PERFORMANCE MANAGEMENT

(1)

PERFORMANCE MANAGEMENT

Dr.oec.HSG SYARIFA HANOUM, S.T., M.T.

Departement of Business Management

Institut Teknologi Sepuluh Nopember (ITS) 2023

Week 01

Introduction: Strategy and Performance

Focused Organization

(2)

Set Direction

Set Strategy

Direct Business

Get Order

Fulfill Order

Support Product Develop

Product IT

Process

Fin/Accoun.

Process

Maintenance Process HR

Process

Manage Process

Core Process Support Process

CIMOSA BUSINESS PROCESS MAPPING

(3)

Comprehensive Strategic-Management Model

Source: Fred R. David, “How Companies Define Their Mission,” Long Range Planning22, no. 3 (June 1988): 40. See also Anik Ratnaningsih, Nadjadji Anwar, Patdono Suwignjo, and Putu Artama Wiguna, “Balance Scorecard of David’s Strategic Modeling at Industrial Business for National Construction Contractor of Indonesia,” Journal of Mathematics and Technology, no. 4 (October 2010): 20.

(4)

Background

Many organizations are fearful of measurement because it symbolizes accountability and, in some ways, documents a

weapon to terminate employees.

Mohan Nair, 2004, Essentials of Balanced Scorecard

Management thinker Peter Drucker is often quoted as saying:

“you can’t manage what you can’t measure.”

But if we believed ourselves to be in the same boat, trying to take on a new journey to a new land, we would measure where we are

and how far we have to go.

(5)

Course Schedule

See the updated Course Outline

(6)

AIRLINE BUSINESS PROCESS MAPPING

(7)

Why is SPM* ?

 In 1980, a survey of management consultants reported that fewer than 10% of effectively formulated strategies were successfully implemented.

 More recently in 1990, Fortune cover story of prominent CEO failures concluded that the emphasis on strategy and vision created mistaken belief that the right strategy was all that was needed to succeed.

 In the majority of cases, we estimate 70% the real problem isn’t bad strategy....but bad execution. Why CEO’s Fail Ram Charan and Geoffrey Colvin Fortune (6/21/99)

Kaplan & Norton, 2001, The Strategy Focused Organization * Strategic Performance Management

(8)

What is SPM ?

 Strategic Performance Management is about creating an environment in which organizational performance becomes everyone’s everyday job.

 Strategic Performance Management (SPM) is therefore defined as the organizational approach to define, assess, implement, and continuously refine organizational

strategy.

 It encompasses methodologies, frameworks and indicators that help organizations 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.

Bernard Marr, 2006, Strategic Performance Management * Strategic Performance Management

(9)

What is SPM ?

 Today’s business world requires new approaches towards Strategic Performance Management

 The wrong approach will often drive dysfunctional behavior and jeopardize performance.

 Three key components of this problem are:

 an incomplete picture of the strategy (the strategy trap)

 the wrong performance measures (the measurement trap), and

 the wrong approach towards managing performance (the Performance Management trap)

Bernard Marr, 2006, Strategic Performance Management

(10)

The strategy trap

 One of the essential premises is that strategy

formulation (or, more commonly, reformulation) is a layered process and an essential pre-requisite for successful Strategic Performance

Management.

(11)

The strategy trap

 A sound strategy should be developed with the aid of a reasonably thorough analysis

of the environment

(external)

in which the organization operates so that it can develop its value proposition more precisely.

 Using different tools to identify opportunities in the markets has been the traditional approach of strategy formulation.

 Here, organizations choose

a market

or

consumer

segment and then align the organization with its value proposition, internal processes, and capabilities to the opportunity in the market.

(12)

The strategy trap

 Over the past decade the Strategic Management field has seen a shift towards more internally focused approaches, where organizations exploit their internal strengths and competencies.

