Performance, whether on a stage of theatre or business, is all about “making it happen”. Whether a Shakespearean tragedy or strategic business initiative, the performance of the organizational unit is what produces results. The math is simple: One, someone writes the play (strategic plan). Two, everyone in the group rehearses their parts (departmental and individual performance plans). And three, the troupe orchestrates individual performances into a unified group performance (execution of tactical plans providing goods and services to customers). The result, when done well, is applause from the audience (satisfied customers who vote again for your goods and services with their dollars). Yet, if this concept is so basic, why is it that most companies fail to understand how to manage—much less improve—their performance?
As I’ve noted previously, most organizations are rather skilled at planning for better outcomes. Planning, and its forward-looking nature, is often just as much art as it is skill. So, planning in and of itself is not something that can be easily measured to determine how good it really is. But business performance, rooted in pure execution, is all about action—action that is designed to accomplish the goals defined in the existing plan. Such actions can and should be measured.
However, planning for, then executing, and finally measuring organizational performance does not guarantee delivery of planned performance. Nor does it lend itself to improving upon that performance. That’s because execution in any business exists at multiple levels in the company: namely, at the organizational level of performance, the workflow (process) level and the individual employee level. These three echelons comprise the backbone and infrastructure of performance delivery in every firm.
At first, this concept seems foreign to even the most seasoned operating executives. This is due partly, in fact, to the conventional wisdom offered for decades by many of the world’s most revered business schools. Traditional thinking would have us believe that the performance of the enterprise is exactly equal to the sum of its parts. Therefore, when everyone in the organization “does his or her part” as planned, then the company as a whole realizes its planned performance at the corporate level.
This concept was introduced by Peter Drucker in his 1954 book “The Practice of Management”, in which he launched the idea of Management by Objectives—or MBO. Popularized in the 1960s and 1970s, MBO still had a large base of practitioners throughout the 1980s. While conceptually sound, it falls short in practice as it tends to overemphasize the setting of goals versus focusing on the drivers of business outcomes. These drivers are rooted throughout all three performance levels in the organization, which is why it’s important to understand the three levels and how they are related.
The top level of performance is the most obvious: the organization level. This echelon represents the business outcomes for the enterprise as a whole. Performance at this level is broad and is typically comprised of revenues, profits and return on investment. It may also include market share, customer satisfaction and new market acquisition.
The base level of performance – the individual performer level – is the core performance delivered by each and every employee throughout the organization. This key driver of business results is grounded in the premise that results are not achieved without the contribution of each employee. Performance at this level is much more granular and varies widely from one employee to the next. It relates to the required, or planned, performance of each individual in order to effectively contribute to overall company goals. Examples of performance at this level are more task-focused and include items such as order pick rates, inbound calls time-to-answer, claims closure rates, etc.
Most organizations easily identify with the top and base levels of performance. After all, the popular MBO approach dictates that you first identify your top level performance goals, then design performance targets at the base level that support your desired top level results. However, it is the middle level of performance – the process level – that is arguably the most important, and most elusive, in today’s business environment.
Why? Because tried and true approaches “proven” by large businesses and business schools alike die hard. We were trained to think about the company and the individual levels of performance, and to tie the two together utilizing the most obvious channels available—the various departments that comprise the inner soul of our company. But the most obvious path isn’t always the most effective. The different functional areas of your company do not deliver your goods and services to your customers. Your business processes do. These critical flows of work—which move across and between your company’s departments – represent the middle and most overlooked level of performance in your organization. It’s this layer of performance that provides the key to alignment across all three levels of performance.
Understanding the three levels of performance in your company is the foundation to improving your organization’s performance. But the real key: alignment across the three levels. And paramount to this alignment is identifying your performance drivers and then linking them from the organization level, down through your business processes and ultimately to each individual performer in the company. The thread that sews your performance plan together in perfect alignment is an authenticated set of performance metrics.
So, what is the most effective way improve business performance? Start with a clear understanding of the three levels of performance in your organization, nail down the drivers of performance at each level, and wrap them in a real set of performance metrics. And remember: ignore the system of your business processes at your own peril, as they are the lynchpin to performance alignment and achievement of your business objectives.
