Strategic

Performance
Management

Chapters 1 + 2

© A.A. de Waal, 2007 1

 MATERIAL ACCESS WEBSITE

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© A.A. de Waal, 2007 2

 Course Program
 Importance of performance management
 Strategic performance management development cycle
 Problems + ‘perverse’ effects
 Responsibility structure
 SMART objectives
 Critical success factors & key performance indicators
 Balanced scorecard
 Exception-, action- & future oriented reporting
 Organisational performance driven behaviour
 Individual performance driven behaviour
 Implementation

© A.A. de Waal, 2007 3

 Course Objectives
 To gain insights to the problems of current
management information systems
 To provide students with insights into the need for and
importance of performance management in creating
successful organisations
 To understand the sub-processes of the strategic
performance management process and the strategic
performance development cycle
 To determine whether an organisation is ready for
strategic performance management

© A.A. de Waal, 2007 4

 What is performance management?
Performance management is the
process where steering of the
What is
performance organisation takes place through the
management? systematic definition of mission,
strategy and objectives of the
organisation ...
... making these measurable through
critical success factors and key
performance indicators in order to ...
... be able to take corrective actions
for keeping the organisation on
track.
© A.A. de Waal, 2007 5
 WHAT IS STRATEGIC PERFORMANCE
MANAGEMENT
• SPM is an organisational approach to define, assess, implement, and
continuously refine organisational strategy.
• They are defined as formal, information-based routines and procedures
managers use to impact organizational activities.
• They focus on conveying financial and nonfinancial information that
influence decision making and managerial action.
• These systems are designed specifically for use by managers, and are
embedded in predetermined practices at different times in the business cycle
• It encompasses methodologies, frameworks and indicators that help
organisations in the formulation of their strategy and enable employees to
gain strategic insights which allow them to challenge strategic assumptions,
refine strategic thinking, and inform strategic decision-making and
learning.
– In a performance driven culture, strategy becomes every ones’ job.

© A.A. de Waal, 2007 6

 WHAT IS MANAGEMENT CONTROL
SYSTEMS (MCS)
• MCS are defined as formal, information-based routines and
procedures managers use to Maintain or alter patterns in
organizational activities (Simons, 1995) .
• Management control system can be defined as: “the process of using
organization resources to achieve organizational objectives through
planning , organizing, staffing, leading and controlling”.
• While Fisher (1995) referred to MCS as “collection of control
instruments”
– For example we can consider the budget, performance measurement, and
bonuses as control tools in our daily work activities.
• Its a process that managers observe in order to influence and impact
the performance and behaviour of the employees
• The focus is more financial unlike SPM that also considers non-
financial measures as well.
© A.A. de Waal, 2007 7
 UNDERPINNING THEORIES OF SPM
• Strategic performance management is grounded in fields
including:
– Strategic management
– Organisational learning
– Theory of measurement (Fisher, 1995; Spekle, 2004)
– Theory of psychology

© A.A. de Waal, 2007 8

 •Organizational mission
development

•Goal-setting and •Evaluation

Strategy

•Strategy implementation

•Management control and information system

•Structure •Process

•Organisational
structure

•Performance •Activities:
measurement system Target setting and realization
Resource allocation
•Planning and Performance evaluation
control cycle Corrective action taking
•Management
information
infrastructure

© A.A. de Waal, 2007 •Management style 9

 The sub-processes of the strategic performance management process

•Strategy
development

•Budgeting/
target setting

•Incentive/ •Execution /
•Performance
compensation forecasting
measurement

•Performance
review

© A.A. de Waal, 2007 10

 RELEVANT PERFORMANCE DATA
• Relevant performance data is used to:
– Learn
– Validate
– Challenge strategic assumptions
– Assess risks.
– Evaluate the suitability of mergers and acquisitions
– Facilitate decision-making and actions.

© A.A. de Waal, 2007 11

 CURRENT TRENDS AND DEVELOPMENTS
• Globalisation-Borderless economy
• New technology-ICTs and Internet has led to the ‘death of distance’
• Asia-hard working, raised educational levels and strong social and family
relations has given the Asian countries a strong foundation
• Terrorism (gaps between ‘have – have nots’,rich and poor nations widening
causing conflicts and terrorism)
• Environment-global warming and environmental polution causing political
conflicts and fighting for scarce resources such as water
• Demographics-aging population in the western countries causing: labour
movement from developing countries, low economic growth
• Intangibles-knowledge, skills, ingenuity and resoursefull employees give
competitive advantage
• More information internal + external (transparancy)
• New leaders- who can inspire, adapt and take the organisation along

© A.A. de Waal, 2007 12

 Change, change, change
Use of more non-financial information
More forecasting of the future
Oimproved implementation of projects
Making information flows more reliable
Development of strategic skills
More efficient budgeting
More use of ICT
Focus on turnover growth
Kosten reduceren
Implementation of new laws & regulations
Focus on corporate governance
Focus on behavioural aspects
Focus on integrity
Focus on risk management
More benchmarking
Focus on creating value
Development of enterprise intelligence
Focus on intangibles
Development of E-finance function
Outsourcing of processes

© Research 0 10 20 30 40 50 60 70 80 90
© A.A.
A.A. dede Waal,
Waal, 2007 2006 Increasing relative importance (in %) 13
 Change, change, change
• The above study was conducted in Belgium and Holland
• It showed the increasing importance of all the changes.
• Frequent changes in the environment introduces
complexities that promote uncertainty.
• There is greater reliance on SPM to enable organisations
to operate in such uncertain environment in order to
effectively manage organisational work.
• This requires leaders that are INSPIRATIONAL and
ADAPTABLE to a changing situation and can BRING the
organisation along with them.

© A.A. de Waal, 2007 14

 The strategy gap

Strategy Execution

“In too many companies there is a grand, and overly vague, long-term
goal on one hand…and detailed short-term budgets and annual plans
on the other hand … with nothing in between to link the two together

… the long term doesn’t start at year five of the current

strategic plan. It starts right now!”
Competing for the Future by Gary Hamel and C.K. Prahalad (Harvard Business Press)

© A.A. de Waal, 2007 15

 Characteristics of performance-driven organisations
Performance improvement
Characteristic Significant Some None

Management team has created a sense of urgency 84% 38% 20%

Strategy is translated into a balanced scorecard 84% 41% 0%
Key performance indicators are aligned on all levels 72% 39% 0%
Everyone knows the strategy 56% 32% 0%
Individual + team targets are aligned with the strategy 42% 26% 0%
Balanced scorecard is an integral part of the strategic
100% 40% 0%
planning proces
Budgets are aligned with the strategy 42% 29% 0%

Source:
‘The future of the balanced scorecard: an interview with prof. dr. Robert S. Kaplan’,
A.A. de Waal, Measuring Business Excellence, vol. 7, no. 1, 2003

© A.A. de Waal, 2007 16

 Characteristics of well-performing organisations

Fluctuating = Good performance =

Strong vision + Strong vision +
Weak Strong
implementation implementation

Vision
Excellent
Going nowhere = Conservative =
Weak vision + Weak vision +
performance
Weak Strong management
implementation implementation

Implementation
Source:
17
© A.A. de Waal, 2007 ‘Power of Performance Management, How Leading Companies Create
Sustained Value’, A.A. de Waal, John Wiley & Sons, 2001
 MANAGING PERFORMANCE IN AN ENABLED LEARNING
ENVIRONMENT
Design and collect
indicators

Business model ACT Analyse, review,

(value creation challenge and
map and value interpret
narrative)

Extract insights and

better- informed decisions

© A.A. de Waal, 2007 18

 Measure the right things

 Critical Success Factor (CSF) = an

organisational variable, critical for
successfully reaching the strategic objective
.i.e. qualitative

 They are the few areas where things must be

right

 They require constant and careful

management attention

 They give competitive advantage for the

organisation if they are satisfactory
© A.A. de Waal, 2007 19
 Measure the right things

 Key Performance Indicator (KPI) =

a measurable parameter for the CSF
that gives information about that CSF,
i.e. Quantifying the CSF

© A.A. de Waal, 2007 20

 Example CSF + KPI

KPI 1
COMPLAINTS

Critical
Strategy Success Factor KPI 2
Strategic Objective
SATISFIED
Customer Increase customer CUSTOMERS CLIENT SATISFACTION
focus
is no. 1
QUALITATIVE
KPI 3

REPEAT BUSINESS

QUANTITATIVE

© A.A. de Waal, 2007 21

 What do you do?

2006 Total
Efficiency TOTAL Target

10%
8%
6%
4%
2%
%

0%

37
13

17

21

25

29

33

41

45

49
9
1

-2%
-4%
-6%
-8%
Weeks

© A.A. de Waal, 2007 22

 Driving along …

Mission /
Strategy

Forecast Check points:

here you
want to go

Past

Present
© A.A. de Waal, 2007 23
 MAIN USES OF A STRATEGIC PERFORMANCE MANAGEMENT
SYSTEM
1. Controlling
2. Reactive performance •Data
improvement processing
3. Proactive performance
Strategic Used improvement Collecting
Through
performance
for
4. Planning Verificating
management 5. Performance evaluation + Sorting
system rewarding Analysing
6. Reconfirmation
management messages
Interpreting
7. Influencing people’s distributing
behavior
8. Benchmark studies
9. Individual and
organizational learning
10. Focus and basis of
investments
© A.A. de Waal, 2007 24
 BENEFITS OF PERFORMANCE
MANAGEMENT SYSTEMS

Hard High quality Timeliness

of information of information

Management
Efficient Support
Soft communication
Aligned culture
Short term Long term

© A.A. de Waal, 2007 25

 Performance-driven organisations are more successful !

100%
Degree of success

80% 97 %
83 % 80 %
60% 74 %
40% 52 % 55 %
4444%
% 45 %
20%

0%

Organisations without Organisations with structured PM

structured PM
Source:
Seen as an industry leader over the past 3 years American Management
Association, research by William
Financially ranked in the top 3 of its industry Schiemann & Associates, 1996-9

Last major cultural or operational change very successful

Three year return on investment (ROI)

© A.A. de Waal, 2007 26

 Performance-driven organisations are more successful !

Performance factors Effect of performance management

Reaching organisational targets positive

Higher quality of work very positive
More innovation positive
Source:
‘Quest for balance’, A.A. de Waal, John Wiley & Sons, 2002

© A.A. de Waal, 2007 27

 Reasons why performance management helps

 IT CREATES CLARITY:
 CLARITY on goals to be achieved
 CLARITY on responsibilities
 CLARITY on tasks
 CLARITY on results achieved
 CLARITY on consequences of non-performance
 CLARITY on support to be expected
 Counteract escape + shunning behaviours
 Better results
 Fosters professionalism

© A.A. de Waal, 2007 28

 Problems with current performance management
• Strong focus on finance
• Strong financial focus • Hockey-stick effect
• Data collection Strategy • Weak link between
labour intensive development strategy and operations

• Too internally • Too many details

and short-term • Labour intensive
Budgeting/ • Financial contract
focussed Target setting
• Limited • Manipulation

Incentive Performance Execution/

compensation measurement Forecasting

Performance • Actions not

• Strong financial focus review systematically tracked
• Not action oriented enough • Limited forecasting

© A.A. de Waal, 2007 29

 Strategic Performance Management development cycle

1.
Design a
Strategic Management
Model

The
Performance-driven
Organization

3. 2.
Design a
Design a
Performance-driven
Behavioural
Strategic Reporting
Model Model

© A.A. de Waal, 2007 30

 Strategic Performance Management development cycle
1. Designing the strategic management model which consists of :
a) setting up responsibility structure,
b) developing scenarios,
c) developing the organisational mission, strategy, strategic objectives, and
d) developing strategic action plans.

