Consultant Interview: Gavin Lawrie, Managing Director at 2GC
In 2019, the Performance Magazine editorial team interviewed Gavin Lawrie, Managing Director at 2GC Active Management, Great Britain. His thoughts and views on Performance Management are presented in detail below.
Organizations have much greater success in performance management when they focus on implementing simple targeted solutions for specific applications.
- Which were the key trends in Performance Management, from your point of view, as seen in 2018?
In 2018, we saw a continuation of the trend to redefine performance management as a multi-functional collection of distinct applications – strategic, operational, personal, evaluative and organizational. Reassuringly, from my perspective, as it confirms the conclusions drawn in some of the earliest research papers published by 2GC in the early 2000s.
It was clear then that for each of the distinct applications, the nature of the measures you would choose, the frequency that you would need to report them, the accuracy of measurement required and the management process that would be informed by the information are all necessarily different; it is great to see that nearly 20 years later, the message is increasingly influencing the practices of the performance management community.
Of course, it is pleasing to note that Performance Magazine has also recognized these differences – featuring them in its site navigation since it emerged from smartKPIs.com in 2014.
- What are your thoughts on the integration of Performance Management at the organizational, departmental and employee level?
Integrated performance management – i.e. performance management systems that concurrently support several of the distinct performance management applications discussed above – is a concept promoted primarily by software firms (presumably with a view to persuade their clients of the need to purchase ever more complex solutions).
However, integrated performance management is, for fairly fundamental reasons, a chimera – the very different functional requirements of the various distinct applications of performance management within an organization make integrated solutions unusually complicated, and (at least in the experience of 2GC over 20 years working with organizations on these issues) more often than not the root cause of performance management failures.
Organizations have much greater success in performance management when they focus on implementing simple targeted solutions for specific applications, even if it means they end up with multiple parallel systems.
It is better to focus time and energy on building simple systems that people can own and use, and to manage the boundaries between these systems intelligently, than to set out on a Quixotic quest for organization-wide integration and control through a single approach.
Perhaps one day such approaches will work, but right now integrated approaches simply do not work well enough to justify their use.
- Which will be the major changes in managing performance, in the future?
Over the last few years there has been an increasing interest within organizations on recognizing and monitoring goals set by stakeholders other than the ‘owners’ of the organization.
Perhaps the most visible such change is the widespread interest by organizations in ‘sustainability’ as both a strategic goal and product/service differentiator, but we also see it reflected in an increasingly active approach to regulatory compliance and the minimization of litigation risk.
As these trends develop, I think there will be three consequences of note:
- There will be recognition of the need to move toward tracking and rewarding appropriate behaviours and values rather than simply monitoring the completion of activities;
- In the future simply doing the current job will not be sufficient, being able to demonstrate that the organization has successfully implemented critical changes in activity, attitudes and behaviours will form a critical component of communication with non-financial stakeholders. As a result, there will be greater emphasis placed on performance management processes that ensure critical strategic and change goals are actually delivered on time and with appropriate effectiveness;
- To support these developments, organizations will find themselves looking for more sophisticated and effective approaches to help them select and use non-financial non-operational measures.
- What aspects of Performance Management should be explored more through research?
I can see three areas that would benefit from original research.
1. Building on pioneering work of the 1990s and 2000s, there is still a need to look again at how to better align and reflect user and corporate interests in measurement activities.
Our understanding of how to define and catalogue useful and comparable non-financial measures is poor compared to our equivalent abilities relating to financial performance measures. Even within industry groups, our ability to monitor and compare performance against non-financial measures is lacking.
Fixing this is non-trivial, but some really interesting solutions are emerging from current work (for example) on measuring and monitoring organizational performance relating to sustainability; I think there will be some cross-over from this to mainstream performance management topics.
2. Researching better ways for organizations to sustain multiple separate performance management systems.
For example, finding ways to break strategic performance management away from the ‘annual’ financial budget and review cycle, introducing mechanisms that more closely support shorter-term responsive strategic decision-making required of modern strategic Balanced Scorecard designs, or related tools such as OKRs.
Organizations necessarily need to accommodate the differences in measurement frequency and style required by the multiple distinct performance management applications that it uses (e.g. strategic, operational, appraisal, regulatory compliance, incentives etc.), but using separate conflicting systems is perhaps less efficient and effective than would be the case if these were more closely integrated.
3. Increasing demand for effective auditing of non-financial performance management systems.
The auditing of performance management systems is a service offered by several organizations (including 2GC, and smartKPIs), but there is no consensus on the right methods to use, or enough rigour for such audits to have legal or regulatory recognition.
Again, we can see one possible solution emerging from what is happening in the sustainability space, but it is unlikely that these ad-hoc solutions will scale sufficiently to work across a broad range of industries and sectors.
- Which organizations would you recommend be looked at, due to their particular approach to managing performance, and their subsequent results?
