Implementing and monitoring strategy involves many management processes and individuals all working together towards a common goal. However, organisations operate in a dynamic business environment, unlike plans that are created at a fixed point in time.
Today’s business environment is too complex and volatile for anyone to predict the future with accuracy. Some things will work better than others, while competitors or market conditions can change unexpectedly. All will have an impact on the execution of strategy, which must adapt if the organisation is to achieve its objectives.
Most organisations would agree that the traditional processes of annual planning, quarterly forecasting and monthly reporting are no longer adequate to manage performance. However, continual planning is more than just doing the same things only more frequently.
This kind of approach requires a different mentality and a radical rethink of the processes and systems that organisations use to manage performance.
Planning and reporting activities in most organisations are typically grouped into:
* Strategic planning which assesses the organisation’s current position and where it plans to go;
* Tactical planning that details the initiatives to be adopted and how departments should work together;
* Financial planning which is concerned with resourcing initiatives;
* Forecasting to see whether the organisation is on track to achieve its goal;
* Management reporting where actual and plan data is presented in context of organisational strategy; and
* Risk management to assess the risks involved and prepare contingency plans.
These different activities and their supporting tasks cannot be run in isolation in the same way you cannot disconnect the steering or engine from the chassis of a car. This overall performance management process is continuous. Research into high-performing companies found that: “Best Practice companies decouple their internal management processes from the calendar and provide a set of planning and reporting processes that utilize continuous processing and monitoring of activity. The passage of time becomes (just) one of many criteria for triggering the reporting of information or the initiation of planning or forecast activities.” (Best Practices in Planning and Performance Management, David Axson)
The report goes on to say: “Aspects of strategic planning are not once-a-year events but a continuous process. The pace of change is so great that management needs to monitor the strategic implications of new developments on a continuous basis”. But most organisations struggle to perform these tasks annually, let alone on a continuous basis. To achieve continual performance management, two things are critical:
The content of organisational plans must be reduced to just those things that are strategically important. The average organisation budgets over 240 items compared with best practice companies that budget between 30 to 40 items. Interestingly, the more items an organisation budgets, the less likely they are to be accurate. By reducing the number of items being planned, best practice organisation’s can address the variability of the numbers they do budget.
However, just because an organisation plans at a summary level does not mean that it should report actual results at a summary level. With today’s reporting systems it makes sense to perform analyses of actual results at a detailed level, but only report those detailed results where data has significantly changed over time, in comparison with another peer group or where the summarised result is very different from the summary budget.
The second area key for continuous performance management is to identify the different planning and reporting tasks that go on between departments in defining and monitoring plans. Although the above picture shows the different activities involved in performance management, it doesn’t really give a true picture of what goes on.
Within each one of these activities are many interactions between departments as can be seen in the diagram on the left. For example when setting a budget, the market forecast should be reflected in the sales target, which in turn should drive the production budget. However, production capacity may impact the sales that can be achieved. Once these departments have finalised their plans, other departments will need to do theirs – support services, finance department, IT and so on.
These different tasks form a network of inter-dependencies in which some will depend on the completion of others before they can be started.
To achieve an effective and continuous process, this network of tasks must be clearly defined. Together, they represent a complete performance management process.
Once defined, the next step is to determine how each task is to be initiated. For some tasks this may be on a predefined basis – e.g. in September we review the tactical plan in light of the current years performance, or they may be started by the completion of a previous task, as shown by the task network
But tasks could also be triggered by an event such as a competitor making a significant change to its products, or an exception such as a sales forecast being significantly below the plan. In these cases, the trigger may initiate a set of tasks just for a particular product group or market sector, as only that part of the plan needs revising. This may include the re-plan of an affected project or the introduction of a new initiative, along with the re-allocation of resources that this will require.
To assess whether a performance management activity should be invoked requires a set of ‘trigger points’ throughout the plan. Rather than have a single value that indicates whether something is ‘on’ or ‘off’ target, trigger levels provide a range indicating both lower and upper thresholds within which the value of a measure can move before something needs to be done. For example a sales forecast that is outside of plus or minus 10% of the plan could be the trigger for a business unit to re-budget.
Ideally, trigger levels should be established for:
If an actual or forecast result moves outside of its trigger point, then the person responsible for that measure should be alerted. He or she can then make a judgement on whether any related activities should be reviewed.
To make continuous performance management a reality in any sizable operation requires technology. The complexities of monitoring thresholds for ‘triggers’ and then instigating a re-plan of affected areas is more than can be handled by simplistic menus. It will require a solution that has embedded workflow capabilities, so make sure this is part of any evaluation criteria.