2. Design a strategic reporting model, which consists of:

a) developing CSFs and KPIs,
b) developing exception and action reports,
c) developing a BSC,
d) setting up management information technology architecture, and
e) setting up key process model.

3. Designing a performance-driven behavioural model, which

consists of:
a) establishing the characteristics of performance-driven behaviour,
b) aligning personal objectives with strategic objectives,
c) linking performance management with competency management.
© A.A. de Waal, 2007 31
 Feasibility Analysis
Feasibility Analysis Questionnaire: To assess if an organisation is ready for a strategic performance
mgt system
1. Do organisational members acknowledge that the current performance management system does not
provide them with sufficient support?
2. Do organisational members agree on the necessity and the importance of performance management?

3. Is the organisation itself stable?

4. Is the organisation’s working environment stable?
5. Do organisational members agree on the starting time of the performance management improvement
project?
6. Are there enough resources available for the performance management improvement project?

7. Are there any other change processes in progress within the organisation that have a relation with the
performance management improvement project?
8. Is the management team sufficiently involved in the performance management improvement project?

9. Are there organisational members that have earlier positive experiences with performance management?

10. Do organisational members have clear insight into the market and the position of the organisation in it?

11. Has the organisation a mission and a strategy?

12. Do organisational members have insight into the business processes, the organisational structure, and
the relationship between these?
13. Does the organisation have an open communication structure?
©Start the
A.A. de strategic
Waal, 2007 performance management improvement project? 32
 DISCUSSION QUESTIONS (Groups 1 &2)

• What causes Strategic Performance Management to be

especially important these days?
• Distinguish efficiency from effectiveness.
• Why aren’t the current management control and
information systems good enough anymore?
• What does SPM add that MC&IS lacks?
• What is the relationship between KPI and CSFs?
• What determines PMS feasibility?

© A.A. de Waal, 2007 33

 Case - Ultraviolet Design’s Feasibility Analysis

Case study on Feasibility

Analysis:
 read description of company;
 discuss questions in the group;
 reflect: feasibility, barriers, nuancing;
 prepare a presentation;
 professor selects groups to present;
 other groups give comments.

© A.A. de Waal, 2007 34

 GROUPS 3 &4 ASGT: CASE 2.8-UVD’S
FEASIBILITY ANALYSIS, p.48

• Should UVD start a performance management

improvement project?
• Fill in the feasibility analysis questionnaire to support
your answer

© A.A. de Waal, 2007 35

 WHAT A GOOD NEEDS TO DO

• Understand the global trends that have been taking

place
• Understand the strategic management process

© A.A. de Waal, 2007 36

 Strategic
Performance
Management

Chapter 3

© A.A. de Waal, 2007 37

 Agenda

• Responsibility
structure
• Parenting style
• Parenting
structure
• Case: UVD’s
parenting style

© A.A. de Waal, 2007 38

 RESPONSIBILITY STRUCTURE

• The starting point of SPM system is setting up

consistent responsibility structure
• What is that you want head quarters to control?
• Head quarters should obviously have more time for:
– Long term strategic thinking and direction
– Coaching and training managers

© A.A. de Waal, 2007 39

 Unclear responsibility structure

Organisation

Corporate Divisions/BUs

© A.A. de Waal, 2007 40

 Clear responsibility structure

• Roles and responsibilities are crystal clear, on all

management levels.
• Chosen responsibility structure is applied consistently.
• UNAMBIGIOUS parenting style + parenting structure

 Clear responsibilities and expectations in

regard to action orientation.
 Management information needs are clear.

 Univocal organisational direction.

© A.A. de Waal, 2007 41

 PARENTING STYLE

• The parenting styles differ :

– In the extent of influence that corporate headquarters has on
strategic development processes of lower levels in the
organisation, and
– The method of control used by H/Q
• It depends with the frequency and intensity of H/Q in the
strategic development process of the lower levels
• It also depends with the control tools (sanctions, incentives,
promotion/demotion)

© A.A. de Waal, 2007 42

 PLANNING INFLUENCE

• If the holding company acts to shape strategies and guide

strategic decisions, the parent is exerting "planning influence”.
• According to Goold and Campbell (1987), there are at least
seven tools the parent can use to influence the planning of the
businesses:
1. organisation structure
2. review of subsidiary plans
3. strategic themes
4. broad strategic thrusts
5. specific suggestions
6. management of overlaps between businesses, and
7. allocation of resources

© A.A. de Waal, 2007 43

 CONTROL INFLUENCE
• The second type of influence is "control influence”.
• Control influence focuses on the output and results of
decisions.
• It is comprised of activities the holding company uses to
drive the performance of subsidiaries.
• It emerges from the performance targets that are set, the
monitoring of those targets and the pressures and
incentives from achieving or failing to achieve the set
targets.

© A.A. de Waal, 2007 44

 PARENTING STYLES

• From these influences (Planning and Control),

seven different parenting styles have been
identified that fit into three overarching styles:
1. Financial Control
2. Strategic Control, and
3. Strategic Planning.

© A.A. de Waal, 2007 45

 Parenting styles
High
Strategic
- Corporate’s influence on the
planning
strategic planning process -

Strategic
control

Financial
control
Low
Flexible Tight Tight
Strategic Financial
- Corporate’s manner (influence) of controlling
lower management levels -
© A.A. de Waal, 2007 46
 Parenting framework

• This parenting framework focuses on the

competences of the parent and the value created
from the relation between the parent and the
businesses.
• The degree to which the parent use planning and
control results in a certain parenting style

© A.A. de Waal, 2007 47

 Parenting styles

• Strategic planning: the higher organisational level

exerts much planning influence on lower
organisational levels.
• Strategic control: lower organisational levels have
some degree of independance, there is regular and
periodic communication and tuning with the higher
organisational level.
• Financial control: lower organisational levels have a
high degree of independance, there is periodic
financial reporting to the higher organisational level.
© A.A. de Waal, 2007 48
 STRATEGIC PLANNING
• The targets are the result of the strategic planning sessions.
• In general both short and long-term targets are set.
• Both financial and non-financial targets are set.
• The goal is more to follow the long-term strategy than
specific short-term goals.
• As long as the business is on track with regard to the
strategy, deviations from agreed upon specific goals is
often accepted

© A.A. de Waal, 2007 49

 STRATEGIC PLANNING
• Responsibility is with the subsidiaries, but non-finance functions
have more influence under this model
• The resulting organization is more complex.
• There often are levels that provide input on the strategy of a
business.
• Better use is made of the interdependence and synergies between the
businesses that results in a more effective overall strategy.
• The holding company provides specific suggestions for the strategy
of individual business.
• Strategic Planning companies have elaborate planning systems to
measure strategic achievements, but do not rely on control.

© A.A. de Waal, 2007 50

 STRATEGIC CONTROL
• In ‘Strategic Controller’ companies want to have influence on the
business unit planning
• There are clear strategic responsibilities for the business units.
• The strategic initiative is left as much as possible to the subsidiaries.
• Each business unit is a profit centre and there is less coordination
between the different subsidiaries.
• The managing director is responsible for the subsidiary.
• The holding company is small with strong finance and strategic
functions.
• ‘Strategic Controller’ companies have a formal and structured
planning process: both the budget and plans are set and reviewed in
a structured way.

© A.A. de Waal, 2007 51

 STRATEGIC CONTROL
• The process starts with guidelines sent out by the parent,
including topics and forms of reporting.
• On the basis of this, a narrative strategic plan is made, which is
the foundation for a more detailed long term plan.
• Finally, a more detailed one-year operating plan is made which
includes the budget and the steps to make towards the
achievement of the strategy.
• The plan will be analysed in detail to achieve a final plan.
• All plans (both financial and strategic) should be consistent
with the strategy.

© A.A. de Waal, 2007 52

 STRATEGIC CONTROL
• They have strong incentive schemes.
• The incentive scheme has both a carrot and stick affect.
• Failure to achieve the set targets is penalised, often with
dismissal (stick), but achievement is rewarded (carrot).
• The biggest problem of a ‘Strategic Controller’ company is
that the combination of tight enforcement of targets and
the balance of long-term strategic goals lies with the
measurement of the goals

© A.A. de Waal, 2007 53

 FINANCIAL CONTROL

• The Financial Controller parent will exert little influence on the

formulation of strategy but puts most attention on the financial
performance of the subsidiary.
• The subsidiary director is responsible for the business and the
company is as independent of operational influence from the
holding company as possible.
• Each business unit is a profit centre.
• It is possible that a divisional layer is in place, but
responsibilities are delegated as much as possible.
• The holding company is small with a strong finance function.

© A.A. de Waal, 2007 54

 FINANCIAL CONTROL
• Finance directors have an important role in the decision making process.
• Subsidiary finance directors may report directly to the holding company
CFO and therefore have a higher status than in other types of parenting
models.
• ‘Financial Controller’ companies in general set the same financial
objectives for their businesses: a stretching standard that the managing
director has to achieve.
• A managing director proposes a target that he can achieve and if possible,
that is better than the previous one.
• It is important that the targets are stretched.
– They will put great demand on the subsidiary managers.
• In general, financial results are monitored on a monthly and quarterly
basis.
– Together with the numbers, an explanation is presented, in which specific deviations
from the set target are highlighted.
© A.A. de Waal, 2007 55
 CHARACTERISTICS OF THE THREE PARENTING STYLES
Strat. Planning
Rapidly changing, fast
Type of
growing or fiercely
Industry
competitive industries.

