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Measuring and managing performance is critical in identifying an organization’s performance levels. Although many companies measure their performance against their financials, this approach does not always succeed when facing crises like the COVID-19 pandemic. Performance management offers a deep understanding of procedures, processes, and services or products for higher management to view, which helps in making critical decisions when crises happen.
Therefore, organizations should establish, integrate, and adopt a dedicated performance management department. As discussed in the Certified Performance Management Professional course by The KPI Institute (TKI), a performance management system (PMS) helps align employees to meet corporate strategic objectives and career goals. In addition, it creates an environment where employees reach and exceed their abilities to produce efficient and effective products or services. This system, according to Aurel Brudan, founder and CEO of TKI, refers to “the overarching human activity that is concerned with achieving desired results, thus demonstrating and achieving performance. It reflects the approach one entity has towards performance, and it integrates both upstream and downstream with other domains of administrative science or managerial disciplines.”
Placement
The placement of a Performance Management Office (PMO) in the organizational structure depends on how the organization handles planning and execution. On one hand, if planning and execution are carried out by one department, then the PMO would be an independent department. On the other hand, if planning and execution are done separately in the organization, then the PMO would be under Corporate Strategy Planning and next to the Project Management and Strategic Planning offices. To sum it up, having a dedicated PMO is not enough. It is important to place the PMO in the organizational structure according to how planning and execution are performed within the organization to ensure clear and smooth integration within its hierarchy.
Measuring and managing performance is critical in identifying an organization’s performance levels. Although many companies measure their performance against their financials, this approach does not always succeed when facing crises like the COVID-19 pandemic. Performance management offers a deep understanding of procedures, processes, and services or products for higher management to view, which helps in making critical decisions when crises happen.
The following example is a subsection from a corporate-level organizational structure showing the placement of the PMO.
Source: The KPI Institute
Imagine a scenario where the Strategic Planning Department produces a strategy plan activated through projects executed and managed by the Project Management Department. The output of those two departments is then measured and managed by the PMO. The PMO in this structure ensures the smooth and effective execution of performance management activities. This setup is optimal due to its many benefits to operations and strategic alignment.
Benefits
There are several benefits to having a dedicated PMO. Performance management starts by connecting strategic objectives to key performance indicators (KPIs), deriving strategy implementation and supporting transformation to guide the organization toward improvement and growth.
The tangible benefits of having a PMO will typically emerge after its first year of implementation, with evidence likely showing up during the annual performance review. Analyzing the organization’s current state, defining its future, and managing performance throughout the year through performance management tools can give higher management a clear vision as they take critical actions to update their strategy as the situation demands it. Moreover, the PMO can identify and understand gaps and opportunities for improvement to ensure continued organizational growth and survival.
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This article is written by Engr. Hussien Abdullah Alkhalifah, a strategy and business planning professional who specializes in corporate performance, agile project management, business process improvement, performance management, KPI implementation, quality control, and strategic planning, among others. Connect with him on LinkedIn.
The KPI Institute held a webinar titled “2023 Business Pulse: 5 Trends Impacting Strategy and Performance Management” in April 2023. The event was organized for executives and professionals in strategy and performance management who want to position their companies for success in today’s business environment. The discussion is based on the “2023 Global Trends Brief – Impact on Strategy and Performance Management Practices” report, which can be downloaded for free here.
2023 Global Trends Brief is a secondary research analysis aiming to outline the most important factors affecting the business environment and how they shape strategy and performance management practices. Executives and Strategy Managers are pressured to adopt management tools and processes to create resilient and agile organizations. Our research reviewed 95 reports and articles from reputable research and consultancy companies as of March 2023. These sources cover various factors shaping markets, such as geopolitical influences, global economic tendencies, society, technology, and climate. Based on our findings, five key driving factors of change for organizations have been identified and presented in the report to set the general operating context for most companies in 2023.
The distinction between divergent and convergent thinking was introduced by J.P. Guilford, president of the American Psychological Association, in the 1950s. Guilford and his colleagues defined divergent thinking as the ability to generate multiple alternative solutions to a given situation or problem (Runco, 2014). It is a useful technique for answering open-ended questions during brainstorming. Meanwhile, convergent thinking leads us to find the right answer as a consequence of previous logical steps and does not require much creativity.
In simpler terms, divergent thinking answers questions like “How can a brick be used?” whereas convergent thinking answers questions like “Who won the 1988 World Series?”
Strategy planning is a process that requires considerable thought from stakeholders. During the strategy formulation stage, executives may consider many possible options. A lot of information and data relevant to accomplishing the strategy have to be gathered, too. SWOT analysis, Porter’s Five Forces, or PESTEL analysis are used in the external and internal environmental scan, and multiple scenarios can be drafted before reaching a conclusion. All types of information relevant to the analysis are gathered: historical information as well as internal and external data.
