainstorming sessions had to be given a yes or no by the manager at the close of the workshop and the remaining recommendations had a maximum 30-day gestation period before a decision had to be made. This technique forced the decision makers to apply innovation practices, which allowed for some failure but ensured much success at the same time.	Innovation needs to be measured both in the past (“How many innovations did each team do last month?”) and in the future (“How many innovations will be up and running in the next two weeks, four weeks?”).
Recognition and celebration. Welch says great leaders celebrate more. As he points out, “Work is too much a part of life not to recognize moments of achievement.” You can sense from listening to his webcasts that his celebrations would have been fun to attend. Welch was all about making business fun. You need to realize that it is not life or death, but a game you want to win.	The KPI project team will need to be active with recognition and celebration to assist with buy-in and maintain interest and momentum. Recognition and celebration needs to be measured both in the past (“the number of recognitions and celebrations that occurred last month”) and in the future (“recognitions and celebrations planned for next week, next fortnight”).
	Government or nonprofit agencies also need to measure the number of positive press releases printed in the papers for, as sure as night follows day, the press will have a field day on the negative events that are press worthy and happen because of the very nature of the work a government or nonprofit agency performs.
Crisis management. All exceptional leaders are great in a crisis and Welch is no exception. He had a large realism streak in his body. He would take the necessary action, face the necessary music, and move on. Welch handled each crisis on the following assumptions: The crisis will be worse than it first appears. The bad news will come out sometime, so may as well face the music now. The situation will be portrayed in the worst possible light by the press. There will be carnage. His organization will survive.	It would be worth measuring the integrity gap within the organization, that is, the time between when an event is known about and when it is conveyed to the senior management team.
Setting goals that stretch (Big hairy audacious goals, as Jim Collins would say). Welch liked to see goals that were a mix of possible and the impossible. He went on to say, “Effective leaders are not afraid to envision big results.” By raising the bar so high that staff and management were forced to totally rethink the route plan, new ways had to be found to succeed and so often this was achieved.	In performance measurement, it is a sure way to limit performance by linking KPIs to bonuses. The key driver here will be politics and questionable measurement practices. (See Appendix A.)
Be number one or two in the game. Welch was aware that many of GE's investments did not make sense. The answer would have been no to the Drucker question, “If you were not in the business would you enter it now?” Consequently Welch was known as ruthless for his directive of “fix it, sell it, or close it” when a business did not meet the strict criterion of being either number one or two in that particular sector.	We need to measure our success at service delivery and the amount of abandonment we are doing in those services that can be better done by other organizations.

Thomas Peters and Robert Waterman's Performance Management Lessons

Every now and again there arises a masterpiece in thought, word, and deed. In Search of Excellence⁶ is one such masterpiece that is a must-read because it is so timeless and encompassing (see Exhibit 4.5).

Exhibit 4.5 Thomas Peters and Robert Waterman's Lessons for Performance Management

Peters and Waterman's Wisdom	Impact on Performance Management
Understand human motivations. In In Search of Excellence, Peters and Waterman go into much detail about behaviorist studies.	This book has as its foundation an emphasis on understanding human nature in order to minimize the carnage associated with performance measurement.
Importance of chaos rather than unnecessary order. Throughout the first three chapters of In Search of Excellence the importance of allowing overlap, internal competition, impromptu contact, while minimizing head office command and control was highlighted through the case studies quoted.	The project team needs to be wary of adopting the easier command and control approach. The KPI team must allow a fair degree of autonomy in the pilots and rollout stages so long as the foundation stones are intact.
A bias for action. The emphasis is on action, getting something into prototype, test, test, test rather than trying to second guess. The disbanding of committees that meet and do not convert anything to action is a very strong message.	The CEO should have a weekly record of the last meaningful action from every standing committee. If the last action was over six weeks ago, maybe it is time to abandon it.
Close to the customer. Being close to the customer does not only help with customer retention, it is the major source of innovation. Peters and Waterman found compelling evidence that customers are the main source of innovative ideas.	We need to measure the frequency of our interaction with customers: Date of next contact with key customers. Date of next customers' focus group. Date of next research project into customer needs and ideas. Follow-up on ideas from customers.
Autonomy and entrepreneurship. Peters and Waterman observed that radical decentralization and autonomy, with their attendant overlap, messiness, lack of coordination, and internal competition, were necessary in order to breed the entrepreneurial spirit and champions who were required to take risks in developing new ideas. Intense communication Tolerating failure Internal competition Promote legends Absence of excessive planning and paperwork	We need to measure the speed of decentralization and empowerment until it is well and truly embedded.
Productivity through people. Peters and Waterman noted that the following were evident in the best-run organizations: Unabashed hoopla Internal competition Family atmosphere Available information Trust Keeping units small and fast and flexible	The KPI team will need to apply these techniques to be successful.
Stick to the knitting. Peters and Waterman coined this famous phrase, and it is consistent with Jim Collins', “hedgehog” concept.	We can measure the degree to which resources and time are directed away from the core activities, indicating a loss of focus.
Simple form, lean staff. Peters and Waterman offered the following advice: Avoid the trap of economies of scale—they seldom eventuate. Avoid constantly hiving off into new divisions Maintain a small corporate office Keep a flatter organizational structure	We can report the levels of command, the head count of head office, and the numbers of staff reporting to managers.