Parent role HQ establishes plans
&direction
SBUs & divisions seeks
consensus with HQ & other
SBU role
SBUs for business initiatives
Organisation Large supporting central
Structure staff at HQ (Shared e.g.
marketing, PR, Legal)  HQ acts as Strategic
Resource allocation on the
basis of long-term
Planning
organisational goals. Planning
process
influence is high
Control
process
HQ puts low priority on
periodic monitoring of
monthly financial results
Value creation
© A.A. de Waal, 2007 Creation of new SBUs
focus
Strat. Control Fin. Control

Mature, stable industries, Wide variety of
& stable competitive
industries
situation
Planning is decentralized,
HQ role is checking, Strong decentralization
assessing & sponsoring & ownership by SBUs’

SBUs have own SBUs are Independent
responsibility entities, sometimes
for strategies, plans &
cooperate synergetically
proposals
Decentralised staff. Minimal supporting
Controller
staff from HQ

Negotiation of Focus on yearly financial
financial and non- budget and targets
financial goals & HQ planning influence is
targets low
Monthly review of Limited to review of
planned versus
realized. HQ acts as

achievement of financial
goals. Control by HQ is
Strategic Controller financial
Long term strategies & Operating improvements & 56
goals of SBUs financial control
 •DIFFERENT CORPORATE MANAGEMENT
STYLES
Strategic Planning
Business Strategy Businesses and corporate HQ jointly
Formulation formulate strategy. HQ coordinates
business unit strategies
Controlling Primarily strategic goals with medium- to
Performance long-term horizon.
Advantages Effective for exploiting (a) linkages among
businesses, (b) innovation, (c) long-term
competitive positioning.
Disadvantages Loss of divisional autonomy and initiative.
Conducive to unitary strategic view.
Tendency to persist with failing strategies.
Style suited to Companies with few closely-related
businesses. Works well in competitive,
technology-intensive sectors where
investment projects are large and long
term.
© A.A. de Waal, 2007
Financial Control
Strategy formulated at business unit level.
Corporate HQ largely reactive, offering
little coordination.
Financial budgets set annual targets for
ROI and other financial variables with
monthly/quarterly monitoring.
Business unit autonomy supports
initiative, responsiveness, efficiency, and
development of business leaders.
Short-term focus discourages innovation
and long-term development. Limited
sharing of resources and capabilities
among businesses.
Highly diversified companies with low
relatedness among businesses. Works well
in mature, low-tech sectors where
investment projects are relatively small
and short term.
57
 CLASS DISCUSSION

• One of the most important conclusions of the research

of Goold and Campbell is that no single model is
perfect for every company.

• Which parenting style influences you the most and

why?

© A.A. de Waal, 2007 58

 STRUCTURE

• The structure of an organisation aligns specific tasks &

activities with the right people with the specific skills so
that the organisation’s goals can be achieved.
• The organisation structure is ‘a social creation of rules,
roles and relationship which at the best facilitates effective
coordination and control’ Dawson (1996)
• The structure has a significant role in the communication
process between different organisational levels.
• A parenting structure indicates how the control processes
between HQ and SBU are organised and the relation
between the two is established
© A.A. de Waal, 2007 59
 Parenting structure
1. Simple reporting –
i. Corporate headquarters stands directly above business units.
ii. There is direct and frequent contact between the two management levels.
iii. Communication is direct and frequent.

2. Divided parenting – Specialist groups are created at corporate

headquarters, thereby increasing the managing capacity. There
are 4 sub structures:
i. Contact executives
ii. Existing business vs. corporate development
iii. Shared responsibilities, and
iv. Matrix.

3. Duplicated parenting –
i. The same basic tasks are repeated at different levels of aggregation.
ii. Each level parents the level below + exerts influence beyond that level.

© A.A. de Waal, 2007 60

 Parenting structure

1. Simple reporting
2A. Contact executives
2B. Existing business vs.
2. Divided parenting corporate development

2C. Shared responsibilites 3. Dupicated parenting

2D. Matrix
© A.A. de Waal, 2007 61
 Parenting structure

• THE PARENTING STYLE AND STRUCTURE HAVE

CONSEQUENCES FOR:
1. Strategy development
2. Budgeting
3. Forecasting
4. Reporting
5. Review process
6. Content and layout of reports
7. Systems supporting the performance management
process.

© A.A. de Waal, 2007 62

 CHAPTER SUMMARY
• High performance organisations establish a consistent responsibility
structure with clear roles and accountability for corporate HQ and
SBUs
– They reach a consensus about what should be controlled where
• Choosing a parental style and parenting structure defines and clarifies
the relationship between the organisational structure (roles and
responsibilities) & the performance management process
• The parenting style stipulates the way in which HQ influences the
strategic planning and operational control processes on SBUs
• The parenting structure stipulates the way in which the control
process between HQ and SBUs is structured
• Each management level has to stick to the chosen and communicated
parenting style and structure consistently.

© A.A. de Waal, 2007 63

 Case - Ultraviolet Design’s parenting style

Case study on parenting style +

parenting structure:
 read description of company;
 discuss questions in the group;
 reflect: feasibility, barriers, nuancing;
 prepare a presentation;
 professor selects groups to present;
 other groups give comments.

© A.A. de Waal, 2007 64

 DISCUSSION QUESTIONS

• 1 Explain with examples the ‘parenting styles’.

• 2 Explain with examples the ‘parenting structures’.
• 3 Does parenting style influence structure?
• 4 Your questions, comments, reactions?

© A.A. de Waal, 2007 65

 WHAT A GOOD STUDENT NEEDS TO DO

• An understanding of the three parenting styles is

warranted.

© A.A. de Waal, 2007 66

 GROUPS 5&6: 3.5 Case Study-UVD’s
responsibility structure, p.79 (Ecobank and SEC)

1. What are the existing parenting style and parenting structure

of UVD?
2. What should the desired parenting style structure of UVD be?
3. What are some of the consequences of the chosen parenting
style and parenting structure for UVD’s existing strategic
performance management system?

© A.A. de Waal, 2007 67

 Strategic
Performance
Management

Chapters 4 + 5

© A.A. de Waal, 2007 68

 Agenda

• Scenarios
• SMART
objectives
• Case: UVD’s
objectives

© A.A. de Waal, 2007 69

 Why objectives ?

“Would you tell me please which way I ought to go from here?”

asked Alice.
“That depends a good deal on where you want to go to”,
said the Cat.
“I don’t much care where”,
said Alice.
“Then it doesn’t matter which way you go”,
said the Cat.

- Alice in Wonderland -

© A.A. de Waal, 2007 70

 Characteristics of good objectives

• An objective has to describe an activity that leads to

the desired final result.
• An objective has to be defined in concrete, not
abstract terms.
• An objective must express action. This is done by
using a verb with an active connotation (e.g.
‘Improve …’).
• An objective must relate to the area of responsibility
of the manager for whom the objective is developed.
• There should be a limited number of objectives per
manager (no more than 5 to 7).
© A.A. de Waal, 2007 71
 HOW DOES THE CASCADE LOOK LIKE ?

MISSION

OBJECTIVES
CHECKPOINTS
• Specific
• Measurable
CRITICAL SUCCESS FACTORS • Acceptable
• Realistic
• Time bound

KEY PERFORMANCE INDICATORS

•Straregic Performance Management @

•72
DDM
 The use of the cascade results in SMART objectives

• Specific: the objective is concrete, unambiguous

(susceptible only to one explanation so no
misunderstandings can occur) and relevant.
•Measurable: the achievement of the objective can actually
be measured.it must be possible to translate the objective
into CSFs and KPIs, but these measurements do not have to
be incorporated in the objective itself
• Acceptable: the objective is motivating for and acceptable
to the employees.
• Realistic: the objective is ambitious yet achievable (in
regard to time, money and capacity needed).
• Time bound: the objective has to be achieved in a specific
time frame
© A.A. de Waal, 2007 73
 Objectives need to be SMART

Acceptable

$ #
Δ%
Objectives

© A.A. de Waal, 2007 74

 Strategic alignment

Management team Strategy Strategic

objectives

How can I as
Divisions division contribute to Divisional
achieving the strategy? objectives

Business units How can I as business

unit contribute to achieving the BU
divisional objectives? objectives

© A.A. de Waal, 2007 75

 Case 4.5 - Ultraviolet Design’s objectives

Case study on objectives:

 read case 4.5;
 discuss questions in the group;
 reflect: feasibility, barriers, nuancing;
 prepare a presentation;
 professor selects groups to present;
 other groups give comments.

© A.A. de Waal, 2007 76

 Scenario planning

Defined as:
The process of positing several informed, plausible and
imagined alternative future environments in which decisions
about the future may be played out, for the purpose of changing
current thinking, improving decision making, enhancing human
and organisation learning and improving performances.

© A.A. de Waal, 2007 77

 SCENARIO PLANNING
• High performing organisations build robust, resilient, and
adaptive plans by applying scenario thinking and ‘what-
ifs’
• They draft resilient strategies and plans tailored to the
levels of uncertainty in the environment
• A well formulated strategy indicates how the organisation
wants to anticipate changes in the environment, and the
consequences these changes will have on the quality, price,
delivery times of its products and services.

© A.A. de Waal, 2007 78

 Scenario planning

scenario 1 scenario 2 scenario n

result 1

result 2

result n

MISSION + CONSEQUENCES
STRATEGY

© A.A. de Waal, 2007 79

 WHAT A GOOD STUDENT SHOULD DO

• An appreciation of SMART objectives is needed

© A.A. de Waal, 2007 80

 GROUPS 7 &8 ASGT: CASE 4.5-UVD’S
STRATEGIC OBJECTIVES, p.91

• Are the strategic objectives of UVD smart?

• If not how would you formulate them?
• Would you keep all the existing strategic objectives, or
add or remove them?
• Could UVD use these strategic objectives for lower
organisational levels?

© A.A. de Waal, 2007 81

 Strategic
Performance
Management

Chapter 6

© A.A. de Waal, 2007 82

 Agenda

• CSFs + KPIs
• Results
vs.effort
• Role play:
UVD’s BSC

© A.A. de Waal, 2007 83

 CRITICAL SUCCESS FACTORS (CSFs)
• CSFs are ‘the limited number of areas in which results, if they
are satisfactory, will ensure successful competitive
performance for the individual, department or organisation.
(Rochart, 1979)
• ‘CSFs are the few key areas where 'things must go right' for
the business to flourish and for the manager's goals to be
attained’ (Bullón and Rochart 1981, p. 7).
• CSFs are the factors capable of providing the greatest
competitive leverage
• Like goals and objectives, CSFs appear at various levels in the
management hierarchy
• CSFs are the factors that must be achieved if the company's
overall goals are to be attained
© A.A. de Waal, 2007 84
 CRITICAL SUCCESS FACTORS (CSFs)

• The concept of using CSF maintains that GOALS are only

achievable when broken down into simpler OBJECTIVES
and TASKS, thus making the ELEMENTS CRITICAL.
• CSF approach to management says that business
managers and leaders should identify and stay doggedly
focused on CSFs
• CSFs are actionable and, to a variable extent, controllable
by management.

© A.A. de Waal, 2007 85

 Focus on translating added value strategies

• Identify financial + non-financial value

drivers (critical success factors)
• Cascade a balanced scorecard to all levels
• Follow strategic developments closely on
all levels

 Shared understanding of the value + performance

determining factors in the organisation
 Focus on added value actions throughout the
organisation
© A.A. de Waal, 2007 86
 How to get to CSFs and KPIs ?

OBJECTIVE
– Specific
– Measurable
– Acceptable
– Realistic
– Time period

CRITICAL SUCCESS FACTORS

– Result
– Effort

KEY PERFORMANCE INDICATORS

© A.A. de Waal, 2007 87

 CSFs and KPIs

CSF is a ‘qualitative description of an

element of the strategy in which the
organisation has to excel in order to be
successful’

It is made quantifiable with a KPI

The use of both CSF and KPI enables

the measurement, and thus the
management of strategic objectives.

© A.A. de Waal, 2007 88

 How to get to CSFs?

