Page 20 - Performance Leadership

Chapter 1 Setting the Scene • 9

However, measurement cannot be ignored, even if it is only to check
if the other drivers for performance are doing the job.

PERFORMANCE MANAGEMENT, OR PERFORMANCE MEASUREMENT

Academics prefer the term performance measurement because its scope is
clearer. Performance measurement may be defined as the process of quantify-
ing past action, in which measurement is the process of quantification and past
2
action determines current performance. Another definition states that strate-
gic performance measurement is the integrated set of management processes
3
which link strategy to execution. However, people in the business world seem
to prefer the term performance management, perhaps because it sounds more
actionable or broader in scope.
The analyst firm Gartner defines performance management as the combination
of management methodologies, metrics, and IT (applications, tools, and infra-
structure) that enable users to define, monitor, and optimize results and out-
comes to achieve personal or departmental objectives while enabling
alignment with strategic objectives across multiple organizational levels (per-
sonal, process, group, departmental, corporate, or business ecosystem). 4

Performance management is deeply rooted in the domain of man-
agement accounting and control, typically the responsibility of finance.
For instance, the balanced scorecard, the best-known performance
management methodology, originates in management accounting.
From a management accounting and control point of view, perform-
ance management usually is a top-down process. Most “best practices”
point out that it is important to start by understanding the corporate
strategy and to translate that into objectives or goals.
Then, key performance indicators (KPIs) need to be put in place to
track progress, and a program of improvement activities needs to be
created to make sure the goals are achieved. Lastly, a process in which
managers are made responsible for these goals, KPIs, and any improve-
ment activities is set in place and linked to the managers’ compensa-
tion plans.
Unfortunately, the top-down way of implementation often does not
take people’s behaviors into account, in other words, how people will
react when confronted with performance indicators. Measurement
drives behavior, and if we don’t understand how, it drives behaviors in
mysterious ways.