For better, for worse
Do not abandon performance management when times are tough, says Gary Cokins. Instead, reevaluate your objectives and adjust.
Author and corporate performance management expert Gary Cokins believes executives who trust employees, analyze information and delegate responsibilities have a stronger chance at readjusting strategies to survive the economic downturn. Read our interview with Cokins to learn more about budgeting during a downturn, keeping employees motivated, and balancing short-term tactics with long-term strategies.
Do corporate management approaches differ between developing and developed countries, between Western and Eastern countries? Did these differences influence the current economic crisis?
COKINS: Approaches to implementing performance management initiatives are more influenced by the managerial style and the attitudes of executive leaders from individual organizations than by any national differences or distinctions between developing and developed countries.
Executive teams that are reluctant to decentralize responsibilities to managers and employees are challenged to achieve the benefits from better decision making throughout the organization. Executives who do not trust employees to understand the strategic objectives and analyze information will not perform as well as organizations where executives delegate responsibilities.
Assigning accountability to managers is essential. It forces managers to take a greater stake in their decisions. Computer technologies, such as strategy map and balanced scorecard software, can help executives communicate their strategies to employees. The associated feedback helps everyone monitor how well they are managing the strategy and understand what may cause shortfalls.
How can an organization develop and implement a sound strategy in uncertain economic conditions? How does the economic crisis and uncertainty affect the time horizon for strategic planning?
COKINS: A strategy is never static for the long term. External factors, like the rise of competitors and changes in customer preferences, always require shifts in direction. It’s critical that managers and employees understand the new directions and take actions to execute the new objectives and discontinue the pursuit of obsolete objectives.
Strategy maps, performance measurements with targets, and rolling financial forecasts are essential ingredients to executing strategy. Performance improves better when business analytics are combined with the components to reduce uncertainty.
How can leaders identify the most crucial tasks for employees during the times of personnel reduction and workload increases? What’s the best way to motivate performance?
COKINS: The balanced scorecard is arguably the best methodology that an organization can use to manage and achieve its strategy. Older methods like the popular “management by objectives” of the 1980s are too disconnected from strategy.
A problem, however, with the balanced scorecard [BSC] is that most organizations have yet to achieve a level of competency to operate it. One problem is that a balanced scorecard requires a strategy map as a prerequisite. Scorecards and dashboards simply provide feedback on how well the strategy is being managed. The executives’ guidance is expressed in their strategy map, but few executives bother to create one.
During times of layoffs and increased workloads, the BSC method can not only identify the crucial tasks and priorities for employees but it can provide feedback to monitor the progress toward achieving targets with measures.
How does the partial or complete nationalization of an organization affect the management concepts of a company? What can performance management offer?
COKINS: It is true that a government cannot choose its customers, and its ultimate goal is not to make a profit. Beyond that, government organizations and for-profit companies are quite similar. They both have limited resources and capacity, and their responsibility is to attain the maximum and correct outputs and outcomes specified by the executives for the benefit of stakeholders.
Today, there is convergence in the ways that governments and commercial companies apply the methodologies of the enterprise performance management framework. Nationalizing an organization that may have been previously operated as a for-profit company does not change things that much. The organization will still require a leadership team to provide their vision for their organization and to inspire and motivate its workers. There will always be negotiation for financial funding of some level. Regardless of how the funding is attained, the challenge always remains to get the most results from those resources: to optimize. Ideally, the government officials who allocate funds should consider themselves on the same team as the managers responsible for using those funds wisely.
Are scenario analyses and stress testing effective tools in crisis conditions? Where is the balance between complexity of the model, its clarity for managers and practical effects of its use?
COKINS: Transactional business systems, such as enterprise resource planning (ERP) systems from software vendors like SAP or Oracle, are not enough to lead in normal or crisis conditions. They are limited to reporting what happened and provide little to no insight or understanding about why things happened.
Smart organizations are shifting their managerial style from after-the-fact reacting to a forward-looking, anticipatory-planning style based on forecasted projections. This allows managers and employees to make adjustments before problems are likely to occur and to apply proactive decision making.
Regarding the level of complexity, model designs should follow the basic rule that the level of detail and accuracy depends on the type of decision being made. Too often accountants and engineers overdesign their decision support models way beyond what is needed. This adds unnecessary administrative effort to collect data and maintain a system well beyond the requirements to make a good decision. Simpler models are more practical and cost-effective to maintain.
Leaders are realigning their work to preserve stability and minimize losses. What is the first priority: strategy or tactics?
COKINS: Leaders should prioritize both strategy and tactics. The main priority is to seek long-term balanced and sustained success for stakeholders, including shareholders, employees, community and the environment. Achieving stability does not mean growth has to stop. Obviously, the downturn’s reduction in demand temporarily reduces funding, such as sales volume, for a commercial company. However, during this temporary period, executives can still improve the skills and capability of employees, the quality of offerings to customers, and their assets, where all of them can be better and stronger when the economy bounces back.
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