Understanding strategic performance management

Strategic Performance Management, or simply SPM, can be defined as an integrated approach to delivering sustained outcomes as desired by the key stakeholders of an organisation.

SPM is a complex undertaking, yet a critical one. It helps to keep processes, programmes or initiatives on the right path towards the desired objectives.

Simply explained, SPM is the totality of strategy development, budgeting/target setting, forecasting, performance measurement, performance review and incentive compensation. These sub-processes, when integrated, create the performance driven behaviour that is needed to become and stay world-class. But each must be done well. Here’ a brief of what matters most under each:

 

Strategy Development

Many strategic plans tend to look inward, resulting in unrealistic long-term views that do not take environmental developments into account. A well-developed strategic plan results in clear objectives and measureable action plans. A good understanding of the key value drivers is necessary for this.

Budgeting/Target Setting

Budgeting or target setting results in clear operational action plans for improving the key value drivers, for committing resources and for setting financial targets for the year. The set targets must be alive to the volatility of the business environment.

Forecasting

Regular forecasts are made to predict whether the organisation is still on track or if corrective actions are needed to solve current or predicted problems.

Performance Measurement

Performance measurement collects and processes data to allow an effective execution of the other sub-processes. The information is represented in the form of critical success factors and key performance indicators.

Performance Review

Performance review periodically analyses actual performance in relation to the targets. It informs timely preventive and corrective action to keep the organisation on track.

Incentive Compensation

This process links strategic and operational actions with compensation and benefits policies. Designed well, which means aligning it properly with the other sub-processes, it will help to reward the right performance-driven behaviour.

It must be emphasised that strategic performance management should be applied as a framework for managers to support their team members rather than simply condemn or reward them. It must be used as a transformational and not an appraisal process.

Strategic performance management is meant to enable organisations to acquire fitness, i.e., the ability to adapt and survive in the dynamic business environment.