Putting People First

Performance management is one of the hottest topics among senior finance executives and the analysts and vendors who serve them. Simply put, it's a set of processes, metrics, methodologies, and software tools that allow an organization to forecast, measure, and react to various business drivers and performance indicators — all in the service of its overall business strategy.

Performance management software systems — like individual scorecards, reports, forecasts, or key performance indicators — are only one component of a performance management initiative. But successful implementation of a performance management software system is critical to the success of the initiative as a whole. These sophisticated tools, when designed and implemented correctly, are the glue that holds a performance management initiative together — providing the tight integration between performance management components that many senior executives we interviewed say is necessary for success.

We launched a research program in September 2005 to investigate the next piece of the story: How can companies that are implementing performance management systems make them work to best advantage? Through a series of interviews with senior finance executives, we gathered advice on how to successfully manage implementation projects, focusing in particular on staffing the implementation team, designing performance management systems to reflect company strategy, and managing change within the organization.

This report represents the findings of our in-depth interviews with senior finance executives at the following companies:

• Agilent Technologies
• Eastern Mountain Sports
• Erickson Retirement Communities
• Heineken U.S.A.
• Jane Goodall Institute
• Jim Beam Brands
• Neal & Massy Holdings Ltd.
• Russell Corp.
• Sodexho U.S.A.
• VeriSign
• WellCare Health Plans, Inc.

Building Business Strategy into Performance Management
The executives we interviewed say the right leadership helped their companies get buy-in and group consensus on the performance management project. But equally important is deep business expertise and operations experience among implementation team members. Such expertise and experience, say executives, help companies design systems that measure the right financial and operational activities. By doing so, companies equip their planning and operating staff to budget and forecast more effectively, and to execute activities in alignment with business strategy.

Performance management tools certainly can help companies craft their business strategies more easily and with greater confidence — freeing them from worrying about data gathering and data integrity, and giving planners from diverse areas of the business more room to apply their analytic know-how. Don Rodgers, corporate controller at Jim Beam Brands, says: "Preparing our strategic plan used to be a very long and cumbersome process. Now marketing is working on strategic plans for branding, our salespeople are working on their strategic plan, and also finance people are working on theirs. We just pull the three together in the system and then we can discuss the differences. The beauty of our tool is that it gives us data integrity — the numbers are current, and everyone is working from the same ones."

But performance management systems not only help companies develop strategies; they help companies translate them into action. So what goes into building a performance management system that fits the business, furthers a larger performance management initiative, and responds to real — and constantly evolving — business needs? The answer, of course, varies from company to company. The executives we interviewed converged, however, on several main areas of focus: determining the critical metrics and performance indicators that the system will measure; setting appropriate parameters for forward-looking, what-if scenario analyses; configuring system access to further the company's objectives; and anticipating future business developments in system design.

Incorporating Critical Metrics and Performance Indicators
For many companies, determining the financial and operating metrics and key performance indicators that are crucial to business decision making is the logical first step in designing an effective performance management system. The system, in other words, has to measure the right things if decision makers are to execute broad objectives and respond quickly to changing conditions. Many companies constitute working groups to identify metrics and indicators prior to implementing — or even selecting — a performance management software suite. While companies employ a variety of methodologies to select metrics and key performance indicators, their approaches have something in common: the metrics and indicators that emerge from this process, say executives, should be closely tailored to managers' decision making needs.

At the Jane Goodall Institute, strategy execution is closely linked to the company's annual operating plan, says CFO Robert Menzi. "Strategy is a long-term view of how the company will grow over time, and what we plan to do to accomplish our goals. The annual operating plan is the near-term manifestation of that strategy. Performance management software allows you to quantify how well your strategy is doing by allowing you to track actual performance against the plan; that's what it's all about." And part of this process, he notes, is defining which metrics the company will measure.

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