ANYONE can plan, but not all can deliver. In fact, the average failure rate of strategy execution based on empirical studies is 50%, and the highest observed is 90% according to a 2015 study by Candido and Santos in the Journal of Management & Organization.
In another study by David Norton and Robert Kaplan as published in their book The Balanced Scorecard, the authors note that 90% of organizations fail to execute their strategies successfully.
So why is the failure rate of strategy execution incredibly high? We can blame several factors, such as unclear communication, poor leadership, and inadequate resources, but it all boils down to a singular culprit — ineffective performance management.
Michael Armstrong in his Handbook of Performance Management carefully and plainly defines the performance management (PM) cycle as “the continuous process of improving performance by setting individual and team goals which are aligned to the strategic goals of the organisation, planning performance to achieve the goals, reviewing and assessing progress, and developing the knowledge, skills, and abilities of people.” PM involves setting key performance indicators (KPI) and targets which are regularly measured and monitored to ensure that the organization’s strategies are implemented. After all, what gets measured, gets managed, and what gets managed gets done.
Performance management has evolved since its origin in the 1960’s — from the simple performance appraisal to the development, planning and performance improvement. Over these past years it has been one of the most debated human resources (HR) practices across many organizations. Organizations increasingly modify and overhauled their PM practices due to rising discontent with traditional PM practices being demotivating, overly administrative, time-consuming, inflexible, and misaligned with the changes in the workplace and business environment.
In our enterprise transformation consulting work with several organizations, CEOs as well as Chief Human Resource Officers (CHROs) lament at the fact that PM practices are seen by business managers as a tick-on-the-box activity that needs to get done and over with, rather than a strategic activity. They expressed that this is their biggest challenge in realizing their digital transformation strategies. It stems from the lack of training among HR practitioners and managers as well as the lack of modern tools that automate certain PM components such as scheduling and feedback recording.
These are the reasons why Mercer’s 2019 Global Performance Management Survey revealed that only 2% of HR executives believe that their PM approach delivers exceptional value — unchanged from five years ago. A more recent report from Gartner showed that 58% of organizations believe their performance management systems are insufficient for monitoring the performance of strategy.
That is why there is an urgent need to step back, reflect, and transform the organizations’ performance management systems and practices to one that is modern, agile, and reflective of the significant changes in the business environment. Several organizations all over the globe have done exactly these.
In the 2020 book of Pulakos and Battista, Performance Management Transformation: Lessons Learned and Next Steps, the authors documented organizations that transformed their PM. One case is Medtronic, an American medical device company.
“The Medtronic case describes the start, stall, and restart of PM transformation. Urgent business needs in 2014 accelerated the PM transformation. A changing business operating model that would centralize most processes and the acquisition of Covideon, which doubled Medtronic’s size and revenue, forced the prioritization of HR and talent system change. Medtronic understood that in order to meet future business needs they would need to harmonize, standardize, and scale each talent process in an integral manner. Performance management was identified as a top priority, with the business driving the need for the PM restart, not HR.”
The latter argument is the most significant transformation in this case -— the business driving the need for the PM restart, not HR. Performance management should be driven and owned by the business leaders because they are the ones that recognize the need for transformation and alignment to the changing business environment. One common transformation theme among business leaders and the case studies presented by Pulakos and Battista is the need to be agile.
Therefore, PM transformation requires it to be agile as well. Enter agile performance management.
Agile performance management is a response to the modern ever-changing business environment that demands adaptability, flexibility, and alignment. It uses frequent appraisals, check-ins and 360 feedback, and promotes effectiveness and efficiency by enabling flexibility, autonomy and ownership among managers and employees.
In a study of McKinsey, nearly all organizations feel the need for more frequent feedback. “Working in agile sprints of a few weeks each creates a cadence into which collective and individual feedback naturally fits. Similarly, a culture of more autonomy and risk-taking opens opportunities for employees to stretch, take on more responsibility, and find out quickly how they can improve.”
Key to agile PM is the use of online platforms that migrate paper-based processes to an automated one. It also utilizes the principle of “nudge” to remind managers and employees on the activities and tasks they need to do in order to act on the performance gaps.
With the need for organizations to pursue digital transformation, business leaders need to employ agile PM to ensure the success of their strategies.
Reynaldo C. Lugtu, Jr. is the founder and CEO of Hungry Workhorse, a digital and culture transformation consulting firm. He is the chairman of the Information and Communications Technology Committee of the Financial Executives Institute of the Philippines. He teaches strategic management and digital transformation in the MBA Program of De La Salle University. The author may be e-mailed at firstname.lastname@example.org