The best companies in the world—those with recurring, sustainable, high rates of growth with industry leading margins—have a performance management system.
What is Performance Management?
High performing companies execute. They execute their plans (strategic and operational). The responsibility to execute is assigned, and people are held accountable. They are rewarded when they meet their assigned objectives – with consequences when they do not. There is continuous monitoring and measurement around measured outcomes, resources required, skills needed. When actual results deviate from the plan, this is highlighted on the executive dashboard and remedial action is taken. Great companies don’t let a missed month become a missed year. This is performance management.
Key elements of Performance Management
Setting Clear Objectives
Sustainable growth requires identifying, incorporating and communicating objectives at every level. The objectives are clear and metrics-based. Some metrics may not be financial, and they can be difficult to estimate and measure (e.g., customer satisfaction), but it can be done. If the operating metrics are hit, then the annual plan is met. The most important metrics are key performance indicators (“KPIs”).
Tracking Key Performance Indicators
Performance metrics are essential for your management team to monitor the drivers to Top Line Growth with Improved Gross Margins. Are the following facts at your fingertips?
- Profitability by product
- Profitability by customer
- Profitability by channel
- Profitability by partner
- Customer satisfaction
- Effectiveness tracked by sales personnel
- Retention rates
- Average cost of customer acquisition
- ROI of different marketing initiatives
- Closing rate
- Metrics by stage of sales cycle
We work with your senior management to ensure that the necessary metrics and reports are in place for the company to work toward its common goals – and to hold everyone in the company accountable.
An executive dashboard tracks performance of actual against plan for the KPIs. Each member of executive management has the appropriate dashboard to make business decisions and to receive rapid red flag warnings when the plan is off track. Without this, management is really flying blind.
Incentive Compensation Plans
When company employees do well, they need to be rewarded. While these may include financial as well as non-financial rewards, ultimately, people behave according to how they are compensated. Thus, it is crucial to have incentive compensation plans in place (both short-term and long-term plans) that are aligned with business objectives.
Performance management is the foundation on which growth is built.
If the company has a performance management methodology in place and working, Stanton Associates can review it and suggest improvements. If not, then we will work with management to design and implement a plan consistent with desired growth and profitability.