Start from the objectives:

“What is the result, when we

have achieved our objective?” CSF
“What do I absolutely need to do, to be (result)
able to achieve the objective ?
(without this, I will never be able
to achieve the objective!) ”- process/effort
CSF
Critical effort is the one that needs to be (effort)
monitored
CSF (result) is the ‘what’ & CSF (effort) is
the ‘how’
© A.A. de Waal, 2007 89
 Result vs. Effort (1)

result
desired
end result

critical efforts
time
You want to ensure that you are doing the right things (results) right (effort-process).
This is the notion of effectiveness and efficiency.
© A.A. de Waal, 2007 90
 Result vs. Effort (2)

result
desired
end result

time

© A.A. de Waal, 2007 91

 How to get to KPIs ?

• CSF “How can I measure the result ?” or

“With what can I judge the result”

Key Performance Indicator

• Definition KPI: “Which elements make up the KPI?”

(ratio numerator/denominator)
© A.A. de Waal, 2007 92
 Intangible dimension/
difficult to measure

Optical performance

Tangible
dimension/
easy to
measure

© A.A. de Waal, 2007 93

 TOWARDS ASSESSMENT AND INDICATORS

Performance Performance
measurement assessment

Performance Performance
measure indicator

© A.A. de Waal, 2007 94

 CSF FOR QUALITY BUSINESS EDUCATION
• CSF for quality business education can be identified as follows:
1. Quality of students
– Students with academic ability, personal characteristics, and
leadership experience
2. Pedagogy
– Pedagogical approaches beyond lectures include: case studies,
group and individual exercises, class assignments, project work
and presentations, role playing, and management games.
3. Placement
4. Faculty
– Research &development & apply knowledge through extension
and consultancy in Industries.
5. Infrastructure.
© A.A. de Waal, 2007 95
 CRITERIA FOR CSF

• Each objective should be measured with at least one

result CSF and no more than 2 effort CSFs
• For each CSF, no more than 3 KPIs developed
• CSFs should be financial and non-financial
• CSF is qualitative notion that describes how an
objective can be achieved e.g. Number of satisfied
customers’
• A CSF is clear, concise, and unambiguous

© A.A. de Waal, 2007 96

 Objective:
Result CSF:
Beter development
Qualified personnel
of personnel
Key performance indicator 1:
Achieved personal
objectives/targets

Key performance indicator 2:

Match between functions and
employees

Key performance indicator 1:

Training hours per employee

Key performance indicator 2:

Level of education of personnel

Effort CSF:
Training personnel

© A.A. de Waal, 2007 97

 Overview

Results-KPI:
Objective: Results-CSF:
Turnover growth at
Increase market Growth of current customers
share within x Market share
years within y Results-KPI:
regions Turnover at new
Effort-CSF 1: customers
Attention to Effort-KPI:
current Number of visits
customers
Effort-KPI:
Effort-CSF 2:
Cross-selling
…

© A.A. de Waal, 2007 98

 DISCUSSION QUESTIONS
1. Explain the difference between financial and non-
financial CSFs and KPIs?
2. Explain the difference between tangibles and
intangibles.
3. Why is it important to first define CSFs and then KPIs,
why can you not go directly to defining KPIs?
4. Explain, with examples, the difference between result
and effort indicators?
5. Why is it important to make a difference between
result and effort indicators?

© A.A. de Waal, 2007 99

 WHAT A GOOD STUDENT NEEDS TO DO
• An understanding of, and differences between CSFs
and KPIs

© A.A. de Waal, 2007 10

0
 UVD CASE STUDY 6.7, p140; Grps. 9&10
• Answer the three questions set: (Econet and ZMDC)
1. Briefly explain the process of going from mission and
strategy via strategic objectives to CSFS and KPIs.
– This way the presenters ensures that UVD’s management team is informed
and knowledgeable about CSFs and KPIs and is on one page.
2. Show one objective in detail, translating it in R-CSFs
and E-CSFs with the corresponding KPIs.
– This way the presenters show to the management team they know what they
are talking about.
3. Have a discussion on this objective and its CSFs and
KPIs, on the way forward and on the role of the
management team itself
© A.A. de Waal, 2007 10
1
 Strategic
Performance
Management

Chapter 7

© A.A. de Waal, 2007 10

2
 Agenda

• Balanced
scorecard
• Role play:
UVD’s BSC

© A.A. de Waal, 2007 10

3
 STRATEGIC IMPLEMENTATION
• Strategic implementation does not always attract as much
interest from academics and practitioners because it is
often viewed as operational.
• Strategy implementation is considered mundane,
mechanistic and plain ‘nuts and bolts’ activities which
require little creativity.
• The process of strategic implementation and evaluation
has remained organization specific and has not been well
documented.
• Robert S. Kaplan and David P. Norton (1992) developed
the Balanced Scorecard (BSC), a concept which
revolutionalized conventional thinking about performance
management metrics and strategy implementation
© A.A. de Waal, 2007 10
4
 BSC
• The BSC uses a combination of financial and non-financial
information
• It thus makes use of leading and lagging information
• Non-financial information helps managers to identify the
root causes of financial performance.
• It gives managers a set of indicators to help them monitor
progress of the business, compare with goals set and take
corrective action
– The premise is that measurement motivates.
• BSC allows strategy to happen continuously not just at an
annual strategy review session.
– Monthly or quarterly meetings become about the strategy as
opposed
© A.A. de Waal, 2007 to the operations. 10
5
 THE BALANCE SCORECARD
• “The scorecard fills the void that exists in most
management systems - the lack of a systematic
process to implement and obtain feedback about
strategy” (Norton and Kaplan,1996, p.280)
• BSC provides a meaningful integration of many
issues that come into evaluating a firm’s
performance
• Four key perspectives
- How do we look to shareholders? (financial perspective)
- How do customers see us? (customer perspective)
- What must we excel at? (internal perspective)
- Can we continue to improve and create value? (innovation
and learning perspective)
© A.A. de Waal, 2007 10
6
 Balanced Scorecard
FINANCIAL PERSPECTIVE

Target Results

How do we guarantee added

value for our shareholders ?

INTERNAL PERSPECTIVE
CUSTOMER PERSPECTIVE (Process perspective)
BALANCED Target Results
Target Results SCORECARD
Where must we
How do our clients excel at ?
perceive us ? Influences positively

INNOVATIVE PERSPECTIVE
(People perspective)
Target Results

How can we
© A.A. de Waal, 2007 continously improve ? 10
7
© A.A. de Waal, 2007 10
8
 MEASURES ASSOCIATED WITH THE FOUR
PERSPECTIVES
Innovation and Learning Customer
• Introduction of new products and services • Time
• Greater value for customers • Quality
• Increased operating efficiencies • Performance and service
• Cost

Internal Processes
• Processes Financial
- Cycle time
- Quality • Profitability
- Employee Skills • Growth
- Productivity • Shareholder value
• Decisions • Increased market share
• Actions • Reduced operating expenses
• Coordination • Higher asset turnover
• Resources and capabilities
© A.A. de Waal, 2007 10
9
 EXAMPLES OF BSC INDICATORS
Financial  Return on Net Asset Value (%)
Focus  Profits/Total Assets ($)
 Value added/Employee ($)
 Revenues from new Business Operations ($)
Customer  Market share (%)
Focus  Satisfied Customer Index (%)
 Customers/Employees ($)
Process Focus  Administrative expense/total revenue ($)
 Contracts/Employee ($)
 Change in IT inventory (%)
 IT Capacity/Employee ($)
Innovation  Business development expense/administrative expense (%)
and  R & D expense/administrative expense (%)
Development  Share of training hours (%)
Focus
© A.A. de Waal, 2007 11
0

Customer perspective
Trade customer satisfaction
+ Customer satisfaction
- Days sales outstanding
Trade spend
0 Trade spend rate
© A.A. de Waal, 2007
Balanced Scorecard for an Opco
Financial perspective
Top line growth
0 NSV growth 
0 Sales volume growth 
Succesful new products
+ New product sales 
Internal perspective
Effective processes
 + Process goal achievement 
 “Quality” employees
+ Multiskilled employees 
 Productivity
00 Qualified employees 

Innovative perspective
Quality brand portfolio
- Big brands 
0 Brand reduction 
Quality investments
+ Big brand investment 
11
1
 BALANCED SCORECARD FOR AN OPCO
• This slide gives an example of a (partially filled-in)
Balanced Scorecard for an Opco.
• This format is going to be used to report division/Opco
CSF/KPI’s to corporate.
• In the second row (from the top) the CSF is described.
• Then (in the third row) the KPI is included.
• The signs (0, + or - ) show whether the KPI is performing
as required(= on budget) and
• The arrows show in what direction (trend) the KPI is
performing.

© A.A. de Waal, 2007 11

2
 ALIGNING ACTIVITIES WITH STRATEGY
• BSC aligns the organization’s strategy to performance
measures.
• By doing so, the performance system aids the organization’s
strategic evaluation and control process and provides
measurements of the organization’s performance
• The Scorecard achieves this end by relying on four processes
which bind short term activities to long term objectives.
• These are:
1. Translating the vision,
2. Communicating and linking,
3. Business planning, and
4. Feedback and learning.
© A.A. de Waal, 2007 11
3
 ALIGNING ACTIVITIES WITH STRATEGY
• Alignment is about ensuring that there is a match between
what the company is measuring (performance
management) and what it has set out do (strategy) without
any deviations

• This alignment is critical since it gives the organization

impetus by bringing employees and strategy into
connection.

• Alignment also makes the organization more aware of its

performance drivers through the value awareness that it
creates
© A.A. de Waal, 2007 11
4
Application of the BSC: the cascading of strategy
(lower levels)

•After the top level, the cascading continues with

one BSC being developed for each division,
department or unit in the company

© A.A. de Waal, 2007 11

5
 Make long-term strategies operationally in the short-term

Board Strategic
strategy indicators

Divisions Division-
How can I as specific
division contribute? indicators

BUs How can I as BUs-specific

business unit contribute? indicators

© A.A. de Waal, 2007 11

6
Make long-term strategies operationally in the short-term

• Employees must have insights into the possible

consequences of their actions on the bottom line.
• They should fully appreciate how their actions
are critical success factors in relation to
business processes and strategy.

© A.A. de Waal, 2007 11

7
 Application of the BSC: the cascading of
strategy (top level)
VISION •VISION
What is our vision of the future?

PERSPECTIVES
INTERNAL LEARNING
FINANCIAL CUSTOMER PROCESSES & GROWTH

STRATEGIC AIMS/OBJECTIVES
If our vision succeeds, how will
we differ?

CRITICAL SUCESS FACTORS

What are the (CSFs) for
achieving our strategic goals?