Gary Hamel's Performance Management Lessons

Gary Hamel for some time has been making management think about the future. His book, The Future of Management,⁷ has many lessons to consider (see Exhibit 4.6).

Exhibit 4.6 Gary Hamel's Lessons for Performance Management

Gary Hamel's Wisdom	Impact on Performance Management
Continuous management innovation. You need to have a process for continuous management innovation to be an organization that is capable of trauma-free renewal rather than one that is moved to change through a crisis.	The KPI team needs to be very open to new management thinking and processes. It is very important that new management concepts are embraced by the project team.
Creative apartheid. Hamel points out that most human beings are creative in some sphere of their lives. The point he makes is that this creativity needs to be embraced at the workplace. He believes that creativity can be strengthened through instruction and practice, (e.g., Whirlpool has trained more than 35,000 employees in the principles of business innovation).	The KPI team must be open to new ideas during the project. Be flexible with how workshops are run, ensuring that creativity is given time to flourish.
Too much hierarchy, too little community. Hamel points out hierarchies are good at aggregating effort (coordinating activities) but not good at mobilizing effort (inspiring people to go above and beyond). The more you consolidate power in the hands of a few leaders, the less resilient the system will be.	The KPI team must promote a community feel to the project, selling the benefits through the emotional drivers and gaining credibility by abandoning process, measures, and reporting that is not delivering.
Aggregate collective wisdom. Hamel points out the compelling evidence that “large groups of people are often smarter than the smartest people in them.”	The KPI team should consult widely and hold sessions during each workshop to ensure an adequate chance for all to have their say. This is best done by limiting each workgroup in the workshop to no more than seven. The Internet and intranet should be used widely by the KPI team to tap into the collective wisdom within the organization.
Embrace differences. Hamel is very consistent about the need to: Embrace irregular people; their irregular ideas can be very valuable Look for positive deviants	The KPI team should be selected from all experienced employees. It is important to consider those employees who have always shaken the cart. They may have the X factor to make this project work.
Mission matters. The mission must be compelling enough to overcome the gravitational pull of the past and spur individual renewal.	The KPI team should ensure its mission statement is worded carefully so it will energize and assist with the selling of the winning KPI methodology.
Opt-in commitment. Hamel believes organizations should have an opt-in and self-chosen commitment.	The KPI team should have an open selection process so that a wide net is cast for the best team members. Passion for performance management will be a very important attribute to look for.
New management order. Hamel wants to see a new management order and the signs are there in how the Internet works. He points out that the reason the Internet is so successful is: Everyone has a voice. The tools of creativity are widely distributed. It is easy and cheap to experiment with. Capability counts more than credentials and titles. Commitment is voluntary. Authority is fluid and contingent on value added. The only hierarchies are “natural” hierarchies. Just about everyone is decentralized. Ideas compete on an equal footing. It's easy for buyers and sellers to find each other. Resources are free to follow opportunities. Decisions are peer-based.	The KPI team members should become familiar with Gary Hamel's book The Future of Management.

Jeremy Hope's Performance Management Lessons

Jeremy Hope for some time has been making finance teams and management think about what you need to have in place to be future ready. His book, Reinventing the CFO,⁸ has many lessons to consider (see Exhibit 4.7).