 The reasoning is summarized by Strategy Professor Robert Grant, who argues that “in a world where customer preferences are volatile, the identity of customers is changing, and the technologies for serving

customers’ requirements are continually evolving, an externally focused orientation does not provide a secure foundation for formulating long-term strategy.... “

 “....When the external is in a state of flux, the firm’s own resources and capabilities may be a much more stable basis on which to define its

identity. Hence, a definition of a business in terms of what it is capable of doing may offer a more durable basis for strategy than a definition based upon the needs which the business seeks to satisfy.”

(13)

The strategy trap

 Companies such as 3M, Honda, The Walt Disney Company, or Wal-Mart have demonstrated how they based their strategies on their resource architecture and core competencies.

 In 3M’s case, for example, it allowed them to understand that they had shared competencies in substrates, coatings, and adhesives.

 3M Identifying the various ways to combine these core

competencies has allowed them to enter businesses as diverse as sticky tape, photographic film, magnetic tape, and ‘Post-it’

notes

(14)

The strategy trap

 More recent findings believed that Organizations fall into the Strategy trap when they develop a one-sided view of strategy that does not connect external

opportunities and value propositions with their internal core competencies and resource structure.

 Increasingly, attempts are being made to unite these two views of strategic management which will be discussed subsequently.

(15)

The measurement trap

 Once organizations have defined and clarified their strategy, measures can be used to gauge performance in comparison to, for example, their expectations, targets or competitors.

 Measures enable us to define future goals like a certain market share or shareholder value, and they should help us understand whether we are on the right track towards delivering our

strategy.

 Without

indicators we can’t assess our success

, we don’t know whether our assumptions or decisions were correct, and we don’t see whether we are moving in the right direction.

(16)

The measurement trap

 However, this is not what happens in most organizations. What I see is often a very narrow use of measurement.

 Common reality is that there are

too many metrics

^{; no}

one knows why they are being collected, and most people

agree that the measures that are used are not measuring what they are supposed to measure or what really matters.

 In many cases measurement has become an administrative burden where we spend a lot of our time collecting and

reporting metrics, which we know is of little or no value.

 Also, too many organizations are making the mistake of only measuring everything that is easy to measure.

(17)

TRADITIONAL

PERFORMANCE MEASUREMENT SYSTEM:

 As long as business organizations have existed, the traditional method of measurement has been financial.

Bookkeeping records to track how well the organization is doing (Kaplan & Norton, 2001).

 Traditional financial accounting measures, such as the return on investment (ROI), payback period, and economic

value added) offer a narrow and incomplete picture of business performance, backward looking and more

concerned with local departmental performance than with the overall health or performance of the business (Keegan et.al, 1989; Neely et.al, 1995).

The measurement trap

(18)

The management trap

Once we have identified the strategy and derived

relevant performance indicators we need to use them.

Too many organizations believe that, once they have collected the measures and put them into

spreadsheets or reports, this will by magic lead to better decision making

(19)

The management trap

Unfortunately this is not the case !!

Imagine three frogs sitting on a leaf in a pond.

One of the three frogs decides to jump away – how many frogs are left on the leaf?

Still three!

The one frog initially

decided to jump but

then changed his

mind.

(20)

The management trap

 Strategic Performance Management is about creating an environment in which organizational performance becomes everyone’s everyday job.

 What we used to do in firms was specify the tasks someone had to perform and then put measures in place to control whether this was achieved.

 This approach was pioneered by Frederick Taylor at the beginning of the twentieth century, who called it ‘Scientific Management’.

 According to Taylor, it is only a matter of matching people to a task and then supervising, rewarding and punishing them in accordance with their performance.

(21)

Group Assignment

1. Find an example a company which has a perfect strategies but failed implementing them.

2. Three key components of this problem are:

 an incomplete picture of the strategy (the strategy trap)

 the wrong performance measures (the measurement trap), and

 the wrong approach towards managing performance (the Performance Management trap)

PERFORMANCE MANAGEMENT