STRATEGIC MEASURES
What are the critical
measurements (KPIs) that indicate
our strategic direction?
ACTION PLAN
What should be our action plan ACTION PLAN
©
toA.A. de Waal, 2007
succeed? 11
8
 STRATEGY MAPS
• The strategy map is an architecture that defines a strategy
by specifying the relationship between the BSC elements.
• The strategy map is a way of establishing cause-and-effect
relationships among the company’s strategic measures
• It is a communication tool to disseminate the strategy and
the critical business processes
• For successful execution of the strategy, 3 components are
needed:
1. Describing the strategy
2. Measuring the strategy
3. Managing by applying the concept of the strategy focused organisation

• Describing the strategy can be achieved with the strategy

map. 11
© A.A. de Waal, 2007
9
 Strategy Maps

© A.A. de Waal, 2007 12

0
 Application of the BSC: the strategy map
(+)
Accounts Return on
receivable
The financial
capital employed
The strategy perspective
Operational (-)
map is a way of costs
establishing ( +)
cause-and- Client The customers’
satisfaction
effect perspective
relationships
among the (+)
company’s The internal
(+) Rework processes
strategic perspective
measures (-) (-)
Employees’ Sugestions from Learning and
morale employees development
© A.A. de Waal, 2007 perspective 12
1
 Above all the BSC is a means for strategic
communication

CLARIFYING AND
TRANSLATING THE Follow-up results in
The vision is VISION AND learning, which leads the
made explicit STRATEGY organization to re-
and is shared examine its vision

STRATEGIC
COMMUNICATING
AND LINKING
BSC FEEDBACK AND
LEARNING

The vision is Goals and incentives

communicated in •PLANNING AND
are used to focus the
TARGET SETTING
terms of goals and work, allocate resources
incentives and set targets

© A.A. de Waal, 2007 12

2
 Features of the Balanced Scorecard method

ADVANTAGES
•It gives greater flexibility and inclusion of more non-financial information,
• The distinction between lag and lead indicators provides a balanced and dynamic
approach to strategic control

• The strategy map is a useful and intuitive visual artifact to demonstrate key
relationship between measures and objectives

• It recognizes the effects of the organization's measurement system on the behaviour

of management and employees, i.e. you get what you measure.
• Ability to communicate key factors that drive performance, customer-based
reporting, and innovation/organizational learning.
• Used as a strategic communication tool for the whole organization, the BSC
becomes a powerful change management tool

© A.A. de Waal, 2007 12

3
 Features of the Balanced Scorecard method

PROBLEMS
• Causal relationships in strategy maps are established with
no objective criteria.

• Hence, relationships between measures or objectives

tend to be rather vague.

• It accepts the current organizational design as is, and

presents no suggestions for improvement.

• Hence, the effectiveness of the exercise of strategy

cascading could be prejudiced by unresolved structural
problems
© A.A. de Waal, 2007 12
4
 Find all the things wrong in this BSC

An Insurance Company's Objectives:

Market Penetration, Market Share, Return on Volume and Efficiency

The Claims Department's Balanced Scorecard:

Finance
F1: Claim costs less than 58%
of total premium revenue
F2: Claims payment after 60 days
F3: Claims less than 500 euros are
paid out automatically
Customer
C1: Scoring 10 out of 10
for customer satisfaction
C2: Percentage 24/7 availability
C3: High retention
C4: 0,2 claims per client per year

Process Innovation/Learning
P1: Automatic claim process handles I1: Building a custom claims
80% of claims management system
P2: Outsource claim verification
P3: Process 10 non-automatic claims
per claims agent per day

© A.A. de Waal, 2007 12

5
 FIND ALL THE THINGS WRONG IN THIS BSC
• This case study examines the balanced scorecard of the
claims department in an imaginary insurance company.
• The department has based its scorecard on the company's
overall objectives: market penetration, market share,
return on volume and efficiency.
• However, many things are wrong in this scorecard.

© A.A. de Waal, 2007 12

6
 ALL THE THINGS WRONG IN THIS BSC
1. F1 is a good indicator, but the claims department has no influence on premium
revenue.
2. F2 increases income, but contradicts the company's market preference and
customer satisfaction objectives.
3. F3 may include an amount in Euros, but it is a process indicator, not a financial
indicator.
4. C1 does not have a realistic target because not all claims will be rewarded.
5. C2 may suit an Internet-based model, but it is too costly and contradicts the
company's objectives if it involves other channels.
6. C3 does not have a clear target. The claims department should use a specific
metric, such as "less than 0.1 percent of claims lead to a complaint."
7. C4 is unreasonable because the department has no influence on how many claims
it receives.
8. P1 and P4 are good indicators, but the second P2 is a project and not indicator.
9. P3 is a good indicator, as long as there is no difference between easy and difficult
claims.
10. I1 is a project rather than an indicator, and it contradicts the company's
© A.A. deefficiency
Waal, 2007 objective. 12
7
 Strategic management

Strategic objective Result KPI

Be a low cost Result CSF
Low cost price Cost price difference with
producer main competitors

Effort CSF
Resource utilization

Effort KPI 1 Effort KPI 2

Machine park utilization Personnel utilization

Key process 1 Key process 2

Utilize machines optimally
Process CSF
Machine capacity utilization
Process KPI
Input: Machine breakdowns
Activity: Machine uptime
Output: Productivity per machine
Utilize personnel optimally
Process CSF
Personnel capacity utilization
Process KPI
Input: Personnel planning accuracy
Activity: Employee output
Output: Productivity per FTE

12
© A.A. de Waal, 2007 Process management 8
 DISCUSSION QUESTIONS Grps (11 & 12)

• 1 What makes the balanced scorecard different from

other management control systems?
• 2 Discuss the benefits of and criticisms on the strategy
map.
• 3 Discuss the benefits of and criticism on the balanced
scorecard.
• 4 Explain the relation between the parenting styles and
the balanced scorecard.

© A.A. de Waal, 2007 12

9
 WHAT A GOOD STUDENT NEEDS TO DO

• A thorough understanding and description of the

BSC’s four perspectives is required.

© A.A. de Waal, 2007 13

0
 Case - Ultraviolet Design’s CSFs + KPIs Grps

Case study on CSFs, KPIs & BSC:

 Read the same case 6.7;
 discuss questions in the group;
 reflect: feasibility, barriers, nuancing;
 prepare a presentation;
 1 groups is UVD’s management team
the other groups are the consultants;
 the consultants give presentations;
 MT chooses ‘winner’.

© A.A. de Waal, 2007 13

1
 Strategic
Performance
Management

Chapter 8

© A.A. de Waal, 2007 13

2
 Agenda

• Importance of
reporting
• Exception
reporting
• Action reporting
• Case: UVD’s
exception +
action reports

© A.A. de Waal, 2007 13

3
 LIMITATIONS OF FINANCIAL SYSTEMS
• Traditional financial systems used for internal
performance reporting are limited in several ways
including:
– Measurements expressed in monetary terms;
– Categories included in the chart of accounts;
– A high level of aggregation of information; and
– The accounting system is constrained by the rules of GAAP
because the same system is also used for producing external
reports.

© A.A. de Waal, 2007 13

4
 LIMITATIONS OF FINANCIAL SYSTEMS
• Most companies report non-financial measures of performance in
areas such as:
– Customer satisfaction
– Quality
– Manufacturing effectiveness
– Market share, and
– Human resources. (BSC)
• However, these measures tend to be subordinated to financial
figures, for instance, when promotions and bonuses are determined.
• More significantly, the fundamental reliance by managers on
financial performance measures dominates organization strategy
even when the clear mission of a company is focused, at least in the
short term, on another aspect of the competitive environment.

© A.A. de Waal, 2007 13

5
 VALUE CREATION CYCLE

• Top managers cannot be expected to convert masses of

data into decision-making information for competitive
advantage
– They need help in mixing, matching and modelling data to
help reach company goals.
• For data to become useful to management, it has go
through the cycle from:
– Data to analysis, information, presentation, dialogue and
interpretation, knowledge, to action
• Avoid data overload

© A.A. de Waal, 2007 13

6
 Value creation cycle

Presentation Interpretation

Information Knowledge

Action

Consolidation,
Modelling &
Exception
Reporting

© A.A. de Waal, 2007

Data 13
Value 7
 Information overload … combat it !

• Try to NOT know all the details

• Focus on CRITICAL SUCCESS FACTORS,
margins, exceptions, analyses, actions and
their impact

 Focus on what is really important to the

success of the company
 Faster and better decisions making and
action taking
© A.A. de Waal, 2007 13
8
 Keep it simple

• Vision and strategy must be clearly articulated.

• The performance management process must be
aligned with the strategy.
• Focus on a small number of critical success
factors: measures which drive performance.
• Align activities + actions with these factors and
make sure everyone knows how they fit in.
• IT solutions must provide every manager with a
personal view of the strategy, critical success
factors, key performance indicators and actions.
© A.A. de Waal, 2007 13
9
 EXCEPTION REPORTING
• Exception reporting gives actual results on all KPIs
• It highlights performances outside a certain margin (under
or above)
• Traffic reporting using different colour codes can be used.
– Green ok and on target
– Yellow:5-10% variation
– Red :above 10% variation
• Exception reporting enables quick intervention
• There is a need to replace passive reporting performance
measurement with proactive, results-oriented performance
management
• It results in effectiveness
© A.A. de Waal, 2007 14
0
 ROLLING FORECASTS
• Forecasting is on a limited KPIs
• The forecast is split between short and long term
• At the end of each quarter an outlook is made for the next
4 quarters ahead.
– It "wakes up" management to new information
– This short time span enhances the accuracy of the forecast
• It enables forecast to be quickly revised and updated
which is important in dynamic environments
• It makes performance measures less static and more
responsive to changes in process performance, the external
operating environment and shifts in business strategy.

© A.A. de Waal, 2007 14

1
 Linking the processes

FORECASTING/
STRATEGY BUDGETING REPORTING
REVIEW

•Key financials
• Budget lines (target, division
•Leading non-financials
intervene, board intervene)
•Input for targets year 1
• Contingency areas
•Input for contingency
• Input for sensitivity
(sensitivity analysis,
analysis (preventive actions)
scenario planning)

© A.A. de Waal, 2007 14

2
 Contingency areas Budget level

Target

Division
intervene
1. line
Contingency
Corporate
intervene
line

3.
Corporate
intervene
area

© A.A. de Waal, 2007 time Q1 Q2 Q3 Q4 14

3
 CONTINGENCY AREAS
• For each of the KPIs, contingencies are set between
business units and corporate HQ
• There is less danger of higher levels stepping too soon.
• Contingencies for performance indicators constitute
performance ranges representing acceptable deviations
from the budgets.