Exhibit 4.7 Jeremy Hope's Lessons for Performance Management

Jeremy Hope's Wisdom	Impact on Performance Management
Most systems incorrectly aim to improve top down control—rather than bottom-up.	The KPI project needs to focus on a bottom-up process.
Always use tried and tested technologies.	The KPI team should utilize only tried and tested balanced scorecard software.
Be skeptical about investing in new, untried systems
Cut back on measurement to the point where only six or seven measures are used at every level.	Follow the 10/80/10 principle and ensure that teams do not have more than six to seven measures.
Recognize and reward shared success on relative performance with hindsight, not on meeting fixed targets.	If there is an incentives scheme, ensure that it is consistent with the foundation stones in Appendix A.
Best to have team rather than individual incentives.
Be wary of aggressive targets and incentives. They lead to high-risk strategies and the wrong behavior.	Re-read Chapter 3 on the Unintended behavior—the dark-side of performance measures.
Avoid turning measures into targets and performance contracts otherwise they will lead to the wrong behavior.	Important to understand the issue about why a fixed performance contract is always broken. It is either too hard or too soft.
When using the balanced scorecard be careful that measures do not become an annual contract.
Select operating measures on the basis of whether they help managers to improve the system. Measures that don't pass this test should be questioned and probably abandoned.	We need to avoid all measures that do not help improve or support a system.
Whatever you do don't make management life more complex! Avoid complex systems. Aim to simplify everything at every level.	The winning KPIs methodology follows this advice.

Foundation Stone 3: Using an Appropriate Strategy

As the Mad Hatter said in Alice in Wonderland, “If you don't know where you are going, any road will take you there.” Peter Drucker reinforced the importance of having the right strategy for the organization—a strategy that was relevant for this Lego world we live in, a world in which independent service providers can be put together in a seamless way to the customer. He stated that there was not competition, just better solutions. Drucker saw collaboration as the key, collaboration even with an organization that was previously seen as a competitor. Jack Welch pointed out, “Your back room is somebody else's front room.”

In government and nonprofit agencies, collaboration has the same barriers as in the private sector: egos and past institutional memories that seem to prohibit staff from striking effective alliances with other organizations that can perform the service better and cheaper. Drucker went on to say that an organization could achieve almost all functions from collaboration. Drucker saw only marketing and innovation as being sacrosanct in-house activities.

Setting out one's strategy is covered in Chapter 5, Strategy and Its Relevance to Performance Measures.

Foundation Stone 4: Critical Success Factors Used By Staff to Execute Their Daily Tasks

What is more important, staff aligning themselves to their organization's critical success factors (CSFs) or having the right performance measures? To me it is the CSFs as it is paramount that all staff in the organization should know what is important and thus be able to prioritize their daily activities. With British Airways it was the clarity that all operational staff had over timeliness that turned the organization around. The late plane KPI supported this clarity by targeting operational teams who had not gotten the message.

Unless this foundation stone is in place, each manager, in their own empire, will have what is important to them embedded in the way things are done. Many counterproductive activities will occur based on this false premise, that is, what is important to me is important to the organization.

For a CEO to steer the ship, everybody needs to know the journey (mission, vision, values, management principles), what makes the ship sail well (critical success factors), and what needs to be done in difficult weather (contingency planning).

(For a more detailed explanation of how an organization can find its critical success factors, see Chapter 11, Finding Your Organization's Critical Success Factors.)

Foundation Stone 5: Abandon Processes That Do Not Work

In the next few centuries, Peter Drucker will be revered in the way Leonardo da Vinci is today. He created many management and leadership principles that we forget at our peril. His concept of abandonment is the most profound of those principles. He saw abandonment as the source—the fountain of innovation. His argument was so simple: We undertake tasks, we embed processes, we attend meetings, we monitor measures, we write reports that are broken and that exist only because they were done last week, last month, last quarter.