Given the trends likely over the next few years, I would encourage consideration of the approaches being adopted by organizations that are effectively addressing sustainability issues.
Independently of whether sustainability as we see it today persists as an agenda item, these organizations are actively testing new approaches to performance management – including novel forms of performance management, and work to instil behaviours and values within organizations as well as monitoring activity.
- Which of the existing trends, topics or particular aspects within Performance Managementhave lost their relevance and/or importance, from your point of view?
For the last decade, 2GC has run an annual survey of Balanced Scorecard usage, and over time we have seen increasing recognition that the original ideas underpinning the development of the Balanced Scorecard are being replaced by more effective methods.
In a research paper I co-authored in 2004, we recognized then three distinct ‘generations’ of Balanced Scorecard design which we labelled – 1st, 2nd, and 3rd generation. Each generation was introduced to correct for weaknesses in earlier approaches to this kind of performance management, and it is hugely encouraging to see usage catching up with best practices.
For the last couple of years, the majority of organizations in the survey have reported using the latest ‘3rd Generation’ design methods: it would seem that the generally inferior 1st and 2nd generation approaches are finally being replaced.
A second, yet related, area of note is the increasing awareness that measure selection for performance management purposes is necessarily more complicated than simply getting someone else to tell you what is important.
Performance measures clearly only ‘work’ when the managers using them understand and subscribe to their importance. To this end, it has become increasingly clear to us that databases of key performance indicators, and consulting programmes that choose KPIs for an organization are not really much use.
The Oxford English dictionary defines about 170,000 words, but no one would suggest that simply owning a copy will improve the quality of a person’s writing. The biggest KPI databases contain definitions of about 22,000 measures, but we have found no evidence that paying to have access to such a resource improves either measure selection or use within organizations.
Organizations have no real difficulty working out how to measure things, the real challenge they face is deciding what to measure.
- What are the main challenges of Performance Management in practice, today?
Performance management systems are resource intensive to design, implement and use. In particular, they necessarily require input from more senior members of the organization’s management hierarchy (e.g. to set the overall scope and dimensions of the system, and to authorise the required changes in working practices if the systems are going to be used).
A primary driver of the evolution of performance management methods for the last 30 years has been finding ways to minimize this resource intensity – finding ways to make performance management system design quicker, easier and more reliable.
While great improvements have been achieved compared to the early days, there is still scope for further gains in this area – particularly in regard of how multiple performance management tools are coordinated and aligned.
This resource intensity has two real consequences that undermine the effectiveness of performance management:
- managers are reluctant to invest the time needed to make good use of the performance management information provided, especially if their ‘ownership’ of the chosen measures and targets is low;
- the desire to spend time regularly reviewing and renewing performance measure selections and targets – essential if a performance management system is to have any longevity – is closely linked to managers perceptions of the ‘usefulness’ of the current system.
Persuading managers to find time to use and maintain performance management systems is hard!
- What should be improved in the use of Performance Management tools and processes?
Design activities need to build and maintain support and interest among the managers who will have to use the tools – such engagement is critical if the tool is to have any utility or life within the organization. This requires design approaches that focus on concise rather than complex systems, and emphasise clearly the purpose and expected benefits of the systems being developed.
Once systems are in place, active consideration is required to ensure that the other management work-processes within the organization are able to accommodate the new performance management framework. In particular, financial and personal goal setting systems need to be adjusted to accommodate the working of a strategic performance management system.
If a strategic review identifies the need to change a goal or adjust a project or operational process, it is unhelpful if other control systems (e.g. finance) prevents such changes happening.
- What would you consider as a best practice in Performance Management?
Modern 3rd Generation style Balanced Scorecard design processes have represented best practice in the context of strategic performance management design and use for over 20 years and provide powerful methods to support organizational strategic alignment and the development of a performance management culture.
They are quicker, easier to implement, and lead to the design of more robust and reliable solutions than the methods that they have replaced.
- Which aspects of Performance Management should be emphasized during educational programs?
That measures need to be directly useful to the people who engage with them.
That measures without targets are not useful for management purposes.
That the frequency of review needs to be adjusted to suit the purpose of the measure – for example, how often and why you need to check the speedometer in a car very much depends on what you are doing – if you are driving it, you hopefully will check it regularly and use the information to adjust your speed. If you are servicing the car, you might check it once to be sure it works (and fix it if it is broken); if you are cleaning the car, you probably don’t need to look at it at all.
- What are the limits that prevent practitioners from achieving higher levels of proficiency in Performance Management?
- Belief that performance management is a simple concept
- A generally poor understanding of performance management issues within academia and consulting environments
- The cost and (unnecessary) complexity of software solutions
- Consultant Point of View: What are the processes and tools you look at, in order to differentiate a successful performance management system, from a superficial one?
The test 2GC applies is very simple – whether when we sit with managers within an organization, we can find any evidence at all that the performance management system is actually being used to inform decision making, and whether there is any evidence that over time the performance management system is being updated/refined to better reflect current issues.