PMworkingpaper（績(jī)效管理講座）(doc)
Steve Sherretta December 12, 2001 Performance Management: Enhancing Execution Through a Culture of Dialogue Peter is Chief Executive Officer for a medical supply multinational that recently crafted a new strategy to counter competitive threats. The plan stressed the need to cut cycle time, concentrate sales on higher-margin products and develop new markets. Four months after circulating the plan, Peter did a “walkaround” to see how things were going. He was appalled. Everywhere Peter turned people, departments—whole business units—simply didn’t “get it.” First surprise: Engineering. The group had cut product design time 30%, meeting its goal to increase speed-to-market. Good. Then Peter asked how manufacturing would be affected. It turned out the new design would take much more time to make. Total cycle time actually increased. “Our strategic plan message is not really getting through,” Peter thought. Second surprise: Sales. The new strategy called for a shift—emphasize high margin sales rather that pushing product down the pipeline as fast as possible. But just about every salesperson Peter spoke to was making transactional sales to high-volume customers; hardly anyone was building relationships with the most profitable prospects. Sales is doing just what it’s always done, Peter thought. Worst surprise: Even his top team, the people who’d helped him craft the strategy, was not sticking to plan. Peter asked a team member: “Why are you spending all your time making sure the new machinery is working instead of developing new markets?” “Because my unit’s chief goal was to improve on-time delivery,” he answered. “But what about company goals?” said Peter. “We came up with a good plan and communicated it very clearly. But nowhere it isn’t being carried out. Why?” Many organizations create good strategies, but only the best execute them effectively. Fortune magazine estimates that when CEOs fail, 70% of the time it’s because of bad execution.[1] Weak execution is pervasive in the business world, but the reasons for it are largely misunderstood. Why is it that no one in Peter’s organization was acting in sync with the strategy? Unless we understand the reasons, we can’t hope to solve the problem. Imagine someone hitting a tennis ball. When the brain says “hit the ball,” it doesn’t automatically happen. The message travels through nerve pathways down the arm and crosses gaps between the nerve cells. These gaps, or “synapses,” are potential breaks in the connection. If neurotransmitters don’t carry the message across the gap, the message never gets through, or it gets distorted. When that happens, either the arm doesn’t move at all, or it moves the wrong way. Creating a “culture of dialogue” Just like a nervous system, organizations also have gaps that block and distort messages. The secret to effective strategy execution lies in crossing hierarchical and functional gaps with clear, consistent messages that relay the strategy throughout the organization. Sound simple? It’s not. The reason is that the “neurotransmitters” in organizations are human beings—executive team members, senior managers, middle managers and supervisors—whose job it is to make sure that people’s behavior is aligned with the overall strategy. Doing what it takes to achieve alignment is very difficult. It is what Ram Charan calls, the “heavy lifting” of management, and it’s the key to executing strategy. As we’ll see later, there is an important difference between companies that successfully align behavior with strategy and those that do not. Companies that effectively execute strategy create a “culture of dialogue.” A culture of dialogue encourages pervasive two-way communications where individuals and groups 1) question, challenge, interpret and ultimately clarify strategic objectives; and 2) engage in regular performance dialogue to monitor behavior and ensure it is aligned with strategy. Three keys to managing performance A culture of dialogue doesn’t happen instantly, any more than a fluid tennis stroke does. It takes practice, persistence and hard work. So how exactly can leaders ensure that strategy messages go all the way down the line—that the tennis ball gets hit correctly? The three keys to managing performance effectively are: 1. Achieving radical clarity by decoding strategy at the top. Many organizations think they send clear signals but don’t. In some cases, managers subordinate broad strategic goals to operational goals within their silos. That’s what happened with Peter’s top team. Elsewhere, top team members often have too many “top” priorities—we’ve seen as many as 100 in one case—which results in mixed signals and blurred focus. Strategy decode requires winnowing priorities down to a manageable number—as little as five. 2. Setting up systems and processes to ensure clarity. Once strategy is clear, organizations must create processes to ensure that the right strategy messages cascade down the organization. These include: strategy-centered budget and planning sessions; staff and team meetings to discuss goals; performance management meetings; and talent review sessions. Dialogue drives all these processes. Each represents a “transmitter opportunity,” where strategic messages are conveyed and behavior is aligned with goals. 3. Aligning and differentiating rewards. Leaders must make sure rewards encourage behaviors consistent with strategy, which sounds easy but isn’t. Differentiation is about making sure that stars get significantly more than poor performers. But almost everywhere managers distribute rewards more or less evenly. As we’ll see, lack of effective performance dialogue is a key contributor to dysfunctional reward schemes. We list these three items separately but they are, of course, interconnected. Systems and processes depend on clarity from the top. Differentiation and alignment of rewards depend on managers using performance systems effectively. Dialogue is the glue that holds it all together. But not just any dialogue will do. It must be dialogue with purpose, focused on performance. Link to company valuation Companies that manage performance well—General Electric comes to mind—have higher market valuations. Why? Because, more and more, institutional investors view strategy execution as a vital factor influencing stock prices. Just a few years ago institutional investors relied almost exclusively on financial measures for company valuations. Now 35% of a market valuation is influenced by non-financial, intangible factors, according to a study by Ernst & Young.[2] The study showed that “execution of corporate strategy” and “management credibility” ranked number one and number two in importance to institutional investors out of 22 non-financial measures. John Inch, a managing director and analyst at Bear Stearns notes that in some sectors, such as diversified industrial companies, intangibles account for even more—up to half a company’s value. “You can take even a mundane asset and inject good management and have something pretty strong,” says Inch. 1. Achieve Radical Clarity by decoding strategy at the top The first step in successfully executing strategy is achieving clarity on the top team, which is frequently the source of garbled signals. Lack of Clarity at the Top A recent Hay Group study[3] shows a disturbing lack of clarity on top teams (organizational clarity measures the extent to which employees understand what is expected of them and how those expectations connect with the organization’s larger goals). The chart below shows dramatically higher levels of clarity on outstanding vs. average teams. In fact the biggest single difference between great and average top teams and typical ones was in the level of internal clarity. See Figure 1. Figure 1: Organizational Climate and Teams [pic] [Change Hay/McBer to “Source: Hay Group, Inc.” in final version] And a Lack of Clarity Below Workers at lower levels strongly feel this lack of clarity. Figure 2 looks at satisfaction levels for workers planning to leave their organizations within two years versus those planning to stay longer. This study showed that a key reason people leave their jobs is that they feel their companies lack direction. Even among employees planning to stay more than two years at their companies, only 57% felt their organizations had a clear sense of direction. Figure 2: Key reasons why employees leave their companies | | Total % | | |Satisfied[4] | |Satisfaction with: |Employees planning|Employees |GAP | | |to stay more than |planning to leave|(%) | | |two years (%) |in less than two | | | | |years (%) | | |1. Use of my skills and |83% |49% |34% | |abilities | | | | |2. Ability of top |74% |41% |33% | |management | | | | |3. Company has clear |57% |27% |30% | |sense of direction | | | | [NOTE; HIGHLIGHT SECTION 3; MAKE IT POP GRAPHICALLY] Clarity matters Why do employees crave clarity? Think about it. What could be more demoralizing than the realization that your hard work is not contributing to overall company goals? Employees want to do the “right” thing, but they can only do so if they know what the right things are. Unfortunately, as we saw in our opening vignette, companies often don’t communicate strategic goals effectively. An oil refinery client, for example, set a strategic goal to cut costs. To see how we...
PMworkingpaper（績(jī)效管理講座）(doc)