In many organizations, we could well abandon:

• All measures and restart the exercise, basing them on the critical success factors. Some measures will no doubt be reinstated but many will remain discarded.
• Performance reports that have no relevance to the critical success factors and strategy. They are completed the same way they were done last month, and the month before with nobody reading them. Every report should have a small box on the front page explaining how it is relevant to the critical success factors and strategy of the organization.
• The balanced-scorecard application, if it is based on the cascading of measures down from an organizational measure resulting in hundreds of meaningless measures.
• A scorecard that has been proved to be dysfunctional, with many measures encouraging staff to act in a direction that is not beneficial to the organization. The scorecard can be rebuilt.
• Meetings that have become a ritual, held because they were held last week, last month, and yet the action points are never cleared. They just fall off the to-do list over time. Every meeting should have a clear statement of its purpose, a record of what it has actioned, and the cost per hour to the organization. In one organization, the CEO would randomly interrupt meetings and ask each attendee why they were present, and what they could add. Attendees who were there to fill out the numbers were requested to get back to work. Although an extreme management practice, it had the desired impact.
• Performance-related pay where it is linked to annual targets, which will either be too easy or too hard. We should reward staff based on relative performance, a comparison to others in the organization, and to what competitors achieved. (See Appendix A for a further discourse on this important area.)
• The annual planning process is really only an annual political event serving no purpose. Visit my website to download some articles and papers to help you understand why your organization needs quarterly rolling planning.
• A dysfunctional balanced scorecard where there are hundreds of measures. The scorecard needs to be rebuilt and renamed.
• Annual performance reviews. Nobody likes receiving them, managers hate preparing them, they do not help with remuneration, and in any case, managers should be giving feedback on a regular basis—at least monthly—to their staff.

The Many Facets of Performance Management

As mentioned this is based on my current knowledge in this space and I acknowledge that readers' views will be different. I discuss the facets that need to be handled to revitalize performance management in no particular order. They have been largely influenced by the paradigm shifters already featured in this chapter.

Rejuvenating Human Resources

One of the most disconcerting departures from better practice has been the demise of the human resources (HR) team's influence in organizations. When recruitment is left to managers, chaos ensues. Jack Welch's view is that the senior HR manager should sit alongside the chief information officer and the chief financial officer, with equal standing and remuneration.

Most readers can look back to a recruitment process, which, on reflection, did not work out as well as intended. In most cases, this would have been based on interviews and references. HR practitioners have found that there is a far more effective way to recruit, starting with an in-depth focus on the job requirements and followed by behavioral event interviews, simulated exercises, and assessment centers. All this takes experienced in-house resources to manage and consequently deliver. As we all know, the cost of appointing the wrong person can be much greater than just the salary costs.

Without an active and informed HR department, an organization cannot possibly function. This situation can be no more clearly illustrated than with the process of performance management. Read Jack Welch's book, Winning,⁹ to understand the issues.

At the center of all organizations are people practices; these are integral to all the elements of best practice. Examples of people practices that leading organization's adopt include:

• Effective, integrated top-down and bottom-up communications
• Focus on and measurement of employee satisfaction
• Training and development processes that promote career paths (including mentorship programs, empowerment programs, leadership training, running in-house development centers, etc.)
• Excellent occupational health and safety practices
• Focus on internal (and external) customers
• Innovative staff recognition systems (including CEO success express weekly newsletters, CEO awards)
• Focus on daily innovation at the workplace (e.g., doing what we do better every day)
• Performance-based remuneration that relies on relative measures rather than performance against an annual fixed target
• Migration away from the classic annual or half-yearly staff performance review cycle, which is cumbersome, expensive, and too late to be of any use
• Trusting your employees to do the right thing and therefore remove unnecessary controls such as expense claim approvals, having a holiday policy. (Netflix, in an HBR article, points out that their employees should take the holidays they need to be refreshed so they can exceed expectations. In Netflix average performance leads to an amicable exit.) Read Jeremy Hope's Reinventing the CFO¹⁰ to better understand why command and control does not work.

Performance-Related Pay: Correcting the Errors

Never in the history of management has so little rigor been applied in such an important area. Performance bonuses give away billions of dollars each year based on methodologies to which little thought has been applied. Who are the performance bonus experts? What qualifications do they possess to work in this important area other than prior experience in creating the mayhem we currently have?

When one looks at the skill base of compensation experts, one wonders why they get listened to in the first place. Which bright spark advised the hedge funds to pay a $1 billion bonus to one fund manager who created a paper gain that never eventuated into cash? These schemes were flawed from the start; “super” profits were being paid out, there was no allowance made for the cost of capital, and the bonus scheme was only “high side” focused.

