7. December 2017

Performance Management

A company’s performance used to be defined, measured and rewarded one-dimensionally, along traditional financial parameters. Performance management was focused largely on planning, financial controlling, and providing the right information at the right time. It was typically implemented and managed using a top-down approach.

But do the assumptions behind this traditional approach still hold true in a VUCA world (volatile, uncertain, complex, and ambiguous)? From what we observe in the corporate world, it’s unlikely!

  1. Increasing volatility limits classical top-down planning considerably, and traditional controlling systems are designed hierarchically. This makes them too slow and inflexible to handle change.
  2. A VUCA world implies an array of equally important stakeholders, and all respective interests need to be reflected in a given performance management system. This is in contrast to the traditional approach of privileging just one stakeholder group – usually the financial market.
  3. Many of today’s budgeting and planning systems are seen as cumbersome, bureaucratic, and driving the wrong behavior. They are often so complex that that a CFO has limited power to ensure strategic alignment.

We believe Performance Management is being redefined. It will likely become a function of general management executed de-centrally by all departments, not just financial controlling. Key parameters of managing performance in a VUCA world will take the multi-dimensionality of performance into account. This will allow performance to be addressed more subjectively, allowing for more flexibility. More holistic performance management systems will foster consideration of behavioral dimensions (e.g. the trust factor), allowing us to avoid familiar pitfalls encountered in classical systems (e.g. sandbagging). Performance assessment will also follow relative logic, reflecting the constantly changing contextual factors (such as markets and benchmarks). In addition to all of this, it’s also becoming clear that different tasks require different employee and competency profiles. This demands the continuous development of the finance and controlling community.