Page 44 - Performance Leadership

Chapter 2 Traditional Performance Management • 33

among the management team and other stakeholders. It should not be
used merely to justify these assumptions as part of a generic formula.
Even the “objective” financial numbers are based on assumptions.
Depreciation is a guess, the weights of the cost of capital are subjec-
tive, and the various reserves on the balance sheet used to calculate the
total invested capital are likewise based on subjective decision making.
Beyond budgeting is totally structured around discussing the right
investment proposals, as it is a zero-based plan approach. The balanced
scorecard forces us to discuss how to align our business and create a
strategy map with cause-and-effect relationships. Links in a strategy
map are not a tool for command and control, but an instrument for
communication and collaboration. It drives management toward col-
laborative behavior. Although statistical techniques are valuable to
establish cause-and-effect relationships, the strategy map is not a sta-
tistical forecasting tool that predicts what the financial outcome is when
someone “turns a dial” in one of the operational processes. Strategy
maps are not an exact science but they do provide an agenda for dis-
cussion in management team meetings.
We can only build an aligned company if we understand our and
each other’s assumptions, to make sure our perception matches reality
and to build authenticity. Only when we discuss our assumptions and
the things we value, can we understand each other’s behavior. Behav-
17
iors are the link between plans and results. Seeing the financial results
of actual change may take weeks or months, while we can work on our
behaviors from the beginning. Next to measuring results, we need to
use performance management to drive and reward the right behaviors.