There are a number of foundation stones that need to be laid down and never undermined when building a performance bonus scheme. These foundation stones are addressed in Appendix A.

Reviewing an Individual's Performance

This is a more informal weekly or monthly activity, and not an overly structured and time consuming once-a-year or half-yearly process. Many writers have pointed out that the performance review monster needs to be put down humanely. In its place, we need to put a better or more robust system. I have looked at managing staff in my book entitled The Leading-Edge Manager's Guide to Success.

Getting the Right People on the Bus

Why do we accept jobs we never should have or appoint staff who started to fail from week one?

Drucker saw recruiting as a life and death decision, which should be taken with great care. When discussing recruiting issues with managers, I like to reinforce the importance of recruitment and promotion. Get it right, and you have laid a “clutch of golden eggs,” get it wrong, and you have a disaster affecting the whole team for months.

You simply either spend 40 hours at the top of the cliff or 400 hours at the bottom with the casualty and its impact on the rest of the team.

In Jim Collins's Good to Great,¹¹ an important factor was that great organizations “get the right people on the bus.”

Jack Welch embedded a culture of careful selection, and GE became expert at selecting quality candidates from the army and less well-known colleges and universities. Welch did not subscribe to the theory that the best candidates were in the Ivy League business schools. He looked at the attributes the individual would bring to the organization rather than the circumstances attributed to giving the applicant the Ivy League business school opportunity.

Welch saw recruiting or promotion activity as among the most important things you ever do. He said that it was important to get “into the candidate's skin” to find out what they were really made of, to find out if they had a passion for the business, and what their values really are. It was deemed imperative that the applicant's values be consistent with the GE values.

This is so fundamental to performance measurement that I would argue if you have the wrong staff on board, you will never get your measures to work.

To assist you with recruiting, I have set out in Appendix B the necessary questions you need to ask to ascertain whether there is an appropriate fit.

Jack Welch's 20/70/10 Rule

Jack Welch's 20/70/10 differentiation rule caused a huge furor when he first talked about it. It was thought to be very politically incorrect. As mentioned earlier, he believes that in every team you have 20 percent of high performers, 70 percent of good solid people, and 10 percent who never should have been employed. The 10 percent employees do not have the skills or the passion to succeed in the organization.

To reiterate Welch's point: Promote your top 20 percent of performers into jobs that are a good fit for their strengths, assist the next 70 percent to better meet their potential, and make it clear to the bottom 10 percent that their futures lie elsewhere. Welch points out, why make these staff members redundant, as this act costs the organization and rewards poor performance. Instead tell the person, “We made a mistake recruiting you, and you made a mistake joining us. You deserve to work in an environment where you are passionate about what you do and where you can succeed.” With this candor and open communication, it is likely that these staff members will want to move on to better pastures for themselves.

I place this 20/70/10 differentiation rule so highly because, in every organization, mistakes are made in recruitment. The issue now is how you deal with it. Performance management can never work if you have staff members who are not passionate about their work, are not respected by their managers, and who would leave if a better position was available. Applying this rule will help focus staff recruitment within the organization.

I recommend that you listen to Jack Welch describe his differentiation rule on YouTube.

Practices from High-Performing Teams

We can all learn so much from replicating the practices of those gifted managers who have transformed performance. Many better practices are discussed in the books by Welch, Collins, Peters, Waterman, and Hamel. These books have been analyzed in this chapter.

Many of the leadership traits featured in these books can be implemented in a short timeframe, as long as you are consistent with the implementation and lock in the changes, once a week over a 13-week period.¹²

Leading Change Successfully

In 1996, John Kotter published Leading Change,¹³ which quickly became the seminal work in the change management space. He pointed out, as we already know, that effecting change—real change—transformative change—is hard. In his work he had an eight-stage process of creating major change, a clear map to follow when faced with influencing an organization to move.

The eight-step process is discussed in Chapter 10.

Modified Balanced Scorecard approach

Right from the start, organizations around the world were quick to see the benefits of Kaplan and Norton's¹⁴ groundbreaking methodology, the balanced scorecard. The balanced scorecard methodology brought to management's attention the fact that strategy had to be balanced, needed to be implemented, and performance should be measured using a more holistic approach.

The balanced scorecard will be with us for centuries to come. We just need to make it work better. I see my methodology underpinning the work of Kaplan and Norton rather than undermining it.