© A.A. de Waal, 2007 14

4
 Exception reporting

PD Lighting EPR Sales CM IFO NOC CAP EX Cash flow

Actual Budget Actual Budget Actual Budget Actual Budget Actual Budget Actual Budget Actual Budget

Lamps 200 180 4,200 4,000 3,200 3,130 1,120 1,100 2,500 2,480 230 235 760 758
Luminaires 45 43 1,540 1,540 900 880 512 500 270 286 60 80 98 95
Automotive 57 51 450 448 410 400 60 58 430 300 35 60 115 103
Lighting E & G 156 148 1,700 1,680 768 750 234 230 601 589 40 40 280 270
Batteries 10 10 280 220 95 94 30 60 100 90 2 2,1 23 23
Others Lighting 15 14 130 125 160 150 20 20 40 35 30 31 -12 -8
483 446 8,300 8,013 5,533 5,404 1,976 1,968 3,941 3,780 397 449 1264 1241

Total

© A.A. de Waal, 2007 14

5
 Focus on ‘the story behind the figures’

‘Eh, turnover has decreased

10% but fortunately costs also
… so there is no problem!’

turnover

© A.A. de Waal, 2007 14

6
 Take corrective action

• Actions are important, but they are often not

reported. Measurement is not enough!!!
• Identify CORRECTIVE actions designed to fix
problems. Then target their impact and track it from
idea to completion.
• PREVENTIVE actions correct forecasted problems
before they can happen. Also target their impact and
track it from idea to completion.
• Make managers visibly accountable for the
execution of actions, and track results.
• IT solutions must track actions and relate these to
the strategy.
© A.A. de Waal, 2007 14
7
 Action reporting

Period : Second Q ’14

Date : 3-4-’14
Critical Key Fore- Budget Analysis Action Due Resp. Projected result
Success perform. casted value & description date
Factors indicators value Q2 Feedback Q2 Q3 Q4
Q2
Lead time 1. Increase knowledge 1. Q2 1. X
Time Average 15 12 increases through recruiting 14 14 12
to Lead time because 2. Build multi-discipli- 2. Q3 2. Y
market several nary teams to
experienced increase synergy
people will 3. Invest in new CAD 3. Q4 3. Z
leave shortly software
after one
another

© A.A. de Waal, 2007 14

8
 Rolling forecasts

Quarterly
costs
(€000’s)
Cost Budget Actual Variance Actual Moving Average
code quarterly 12 months Medium-
60
costs term KPI
80,000 85,000 (5,000) Target
Salaries 54

48
40,000 42,000 (2,000)
Office
42
30,000 31,000 (1,000)
Travel 36
Actual Forecast
Commision 30,000 33,000 (3,000) 30

€180,000 €191,000 (€11,000) Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q10

TOTAL
“Explain if KPI (moving average of
“Explain variances and how total fixed cost) is “out of bounds””
will we get back on track”

© A.A. de Waal, 2007 14

9
 Example
Indicator World market share Data Supplier Mrs. Marjolijn Vos
Proces TRIAD Line-haul network User(s) MT-Cargo
Aspect Quality Frequency Monthly
Custodian Mr. Ancher Period 1997 Q1 / 001

Definition Marketshare of KLM as % (based on IATA tonkm)

Growth: change in tonkm traffic compared to prior year
Ranking: place of KLM in world market
Target Planned World market share

14 Actual `96-4
12 Actual `97-1
Actual Actual Forecast Target
10 Forecast `97-2
`96-4 `97-1 `97-2 1997
Target 1997
8 World Marketshare KLM 5,11 5,31 5,11 5,25
6 World marketgrowth 9 8 10
KLM growth 11 13 8 12
4 Ranking 5 4 5 4
2

0
World World KLM grow th Ranking
Marketshare KLM marketgrow th

Observations Actions
1. Targeted marketing actions with price reductions
The figures of Q1 1997 show that KLM marketshare is slightly 2. Incentives offers to intermediates
decreasing. The other large carriers achieve high growth % like
BA 12%, Singapore 17%. If this continues, KLM's growth will be
too low to keep our position.
Believed reasons are: too high pricing by us
competition have better relations with intermediates

© A.A. de Waal, 2007 15

0
 STAP REPORTING
• STAP stands for Strategy, Action and Projection
• Its objective is to formulate action on the basis of expected
results on a company’s CSFs and KPIs
• Its other objective is to monitor the implementation of
these actions to evaluate whether they yield the desired
results.
• If reports on CSFs and KPIs are unfavourable, based on
exceptional reporting, actions are formulated
• When new problems are detected, new information is often
required to help identify solutions and formulate action
plans
• Actions are meant to ensure that targets are achieved.
© A.A. de Waal, 2007 15
1
 STAP reporting cycle
1.
Develop mission,
strategy and
strategic objectives

1.
Develop CSFs
and KPIs
4.
E
Compare actual
3. N
results with Adjust targets
Perform V
targets (if needed)
2. business I
Set targets activities R
for KPIs O
N
Prognose M
future E
results N
Prognose future T
results after
actions

5. Compare
Define targets with
actions forecasted results:
no satisfactory?

6. yes

© A.A. de Waal, 2007 15

2
 DISCUSSION QUESTIONS Grps 13&14
1. What is a traffic light report? What are its benefits
and drawbacks?
2. Explain the two different types of rolling forecasts.
3. What are budget contingencies used for?
4. What are the main steps in the STAP reporting cycle?
5. Why are action reports important?

© A.A. de Waal, 2007 15

3
 THE ART OF MANAGEMENT
• The art of management is not to know everything that is happening
in an organization, but to:
1. Know what the key issues of the business are (CSFs),
2. Keep track of them, and
3. Take action on them.
• Focusing on what is truly important entails:
– Focusing on CSFs and KPIs that are crucial to the business;
– Focusing on exceptional events or figures;
– Analyzing financial and non-financial results;
– Making corrective action plans; and
– Estimating the impact of those action plans.
• A good performance management ICT architecture supports this
process adequately.

© A.A. de Waal, 2007 15

4
 CHAPTER CONCLUSION
• Company success can be attributed to the use
of:
– The balanced scorecard,
– Dynamic management reporting philosophies
(rolling forecasts), and
– Strategy, Action and Projection

© A.A. de Waal, 2007 15

5
 Case – The more you measure, the more you know!

Case study 8.7 on UVD’s

exception + action reports:
 read the case;
 discuss questions in the group p.177;
 reflect: feasibility, barriers, nuancing;
 prepare a presentation;
 professor selects groups to present;
 other groups give comments.

© A.A. de Waal, 2007 15

6
 Strategic
Performance
Management

Chapter 10

© A.A. de Waal, 2007 15

7
 Agenda

• Importance of
organisational
performance-
driven behaviour
• Perverse effects
• Case: Creating
passion for PM

© A.A. de Waal, 2007 15

8
 WHAT IS STRATEGIC PERFORMANCE
MANAGEMENT
• SPM is an organisational approach to define, assess, implement, and
continuously refine organisational strategy.
• They are defined as formal, information-based routines and procedures
managers use to impact organizational activities.
• They focus on conveying financial and non-financial information that
influence decision-making and managerial action.
• These systems are designed specifically for use by managers, and are
embedded in predetermined practices at different times in the business cycle
• It encompasses methodologies, frameworks and indicators that help
organisations in the formulation of their strategy and enable employees to
gain strategic insights which allow them to challenge strategic assumptions,
refine strategic thinking, and inform strategic decision-making,
implementation and learning.
– In a performance driven culture, strategy becomes every ones’ job.

© A.A. de Waal, 2007 15

9
 Hypothesis

• 56% of performance
management
implementations fail:
why ?
• Hypothesis:
Without changing the
behaviour of people
in the organisation
performance
management is
‘Uh ... How does that work, a scorecard?’ doomed to fail !

© A.A. de Waal, 2007 16

0
 The Top 5 PMS issues
Based on Factor analysis:

No Phase Problem Description

1 Design Lack of management commitment
The organization does not have a performance
2 Use
management culture
The PMS has a low priority or its use is abandoned
3 Use
after a change of management
Management puts low priority on the PMS
4 Start
implementation
The organization does not see (enough) benefit
5 Use
from the PMS

Therefore, more research into this specific topic is required in order

to heighten the chance of a successful PMS.
© A.A. de Waal, 2007 16
1
LESSONS LEARNED FROM PERFORMANCE
MANAGEMENT SYSTEMS IMPLEMENTATIONS
• The study (De Waal and Counet, 2008) shows that:
1. The failure rate of PM implementations has decreased in the
past decade from 70 to 56%
2. A structured discussion about the problems encountered when
implementing and using a PMS is missing
• The main research question is:
– What are problems organisations can expect when implementing
a PMS?
• Based on the literature study, 31 problem categories were
identified.

© A.A. de Waal, 2007 16

2
PROBLEMS ENCOUNTERED WHEN
IMPLEMENTING & USING PMS
1) Management puts low priority on the implementation.
2) The implementation requires more time and effort than
expected.
3) There are insufficient resources and capacity available for
the implementation.
4) The organization is in an unstable phase.
5) The PMS implementation does not have a clear goal.
6) Lack of management commitment.
7) Period of attention from management for the
implementation of the PMS is not long enough.
© A.A. de Waal, 2007 16
3
PROBLEMS ENCOUNTERED WHEN
IMPLEMENTING & USING PMS

8) Organizational members lack a positive attitude towards the PMS.

9) Insufficient commitment from middle management and staff for
PMS implementation and use.
10) The current ICT system does not support the PMS adequately.
11) Organizational members are not adopting the right management
style.
12) The organization does not have a clear and understandable
strategy.
13) It is difficult to define relevant CSFs.
14) There is not enough focus on internal management and control.

© A.A. de Waal, 2007 16

4
PROBLEMS ENCOUNTERED WHEN
IMPLEMENTING & USING PMS

15) It is too difficult to decompose goals for lower levels in the

organization.
16) There is a lack of knowledge and skills in regard to the PMS.
17) The KPIs are not linked to departmental, team and individual
responsibilities.
18) It is difficult to define relevant KPIs.
19) There are too many KPIs defined.
20) The organization measures the wrong KPIs.
21) There is too much focus on the results of the implementation, while
the change process of the organization is ignored.

© A.A. de Waal, 2007 16

5
PROBLEMS ENCOUNTERED WHEN
IMPLEMENTING & USING PMS
22) There is resistance from organizational members towards the new
PMS.
23) There is an insufficient link between the PMS and the reward
system.
24) The PMS lacks cause and effect relations
25) The organization does not have a performance management
culture.
26) The PMS is not used for the daily management of the organization.
27) The PMS is not regularly updated and maintained after
implementation.
28) There is no organizational member appointed to take ownership of
the PMS.
© A.A. de Waal, 2007 16
6
PROBLEMS ENCOUNTERED WHEN
IMPLEMENTING & USING PMS
29) There are difficulties in getting the data to calculate the
performance indicators.
30) The PMS gets a low priority or its use is abandoned after a change
of management.
31) The organization does not see (enough) benefit from the PMS.

© A.A. de Waal, 2007 16

7
 FACTOR ANALYSIS

• Factor analysis helps in grouping these problems into

smaller categories (seven)
• The factor analysis yielded seven PMS problem factors
explaining 70% of the variance

© A.A. de Waal, 2007 16

8
 FACTOR 1, UNSTABLE FOUNDATION
• Factor 1 comprises problems caused by the fact that the new PMS
does not have a solid FOUNDATION in the organization.
– The implementation of the PMS starts out with unclear goals (5),
– Unclear uses (17),
– An unclear strategy (12), which results in a content that does not suit the needs
of the various organizational units (17)
– Key performance indicators that measure everything and therefore nothing
(19).
– There is nobody that takes ownership of the new PMS (28)
– No one safeguards the relevance of the system (27).
– The culture is not ready for a PMS (25), and
– As a logical consequence the PMS is abandoned after a while (30).

