Page 31 - Performance Leadership

20 • Part I A Review of Performance Management

lifetime value in marketing, absenteeism, and salary balance in human
resources.
Every organization, large or small, operates under these loops of
management. It is the most elementary management model. The dou-
ble loops may not function well because the organization is not using
them effectively, but they are there. Unfortunately the loops do not tell
us what strategies are the right ones, or which performance indicators
are needed to measure success; it is just the basic principle. More
insight from other, more specific performance management method-
1
ologies is needed .

A Summary Guide to Performance
Management Methodologies
The most powerful management process that is usually deeply embed-
ded in an organization is the budgeting process. Almost every organi-
zation has adopted this process to translate strategy into action and
determine a benchmark for performance. A budget is a fixed perform-
ance contract, expressed in financial terms, against which future results
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can be compared. Furthermore, a budget is a means to allocate the
scarce resources of an organization and to let managers commit them-
selves to predetermined financial results. The budgeting process is
seldom appreciated in business. Budgeting tends to take a lot of time;
three to five months is not exceptional at all. This often leads to some-
what disconnected results because budgeting processes are often nego-
tiation-based. Jack Welch, the former CEO of General Electric, is often
quoted as saying, “The budget is the bane of corporate America. It
never should have existed. . . . Making a budget is an exercise in min-
imalization.” The only thing I would add is that this statement holds
true for companies around the world, not just for corporate America.
Over the years various alternatives have been proposed, such as activ-
3
ity-based budgeting, zero-based budgeting, and rolling forecasts . How-
4
ever, the beyond-budgeting model offers the most radical alternative.
Its proponents argue convincingly that the practice of budgeting may
have worked in the industrial area where business was predictable, but
that a modern business is much more decentralized and networked
than the traditional hierarchical organization of the past. Table 2.1
lists the principles of the beyond-budgeting model.