Toyota's 14 Management Principles

Where does one start? We start with what I believe to be the greatest company in the world. Toyota has understood the basics of running a multinational business and it is able to embed its culture in all countries it operates within. Its Kentucky plant exceeded all Toyota expectations with its acceptance of the Toyota way.

Toyota's 14 management principles should be adopted by all organizations who want to be future ready. They would make a profound impact on the organizations benefiting the staff, management, board/government agencies and, of course, the public they serve. These 14 management principles have been well-analyzed in Jeffrey Liker's book The Toyota Way¹⁵ and are set out in Exhibit 4.8.

Exhibit 4.8 Toyota's 14 Management Principles

Philosophy	Principle 1: Base your management decisions on a long-term philosophy, even at the expense of short-term financial goals.
Process (Eliminate Waste)	Principle 2: Create continuous process flow to bring problems to the surface.
	Principle 3: Use “pull” systems to avoid overproduction.
	Principle 4: Level out the workload (Heijunka).
	Principle 5: Build a culture of stopping to fix problems, to get quality right the first time.
	Principle 6: Standardized tasks are the foundation for continuous improvement and employee empowerment.
	Principle 7: Use visual control so no problems are hidden.
	Principle 8: Use only reliable, thoroughly tested technology that serves your people and processes.
People and Partners (Respect, Challenge, and Grow Them)	Principle 9: Grow leaders who thoroughly understand the work, live the philosophy, and teach it to others.
	Principle 10: Develop exceptional people and teams who follow your company's philosophy.
	Principle 11: Respect your extended network of partners and suppliers by challenging them and helping them improve.
Problem solving (Continuous Improvement and Learning)	Principle 12: Go and see for yourself to thoroughly understand the situation (Genchi Genbutsu).
	Principle 13: Make decisions slowly by consensus, thoroughly considering all options and then implement the decisions rapidly.
	Principle 14: Become a learning organization through relentless reflection (Hansei) and continuous improvement (Kaizen).

Implementing Winning KPIs

By not placing KPIs in the foundation stones I am saying that the critical success factors are a more fundamental driver of performance than KPIs. In Chapter 7 and 11 I point out that it is the critical success factors that are the source of performance measures. The use of KPIs should be to support staff to focus on the organizational CSFs and to highlight outstanding and inferior performance.

The great power of performance measures can only be successfully unleashed if you understand what they are, where they come from, and ensure the senior management team lives and breathes them. The rest of the chapters of this book address why and how you implement winning KPIs.

Quarterly Rolling Planning

As mentioned in Chapter 3 on the myths of performance measurement, setting an annual performance agreement is doomed to failure. One of the most significant breakthroughs in performance management has been the realization that planning should be done on a quarterly rolling basis rather than on the traditional annual cycle as set out in Exhibit 4.9. In this process, each quarter in the second week of the third month (June, September, December, and March in this example) management is asked:

• What are your goals for the next quarter?
• What resources do you really need to achieve these goals?
• What resources might you need for quarters two, three, four, five, six?

Exhibit 4.9 The Quarterly Rolling Planning Process

Source: David Parmenter, Winning CFOs: Implementing and Applying Better Practices, copyright © 2011 by David Parmenter. Reprinted with permission of John Wiley & Sons, Inc.

Each quarter, before approving the next quarter's targets and funding, the senior management team and board forecast the bigger picture six quarters out. While firming up the short-term numbers for the next three months, each forecast will also update the annual forecast. Budget holders are encouraged to spend half the time on getting the details of the next three months right, because these will become targets, on agreement, and the rest of the time on the next five quarters. Each quarter forecast is never a cold start because budget holders have reviewed the forthcoming quarter a number of times. Provided appropriate forecasting software is available, management can do its quarterly forecasts very quickly; it takes one airline three days! The overall time spent in the four quarterly forecast updates should be no more than five weeks.

Most organizations can use the cycle set out in Exhibit 4.9 if their year-end falls on a calendar quarter-end. Some organizations may wish to stagger the cycle, say May, August, November, and February.

This quarterly rolling planning is so important I recommend that you visit www.qrf.david.parmeter.com to read some of my articles and papers on the topic.