During strategy planning, the opportunity to innovate emerges. Broad research, asking relevant questions, considering multiple perspectives, and generating new ideas all require the use of divergent thinking. Brainstorming sessions are examples of techniques where divergent thinking is applied and can be used to gather as many options as possible while exploring many paths, some of which may be unusual. Divergent questions may be asked, such as what happens if factor A does or does not occur.
Divergent thinking answers the questions with an open-ended task “How can we do this?” followed by multiple possible answers. Convergent thinking is then used to narrow down the “right” answers until a single answer is found. This is done by correctly diagnosing a problem, making the decision to adopt the most cost-effective strategic objective, and selecting the best strategy by weighing the pros and cons.
Both divergent and convergent are useful for the strategy planning process, as the former fosters creativity to generate original ideas and new possibilities while the latter enables concrete solutions to be identified. Ideas from divergent thinking are transformed into structured, feasible plans with convergent thinking. In a complex strategy planning process, it is best to adapt both—divergent thinking for creativity and innovation and convergent thinking for efficiency and structure.
Nowadays, with mounting pressure on businesses to be accountable for their environmental and social impact, it is no longer optional but expected for them to develop and implement sustainable business strategies that play out across three key areas: Environment, Social, and Governance (ESG). This pressure comes from rising public awareness, tightening regulations, and increased expectations from customers, employees, and investors.
Stakeholder engagement plays a significant role in the successful implementation of ESG strategies. In this article, let’s explore its functions and effects on ESG strategies.
The power of stakeholder engagement
Stakeholders are individuals, groups, or organizations that can influence or are affected by a company’s strategy from within and outside the organization. They can either drive change or resist it. Therefore, it is critical to identify stakeholders and understand their needs and expectations to ensure the ESG agenda reflects the priorities of those who matter and support the strategy’s long-term success.
Pay Governance LLC, a firm that provides independent advice on executive compensation matters, has developed the Stakeholder Value Creation Chain model (See Figure 1) to better understand the effects of stakeholder engagement on the economic success of a business. It demonstrates how ESG strategy, the stakeholder model, and the generation of corporate value all intersect to provide various advantages for corporations.
Engaging with stakeholders during the strategy execution phase allows companies to foster collaboration, build trust and confidence, encourage support for ESG actions, evaluate how the actions are perceived, mitigate potential risks, and improve decision-making.
To know more about ESG strategy and how it exactly boosts stakeholder engagement based on a report, read the full article in the PERFORMANCE Magazine Issue No. 25 – Sustainability Edition. You can download a free digital copy through the TKI Marketplace. Printed copies are also available on Amazon. But the price may vary depending on location.
Over the past few years, companies faced volatile business environments all while keeping up with sustainability requirements, workforce and customer behavioral changes, and market trends.Because of the turbulence of the business environment, the role of strategic planning becomes even more essential to the survival and growth of any business.
As John Child defines it, business volatility is “the degree of change which characterizes environmental activities relevant to an organization’s operations.” According to the 2023 Global Trends Brief, these are some of the components that caused disruptions and unpredictabilityin the business environment:
Rising prioritization for mental health and work-life balance
The traditional strategic planning process, according to Jean Dieudonne, strategic planning lead at ANZ, includes a three-to-five-year plan with actionable steps to achieve long-term goals. However, businesses must rethink this to adapt and deal with turbulent times.
One of the leading providers of energy solutions worldwide, bp is currently investing in low-carbon solutions. The 2023 edition of the bp Energy Outlook, as outlined in this year’s annual report, has identified two turbulent factors: the Russia-Ukraine war and the US Inflation Reduction Act. Given the unpredictable nature and potential enduring impact of these events on the trajectory of the national and global energy systems, the organization’s strategic planning process becomes even more essential.
Accordingly, bp proactively monitors the external environment and regularly updates its strategic plans in response to these external signals. They employ scenarios from the World Business Council for Sustainable Development’s “Climate Analysis Reference Approach for Companies in the Energy System” to assess and validate their strategy. This proactive approach enables them to seize opportunities and navigate challenges in turbulent times. The leadership team and board review the strategy, capital allocation, risks, and opportunities, making regular updates as needed. Also, to successfully go through the fast-changing business landscape, they monitor key indicators and metrics, including policy developments, renewables capacity, electric vehicle sales, and low carbon technology costs.
Another company that had to deal withturbulence in the business environment isSaudi Aramco Power Company,which has incorporated risk assessment into its strategic planning process. Projects go one by one through a structured decision process that includes rigorous risk assessments and value assurance evaluations, and each strategic scenario is stress-tested to ensure positive results in any business environment.
Strategic planning will always stay relevant, and the selection process for strategists should be of critical importance. Also, choosing the right resources to strategize and execute plans with is like choosing friends to accompany one in a dynamic environment—an escape room, for instance. Choose those that can be effectively utilized or leveraged for a specific purpose.