© A.A. de Waal, 2007 16

9
 FACTOR 2, IMMATURITY
• Factor 2, IMMATURITY, deals with problems that create an
immature and not fully functioning PMS.
– The implementation was carried out when the organization was not ready for
it (4) and
– In a lopsided and careless manner: not taken behavioural aspects into account
enough (12),
– Not defining the right indicators (20),
– Not making the right link between PMS and the reward system (23).
– Management loose faith in the new system quite rapidly (7)
– Management and their employees never adopt the right management style
(11),
– Resulting in unsatisfactory benefits from the new system (31).

© A.A. de Waal, 2007 17

0
 FACTOR 3, INSUFFICIENT RESOURCES

• Factor 3, insufficient RESOURCES

– Which indicates that management has not freed up enough resources and
capacity for the implementation (3) and
– For training organizational members in the new system (16).

© A.A. de Waal, 2007 17

1
 FACTOR 4, LACK OF RELEVANCY

• Factor 4, lack of RELEVANCY, consists of problems that render

the new PMS less relevant for people on all levels in the
organisation.
– The organization experiences difficulties in defining the right CSFs (13) and
KPIs (18) and goals for lower levels (15),
– Hard to obtain the data needed to calculate the KPIs (29).
– This causes the PMS implementation to take longer and requiring more
resources, resulting in management commitment to deteriorate (6)

© A.A. de Waal, 2007 17

2
 FACTOR 5, LOW MANAGEMENT PRIORITY

• Factor 5, low management PRIORITY,

– Management does not give the new PMS enough priority (1).
– As a result the people that implement the system either not make the PMS
robust enough (because management was not involved in discussion about
cause-and-effect links) or make the system overly complex (12).
– Management also does not make enough resources available for the
implementation because it does not acknowledge that current ICT systems are
not sufficient to support the new system (10).

© A.A. de Waal, 2007 17

3
 FACTOR 6, EMPLOYEE RESISTANCE

• Factor 6, employee RESISTANCE, deals with problems that occur

with every major change:
– Organisational members on lower levels resist it (22)
– They do not display any enthusiasm (8) or commitment (9) for the new PMS.

© A.A. de Waal, 2007 17

4
 FACTOR 7, USELESSNESS

• Factor 7, USELESSNESS
• The PMS is not used to support managers in their daily management of the
organization (26), basically rendering all implementation efforts useless

© A.A. de Waal, 2007 17

5
 HIGH FAILURE

• As the failure rate of PM implementations is

alarmingly high, it is of the utmost importance that
organisations become aware of the problems of
implementing and utilising PMS.

© A.A. de Waal, 2007 17

6
 PERFOMANCE MANAGEMENT FUNCTIONS
• Performance management has the following four
functions:
1. Self control function-organisational members continuously
monitor themselves with KPIs to check whether they
achieve their objectives and targets
2. Steering function- organisational members monitor which
interventions have been successful and which have not
3. Learning function-Organisational members evaluate direct
links exist between actions and the results of the KPIs, to
learn how to improve these results continuously
4. Supervisory function-Management observes whether
organisational members achieve the required results.
• The first three are self management
© A.A. de Waal, 2007 17
7
 PERFORMANCE MANAGEMENT SYSTEM
EFFECTS
• PMS has positive and negative (perverse) effects
1. What gets measured gets done
2. Performance measurement is an incentive for output
3. Performance measurement helps achieve objectives & improves
performance
4. Performance measurement is an elegant way of shaping
accountability
5. The information about performance is measured systematically
and quantified, thus enabling comparisons over a certain period
• On the other hand, there are a number of negative effects.

© A.A. de Waal, 2007 17

8
Perverse (negative side)effects of performance management (1

Unintentional behaviour change

sub-optimalisation (own performance),
myopia (short term goals), indicator
fixation (narrow focus), tunnel vision
(only the measurable)

Delaying behaviour Structural shortcommings

Inertia (no action), no
system alignment, cherry
picking (too little
innovation), unclear
responsibilities
Incompatibility, indicator
overload, resource shortage,
bureaucracy, too much
control, low credibility

© A.A. de Waal, 2007 17

9
Perverse (negative side) effects of performance management (2)

Strategic behaviour
manipulation, mis-interpretation,
mis-representation, regression
(fall back)

Negative behaviour
transparancy clouding,
doubting reliability, cultural
mismatch, closed culture

© A.A. de Waal, 2007 18

0
 Possible improvements

• Tailor communication
• Foster performance-driven thinking
• Review PMS-relevance
• Foster performance-driven behaviour
• Align systems
• Emphasize performance-driven values

© A.A. de Waal, 2007 18

1
 DISCUSSION QUESTIONS Groups XX
• Which perverse (negative) effects did you
encounter in the organisation that you were
attached to?
• Which perverse effects do you find most
damaging?
• How would you ‘combat’ that perverse effect?
• What are the main elements of trust in relation to
strategic performance management?

© A.A. de Waal, 2007 18

2
 Case – Creating passion for performance management

Case study on performance-

driven behaviour: Groups 15 and
16
 read the case 11.6; p.267
 discuss questions in the group;
 reflect: feasibility, barriers, nuancing;
 prepare a presentation;
 professor selects groups to present;
 other groups give comments.

© A.A. de Waal, 2007 18

3
 Strategic
Performance
Management

Chapter 11

© A.A. de Waal, 2007 18

4
 Agenda

• Importance of
individual
performance-
driven behaviour
• Characteristics +
enhancement
• Case: PMA at
TAN

© A.A. de Waal, 2007 18

5
 EFFICIENT & EFFECTIVE STEERING & CONTROL OF THE
ORGANISATION IS ACHIEVED BY:

Formulating Mission/
Vision/Objectives

Formulating strategy

Translating Objectives to all levels in

organisation
Measuring objectives with Critical
Success Factors +key performance
indicators +BSC
Take corrective Action based on
regular reporting of indicator results
© A.A. de Waal, 2007 18
6
 PERFORMANCE AND HUMAN BEHAVIOUR
• The main reason for managers to use data from the PMS is
•187
to influence the behaviour of their subordinates (Zairi and
Jarrar, 2000).
• Performance driven behaviour is defined as goal oriented
behaviour.
• Nowadays, the issue of ‘human element’ receives a lot
more attention in the literature (De Waal, 2003). (e.g.
German pilot who deliberately crashed a plane)
• Simons (2000) states that PMS can not be designed without
taking into account human behaviour (Theory Y)
• The main focus should not be on the technicalities of
implementing a PMS but rather on the performance
driven behaviours influencing the use of PMS.
© A.A. de Waal, 2007 18
7
 Main reason for PM failures

Wrong focus:
Too much emphasis on structure instead of a
balanced focus for structure as well as behaviour

BEHAVIOUR

STRUCTURE

© A.A. de Waal, 2007 18

8
 BEHAVIOURAL FACTORS

• BEHAVIOURAL FACTORS:
– These are activities of organisational members that can be
observed
– These are also the preconditions that allow organisational
members to show certain behaviours.
• Research pointed out 20 behavioural factors grouped
in 5 areas.
• The organisation needs to pay special attention in these
areas in order to improve the use of the PMS.

© A.A. de Waal, 2007 18

9
Important behavioral factors (1): Managers’ understanding
Managers’ understanding
A good understanding by
managers of the nature &
goals of performance
management
© A.A. de Waal, 2007
Managers understand the
meaning of KPIs &
consequences their actions
have on the results of their KPI
Managers have insight into the
relationship between business
processes and CSFs/KPIs
Managers’ frames of reference
contain similar KPIs, so as to
compare results with those of
other members
Managers agree on changes in
the CSF/KPI set & keep on
accepting KPIs. 19
0
Important behavioral factors (2): Managers’ attitude
Managers’ attitude
Managers must have a
positive attitude toward
performance management
© A.A. de Waal, 2007
Managers accept the need for
performance management
Managers agree on the
starting time of PMS
Managers have earlier positive
experiences with performance
management
Managers realize the
importance of CSFs/KPIs/BSC
to their performance
Managers do not experience
CSFs/KPIs/BSC as threatening
so that they should not be 19
1
hesistent to use PM
 Important behavioral factors (3): PMS alignment

Managers’ KPI sets are aligned

with their responsibility areas

Managers can influence the

KPIs assigned to them so that
PMS alignment use of KPIs is increased

A good match between Managers make their own

managers’ responsibilities analyses of the KPI-results
and the PMS, & must be Managers must find the
within their control analyses of a good quality to
enhance the use of analyses

Managers can use their

CSFs/KPIs/BSC for managing
19
© A.A. de Waal, 2007
their employees 2
Important behavioral factors (4): Organisational culture
Organisational culture
An organisational culture
focused on using the
performance management
system to improve
© A.A. de Waal, 2007
Managers’ results on
CSFs/KPIs/BSC are openly
communicated, so that all
have knowledge of
performance
Managers are stimulated to
improve their performance by
using PM
Managers trust the
performance information,
which increases the
acceptance of information
Managers must promote the
use the PMS
19
3
 Important behavioral factors (5): PMS focus

Managers find the PMS

relevant because it has a clear
internal control purpose

PMS focus
A clear focus of the PMS Managers find the PMS
on internal management relevant because only those
and control stakeholders’ interests that are
important to the organization’s
success are incorporated

© A.A. de Waal, 2007 19

4
 Performance-driven behaviour is:

– ROLE MODEL !!!!!!!!!!!!!!

– Say what you’re going to do, do what you said
– Clarity: so far and not further ….
– Open communication (a 2-way street)
– Knowledge sharing
– Responsibility: be the first to take action
– Not settling scores but focus on improvement
The organisational culture is aimed at using
performance management to continuously improve
the people + the organisation itself
© A.A. de Waal, 2007 19
5
 Performance-driven culture

Information
Discipline
structure

ACTION

Drive
to perform

© A.A. de Waal, 2007 19

6
 Remember: balance is needed !

STRUCTURE BEHAVIOUR

© A.A. de Waal, 2007 19

7
 PERFORMANCE MANAGEMENT ANALYSIS
(PMA)
• In order to evaluate the level of performance-driven behaviour of an
organization, De Waal (2007) developed the performance management
analysis (PMA) method.
– Its a tool that offers organisations a method to measure and evaluate their
performance-driven behaviour
– It looks at the behavioural side as well as the structural side of performance
management.
• Behavioural side focuses on how managers and employees effectively
demonstrate performance driven behaviour by using PMS.
• The structural side focuses on the structure that should exist & be in
place to facilitate the effective use of performance management.
• Organisations should pay equal attention to both sides and make use of
performance information, in order to set up performance-driven
behaviour
© A.A. de Waal, 2007 19
8
 Performance Management Analysis ®

ALIGNMENT

10
Communication Responsibility The PMA looks at:
8 structure
6 • the structural side
Action 4 of PM;
Content
orientation 2
• the behavioural side
of PM;

Integrity • and the aligment

Management style
between both sides.