Reporting Performance

Many management reports are not management tools; they are merely memorandums of information. As a management tool, management reports should encourage timely action in the right direction. Organizations need to measure and report on those activities on which the board, management, and staff need to focus. The old adage, “What gets measured gets done,” is still true.

For management reporting to become a management tool, monthly reporting must be combined with daily and weekly reporting. It is of little help to tell the senior management team that the horse has bolted halfway through the next month. If management is told immediately that the stable door has been left open, most management will take action to close it.

Decision-based reporting has a profound impact on the KPI reporting, which needs to be timely, brief, and informative.

Reporting performance requires that we have an understanding of the rules surrounding data visualization—the method by which we make information useable for the reader.

Data visualization is an area that is growing in importance. No longer is it appropriate for well-meaning accountants and managers to dream up report formats based on what looks good to them. There is a science behind what makes data displays work. The world expert on this is Stephen Few who has written the top three bestselling books on Amazon in this field.¹⁶

A must visit for all people involved in report design is Stephen Few's company website where he has lodged many high quality white papers on the topic of graphical displays (www.perceptualedge.com/articles). Good books to access are Edward R Tufte's The Visual Display of Quantitative Information¹⁷ and Stephen Few's Information Dashboard Design: Displaying Data for At-a-Glance Monitoring.¹⁸

Outside-In View

We cannot hope to get performance right if we do not have the Peter Drucker outside-in view of your business.

Drucker made it clear that leaders need to look at their organization from outside-in. His work in this area is beautifully summarized in a book called The Definitive Drucker.¹⁹ He said that chief executive officers needed to define their business from the customer perspective. They have to be aware of all the noncustomers out there, asking “How could we tap that potential?”

Drucker commented that great organizations would ensure that the senior management team spent some time each year directly interfacing with the customer (e.g., having a week where they serve customers as frontline workers). One great CEO I have met, George Hickton, has used this technique in every organization he has led. After the hands-on week, the senior management is refreshed, more aware of the silly bureaucracy that is getting in the way, and is a much tighter-knit team. Drucker singled out Jack Welch as an example of a great outside-in leader.

Drucker was adamant that leaders must constantly look into the future from the customers' perspective, thus ensuring that CEOs would be quicker to realize when cash-cow businesses were in decline.

Organizations all face times when change is catastrophic; change suddenly comes with a factor-10 force. During these times, great leaders have seen the warning signs, made the painful decisions to ditch once successful businesses, and refocused into new business areas where they can once again be a market leader. One great book on the topic is Jim Collins's How the Mighty Fall.²⁰

Adopting Kaizen

Although Kaizen was covered in the 14 Toyota principles, discussed earlier, it is so important to organizations that it is separated out in this model. Kaizen should be a way of life for staff in every organization. It is the acceptance that everything we do each day can be improved if you put your mind to it.

In many organizations, far too often innovation is stifled. Young bright graduates are trained to stop challenging the system and follow what we have done for the last decade.

The cost of this lost opportunity to change is immense. The lack of Kaizen is costing the public purse billions. Management would be mortified if they knew their reluctance to embrace innovation means fewer roads, fewer hospitals, fewer operations, and so on.

Working Smarter Not Harder

There is no point in having all the foundation stones in place and then having an office environment in which bad practices absorb too much time. These bad practices were featured in my management book²¹ and include:

• Not adopting action meetings—a new revolution in how to handle meetings.
• Scheduling meetings in the mornings, the most productive time in the day, when many could be held in the afternoon.
• Trying to sell change by logic instead of the emotional drivers of the audience.
• Not putting enough weight behind a mentorship program—frequently where they are present they are failing through lack of nourishment.
• Limiting performance feedback for the staff to the formal process that occurs once or twice a year. Management is a process that is 24/7, so staff recognitions should be given when good performance is noted and reprimands handled swiftly, ending on a positive note as prescribed by the One Minute Manager.²²
• Making work a burden instead of fun. Typically, the main culprit is not celebrating achievements enough. As Jack Welch says, “Work is too important a part of life not to celebrate achievements when you have them.”
• Lack of collaboration both internally and externally. This has been covered in Drucker's wisdom earlier in this chapter.

Getting Technology to Deliver

There is a major issue with technology and applications. The issue is that applications are being delivered by very clever young staff who have never operated in business. I call them freshly-minted MBAs.

Jeremy Hope, coauthor of Beyond Budgeting,²³ points out that of the millions spent on systems, where is the paperless office?

