Page 135 - Performance Leadership

124 • Part II Operational and Analytical Dimensions

preference. The focus on continuous revenue streams may lead the
company to ignore large deals in the market that would increase the
company’s revenue. That’s why it is also introducing account man-
agement for its larger customers.

Performance/Risk Map
The exercise of establishing both performance and risk indicators leads
to insightful discussions. Do high rewards always have high risks? Do
low-risk initiatives contribute enough to the objectives? Are there
options that are low risk and high reward? Unfortunately, our current
performance management practices and methodologies do not support
that way of thinking. The structure of strategy maps, linking perform-
ance indicators with single lines displaying what-leads-to-what, tend not
to recognize these dilemmas between risk and reward. They help us
“optimize objectives,” but easily lead to new problems in other areas.
For instance, cost cutting leads to use of inferior materials. Inferior
materials lead to a heavier burden on the environment and customer
complaints of quality problems. Or, think of laying-off people, which
negatively affects the knowledge base of the organization and the moti-
vation of the people still left. It is good business to manage these risks
when putting together performance management improvements.
The IT hardware supplier case showed how to fuse performance
management and risk management, using an adaptation of a strategy
map, originating in the performance management discipline. However,
within risk management there is a useful visualization tool as well,
called the heat map. See Figure 8.2.
A heat map has two dimensions. The vertical dimension shows if
risks have a high probability of happening. The horizontal dimension
shows the impact of that risk factor happening. Risks can then be plot-
ted in the chart, based on the assessment of risk and impact. Risks that
have a low probability and a low impact can safely be ignored. If they
happen, there will be no material damage. Risks with a high probabil-
ity but with low impact need to be included in the price of the prod-
ucts or services, to compensate for them. Risks with a low probability
and a high impact should be monitored. They should be foreseen, for
instance, through a scenario analysis, and a contingency plan should