In this Issue:

Create a culture that maximizes return on performance management software

Business performance management is, by its nature, an information-driven management function. Software is obviously a tool central to implementing performance management initiatives. However, early adopters of performance management are finding that, without addressing the so-called "soft" issues related to corporate culture, companies are unlikely to maximize the return on their performance management investments.

The essential planning steps involved in implementing performance management must focus on identifying key performance metrics and IT requirements. Yet to truly make performance management work, the planning process must also address communication and corporate culture issues that will enable employees to understand, embrace, and directly support the performance management initiative.

Performance management champions have found three key culture-related factors that are prerequisites to creating the proper mindset: open-book management, training and development, and risk tolerance.

As the defining trait of performance management, information sharing starts at the top of an enterprise. If management wants employees to proactively exchange knowledge and organizational intelligence, it must first show a willingness to do so itself.

Senior managers should continually disseminate strategic and financial information. Leaders should regularly communicate how the business is doing — regardless of whether the news is good or bad. Senior executives must deliver detailed reports on how the business is performing vis-a-vis precise business drivers and strategic goals. It is this exact information that managers need to implement performance management.

In performance management, metrics are channeled to employees at all levels. Unfortunately, many people don't understand what the information means. Most employees aren't mid-level and senior managers, and therefore are unlikely to have a grasp of core financial concepts, performance improvement practices, and the tenets of operational excellence. Yet it's these factors that characterize performance management's philosophical foundation, and it's the employees "in the trenches" who often have the greatest impact on the daily operations of the business.

Skilled individual contributors who occupy the lower levels of the management hierarchy may need help in understanding those concepts in terms they can relate to and grasp. Companies embracing performance management must ask: Do the people at every level of our organization understand what our strategic drivers are, and what they personally need to do to help ensure we attain our goals? If the answer is no, specialized training initiatives may need to be instituted for select employee groups.

Tried and true practices in the business might not support performance management systems and protocols. Therefore, managers and supervisors must sometimes change how they plan, set priorities, and carry out tasks. In the process, they will inevitably make mistakes. The cultural question is this: How does management view and react to mistakes? Sometimes management officially espouses risk-taking behavior but ends up actually rewarding risk aversion. Fostering change (in this case, performance management-focused change) requires encouraging people to pursue new methods without fear of undue reprisal.

Performance management generates information that's widely accessible by employees and empowers them to make decisions — including ones that may be deemed risky by senior management. Fortunately, with performance management, employee decisions will be based on data and analysis, not on gut feel. Nonetheless, for executives implementing performance management, it's necessary to assess their organizations' true orientation to risk-taking and response to failure — and to then take this into account when establishing performance management policies and evaluative criteria.

Raj Aggarwal is the Firestone Chair and academic director of the finance Ph.D. program at Kent State University, as well as an advisory board member of the BPM Forum.