Toyota, the cautious and thinking company, interestingly enough has avoided the major technology mistakes of other large organizations. They have a principle:

Toyota Principle 8: Use only reliable, thoroughly tested technology that serves your people and processes.

This has meant they are naturally skeptical about new systems and their claims until they have seen them working elsewhere and then they improve the system to fit the Toyota way. This principle based on caution has enabled Toyota to ensure that technology, when implemented, will deliver.

Moving from Management to Leadership

As Peter Drucker said, “Management is about doing things right and leadership is about doing the right things.” To revitalize performance management in an organization, there has to be a massive switch in thinking. We need the organization to invest in their leaders, ensuring that they have the training and opportunity to grow, that they work in an environment in which mistakes are seen as a learning experience rather than as a reason for a reprimand, and that they have created a place where they breed the chief executive officers of the business.

Organizations that consistently recruit their CEOs externally are saying we have failed. In my view any board that presides over this catastrophe should step down. They have failed the very basic 101 test: How to grow leaders.

Notes

¹ David Parmenter, “Should We Abandon Performance Measures?” Cutter IT Journal, January 2013.

² Robert K. Greenleaf and Larry C. Spears, Servant Leadership: A Journey into the Nature of Legitimate Power and Greatness, Paulist Press International (U.S.), 25th Anniversary Edition, 2002.

³ David Parmenter, The Leading-Edge Manager's Guide to Success (Hoboken, NJ: John Wiley & Sons, 2011).

⁴ Peter F. Drucker, Managing the Non-Profit Organization (New York: HarperBusiness, 2006).

⁵ Jack Welch and Suzy Welch, Winning (New York: HarperBusiness, 2005).

⁶ Thomas J. Peters and Robert H. Waterman, In Search of Excellence: Lessons from America's Best Run Companies (New York: Harper & Row, 1982).

⁷ Gary Hamel, The Future of Management (Boston: Harvard Business School Press, 2007).

⁸ Jeremy Hope, Reinventing the CFO (Boston: Harvard Business School Press, 2006).

⁹ Welch and Welch, Winning.

¹⁰ Jeremy Hope, Reinventing the CFO (Boston: Harvard Business School Press, 2006).

¹¹ Jim Collins, Good to Great: Why Some Companies Make the Leap and Others Don't (New York: HarperBusiness, 2001).

¹² For examples of high-performing teams, see David Parmenter, The Leading-Edge Manager's Guide to Success: Strategies and Better Practices (Hoboken, NJ: John Wiley & Sons, 2011).

¹³ John Kotter, Leading Change (Boston: Harvard Business Review Press, 2012).

¹⁴ Robert S. Kaplan and David P. Norton, The Balanced Scorecard: Translating Strategy into Action (Cambridge, MA: Harvard Business Press, 1996).

¹⁵ Jeffrey K. Liker, The Toyota Way: 14 Management Principles from the World's Greatest Manufacturer (New York: McGraw-Hill, 2003).

¹⁶ Stephen Few, Show Me the Numbers: Designing Tables and Graphs to Enlighten (Burlingame, CA: Analytics Press, 2004); Information Dashboard Design: The Effective Visual Communication of Data (Sebastopol, CA: O'Reilly Media, 2006); Now You See It: Simple Visualization Techniques for Quantitative Analysis (Burlingame, CA: Analytics Press, 2009).

¹⁷ Edward R Tufte The Visual Display of Quantitative Information17 (Graphics Pr; 2nd edition 2001).

¹⁸ Few, Show Me the Numbers; Information Dashboard Design; Now You See It.

¹⁹ Elizabeth Haas Edersheim, The Definitive Drucker: Challenges for Tomorrow's Executives—Final Advice from the Father of Modern Management (New York: McGraw-Hill, 2006).

²⁰ Jim Collins, How the Mighty Fall: And Why Some Companies Never Give In (New York: HarperCollins, 2009).

²¹ Parmenter, The Leading-Edge Manager's Guide to Success.

²² Ken Blanchard and Spencer Johnson, One Minute Manager (New York: Morrow, 1982).

²³ Jeremy Hope and Robin Fraser, Beyond Budgeting: How Managers Can Break Free from the Annual Performance Trap (Boston: Harvard Business School Press, 2003).