Accountability Manageability

© A.A. de Waal, 2007 19

9
 De Waal’s (2007) Performance Management Analysis
(PMA)

• De Waal’s PMA Dimensions influence the use of PMS:

•Structural Dimensions
•Behavioural Dimensions
 Responsibility Structure
 Accountability
Content of performance •Alignment Dimension
information
 Management Style
 Alignment
Integrity of performance
Action Orientation
information

Communication
Manageability of
performance information

© A.A. de Waal, 2007 20

0
 Research Model

Responsibility
Structure

Content

Structural factors
Integrity

Manageability Performance
Management Desired performance-
System driven behaviour

Accountability

Management Style
(Alignment)
Behavioral factors Aligning other
Action Orientation systems with
PMS

Communication

© A.A. de Waal, 2007 20

1
 PMA - Structure (1)

Responsibility structure
• Who is responsible for what.
• Clear parenting style and clear tasks and responsibilities for every
management level.
• The degree of intervention that is available to control the operations of
the lower levels of the organization
• Guidelines for strategic plans and targets.
• Consistent application by all management levels.
Content
• Balanced set of performance information.
• Strategic focus through use of CSF’s and KPI’s.
• Implement CSFs which are made quantifiable by KPIs in order to make
intangible assets possible to be measured.
• Dynamic targets, obtained through benchmarking.
© A.A. de Waal, 2007 20
2
•Good •Target
•P
e
r
•f •Actual
o
r
performance
m
a
•Benchmark
n
c
e

•Bad

•Past •Today
•Period

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3
 PMA - Structure (2)

Integrity
• Reliable information.
• Timely information.
• Consistent information.

Manageability

• User friendly reports and systems.

• Exception reporting.
• The system should improve the reliability and effort
taken to produce rolling forecasts
• More detailed performance information easy to access.
© A.A. de Waal, 2007 20
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 PMA - Behaviour (1)

Accountability
• This is the degree in which organisational members feel responsible for
the results
• It is about their willingness to use the system to obtain performance
information help improve their results
• Performance results can be influenced.
• A non-committal organizational culture is a threat for the desired
performance-orientation of an organisation
Management style
•Effective management style that guides results while giving support to the
employees.
•This is through making clear agreements, monitoring, discussing progress
issues and calling upon the own responsibility of the employee.
•The desired style is “result-oriented coaching” through visible commitment,
clear steering and support.
• © .A.A. de Waal, 2007 20
5
 PMA - Behaviour (2)

Action orientation
• It is the degree in which performance information actually stimulates
action taking to improve performance.
• Performance information is integrated in daily activities.
• Actions to immediately correct problems.
• Prognosis to start addressing future problems.
• If the performance information doesn’t lead to action, the added
value of this information will be nil
Communication
• Every body in the organization has to interpret the information in the same
way.
• Regular communication with three elements: top-down communication,
bottom-up communication and horizontal information exchange.
• Regular sharing and transferring of performance information between
organisational
© A.A. de Waal, 2007 units. 20
6
• Structured knowledge sharing.
 PMA - Alignment

Alignment

• Human Resource Management tools (performance

evaluation, rewarding, training) are aligned with
performance management.
• Employees need to recognize the linkage between
measures they can affect to reach to the desired
result and the given rewards, therefore, objectives,
measures and rewards should be strategically
aligned.

© A.A. de Waal, 2007 20

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 Fill-in PMA®

•Organisational environment
•Structural aspects
•Behavioural aspects
•Competitive performance
•Current + future !

© A.A. de Waal, 2007 20

8
 Example: Structure - Responsibility structure
Not clear and inconsistent Clear and consistent Current - Future
1 - 5 6 - 10
• Tasks and responsibilites – Not clear. • Clear. There are clear agreements on
It is unclear who in the organisation is who in the organisation is responsible
responsible for which tasks. for which tasks.

How is the current situation?

• Moderately clear - not clear: score 5 or lower (1-5)
• Fairly clear - very clear: score 6 or higher (6-10)

How is the future (desired) situation?

• Virtually the same: give the same score as current score
• Has to be (much better): give little to much higher score
• ‘Future score’ in principe is never lower than current score
© A.A. de Waal, 2007 20
9
 PMA® benchmark – Company XYZ
Alignment
10 Responsibility
Communication
structure
8

6
Action 4
orientation Content
2

Management style Integrity

Accountability Manageability

© A.A. de Waal, 2007 current 21

0
desired
 Conclusions

Alignment

10
Research among 195
Communication Responsibility organisations shows:
8 structure
6 • the more balanced
Action 4
Content
the PMA-diagram
orientation 2
• the larger the PMA-
diagram

Management style
Integrity • the BETTER the
performance of the
organisation !
Responsibility Manageability

© A.A. de Waal, 2007 21

1
 DISCUSSION QUESTIONS : GROUPS 21 &22
• What are the main differences between organisational and
individual performance-driven behaviours?
• Discuss why the behavioural factors in Table 11.1 are
important.
• Why is it important to distinguish between the structural
and behavioural aspects of strategic performance
management?
• What is the main reason that organisations in the past
have failed to pay enough attention to the behavioural side
of strategic performance management? Has this situation
improved nowadays?

© A.A. de Waal, 2007 21

2
 Case – The PMA at a Temping Agency

Case study on the PMA:

Unallocated Groups
 read the case;
 discuss questions in the group;
 reflect: feasibility, barriers, nuancing;
 prepare a presentation;
 professor selects groups to present;
 other groups give comments.

© A.A. de Waal, 2007 21

3
 Strategic
Performance
Management

Chapters 13 + 14

© A.A. de Waal, 2007 21

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 Agenda

• Implementation
• Implementation
problems
• Assignment
• Exam

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 Implementation: 3Cs

•The implementation of strategy orbits the

three Cs namely:
1. Clarification of strategy,
2. Communication of strategy, and
3. Cascading of strategy.

© A.A. de Waal, 2007 21

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 Implementation: nature of a KPI

Key Performance INDICATOR

=
SIGNALS the result

Result of the KPI tells us:

there is something wrong or right

What is wrong or right?

ANALYSE !

© A.A. de Waal, 2007 21

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 Implementation: after studying the KPI-report

• KPI-result gives the signal

• KPI-accountable person analyses the KPI-
result
• KPI-accountable person decides on
action(s)
• Actions are discussed
• Actions are executed

Optimal results
© A.A. de Waal, 2007 21
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 OPTIMAL RESULTS

• Management wants to be able to better:

– Steer and manage the company
– Improve the results dramatically

© A.A. de Waal, 2007 21

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 Strategic Performance Management development cycle

1.
Design a
Strategic Management
Model

The
Performance-driven
Organization

3. 2.
Design a
Design a
Performance-driven
Behavioural
Strategic Reporting
Model Model

© A.A. de Waal, 2007 22

0
 Strategic Performance Management development cycle

• The strategic performance management

development cycle consists of three stages:
1. Design a strategic management model;
2. Design a strategic reporting model; and
3. Design a performance-driven behavioural model.
• Its a method which increases the chance of
successful implementation and use of a
performance management system (PMS).

© A.A. de Waal, 2007 22

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 STAGE 1, DESIGN A STRATEGIC
MANAGEMENT MODEL
• The starting point of each PMS is setting up a consistent responsibility
structure.
– It is essential that there is consensus throughout the organization on ‘who is responsible
for what’.
– The roles and responsibilities of each management level are made clear,
– The chosen management style is applied consistently throughout the performance
management process.
– Based on their accountability, managers and employees set up action plans for their
own area of expertise.
• At this stage there is clarity and a common understanding of:
– The company’s mission,
– Strategic goals and objectives, and
– Strategy
• This results in a commonly held strategic mind-set among organizational
members.
© A.A. de Waal, 2007 22
2
 STAGE 1, DESIGN A STRATEGIC
MANAGEMENT MODEL
• Organizations create a firm-wide understanding of
individual, group, departmental and divisional
contributions toward achieving the strategy, and clarity of
purpose and action.
• You want greater employee commitment to the strategy,
which is achieved when people are involved and help in
constructing it.

© A.A. de Waal, 2007 22

3
 STAGE 2, DESIGN A STRATEGIC REPORTING
MODEL
• The organization establishes the reporting structure with which the
execution of the strategy and the progression of key business
processes are monitored and adjusted.
• This stage consists of developing:
– Critical success factors (CSFs)
– Key performance indicators (KPIs)
– Exception and action reports;
– Corrective action plans; and estimating the impact of those action plans.
– A balanced scorecard (BSC); and
– A management information technology architecture.
• The implementation of CSFs and KPIs combines non-financial,
leading indicators with financial, lagging indicators in one system i.e.
– A balanced scorecard overview of the organization’s performance and a means
to check whether the organization’s strategy is being executed successfully.

© A.A. de Waal, 2007 22

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 STAGE 3, DESIGN A PERFORMANCE-DRIVEN
BEHAVIOURAL MODEL
• The organization establishes the culture needed to become a performance-driven
organization.
• By ‘performance-driven’ it is meant a combination of performance orientation and
professional excellence.
• This stage consists of
– Establishing the characteristics of performance-driven behaviour;
– Aligning personal objectives with strategic objectives; and
– Linking performance management with competency management.
• For an organization to thrive, organizational members must be able:
– To get things done,
– To deliver on commitments,
– To follow up on critical assignments and
– To support and hold people accountable to their promises.
• Organizational members need to replace passive reporting performance
measurement with proactive, results-oriented performance management.

© A.A. de Waal, 2007 22

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 STAGE 3, DESIGN A PERFORMANCE-DRIVEN
BEHAVIOURAL MODEL
• Human resource instruments (performance review,
incentives, training, and development) help organizational
members to deliver outputs that are aligned with the
mission and the strategyof the company.

© A.A. de Waal, 2007 22

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 Applying the cycle in practice
- design of the strategic management model -

2. Set-up a 3. Develop
4. Develop
1. Prepare the consistent scenario’s
project responsibility strategic
and strategic
structure action plans
objectives

- design of the strategic reporting model -

5. Develop critical 8. Set-up a

6. Develop 7. Develop
success factors performance
a balanced exception and
and key performance management
scorecard action reports
indicators ICT architecture

- design of the performance-driven behavioural model -

10. Foster 12. Align

11. Foster individual
organisational individual 14. Evaluate
performance-
performance- with the
driven
driven organisational project
behaviour
behaviour objectives

© A.A. de Waal, 2007 22

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 Strategic Performance Management development cycle

• During the implementation of a PMS an organization has to

expressly pay attention to all three stages of the strategic
performance management development cycle, in order to increase
the chance of a successfully implemented and used PMS.
• As it is a cycle, these stages are basically iterative steps in which
improvements are made to the strategic and reporting structures
and the culture, based on what the organization learned during the
execution of the stages.
• Applying the strategic performance management development cycle
results in a performance-driven organization in which all people
work towards achieving the best performance possible.

© A.A. de Waal, 2007 22

8
 Implementation: do’s & don’ts

• Involve top management (‘champion’)

• Involve all managers from the start
• Make KPIs part of daily management
• Don’t use for settling scores, but for self-
control + continuous improvement
• Communicate, especially during quiet times
• Start quickly with non-system KPIs
• Communicate/train users -> education
(culture!)
• Do not go too fast!
© A.A. de Waal, 2007 22
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 Implementation: pitfalls

• No support base in the organisation

• Takes too long + too many changes
• Not enough involment of users
• No good skill mix in project team
• Too many projects in the organisation
• Unclear responsibilities
• Not enough insight/clearity of strategy
• Not enough handle on primairy process
• Fear of settling scores
© A.A. de Waal, 2007 23
0