Performance management provides a strategic framework to align business activities with organizational outcomes to ensure every action taken contributes to the overall success of your company. Every C-suite and board of directors (BOD) we’ve worked with has told us performance management, measurement, and accountability are top priorities. Why? Because high-performing organizations create more value. McKinsey estimates $5 trillion in excess value is created by the 200 highest-performing CEOs. Those in the top quintile of performance generate about 90% of their industry’s value and 30 times more value than the middle three quintiles combined.

Boards provide strategic direction and guidance. They ensure performance management leads to greater business and customer value, driving growth and sustainability in what for most of us are competitive markets. Traditionally, performance management focused on activity-based metrics, measuring inputs rather than outcomes. Businesses have shifted toward outcome-based measurement, emphasizing the results of actions rather than the activities themselves. While not easy to accomplish, advancements in technology, AI, and automation have enhanced our ability to track and analyze performance data.

Be Strategic: Connect Performance Management to Business Value

A meta-analysis published in the Journal of Public Administration Research and Theory found implementing performance management systems can lead to improved organizational effectiveness. The C-suite and BOD play a pivotal role in the success of these systems. The key to success lies in the ability to link performance management to customer value creation, revenue growth, and operational excellence. Leading companies tie performance management to customer-centricity, ensuring operational excellence translates into superior customer experiences. The C-suite and BOD must ensure performance management strategies are aligned with customer-centric goals.

Two primary challenges emerge when trying to connect performance management to business and customer value: selecting and aligning metrics with business outcomes and fostering a culture of accountability.

Focus on Relevant Measures, Creating a Data-Driven Culture

Organizations often fall into the trap of over-measuring or focusing on irrelevant measures. It’s critical to avoid siloed measures that can hinder progress and prevent your organization from adapting to changing market conditions. The C-suite and BOD must guide the organization in avoiding these pitfalls by ensuring a strategic approach to measurement, metrics, and key performance indicator (KPI) selection.

Every leader in the organization must select measures focused on financial, operational, and customer metrics that drive business success. It is essential that every plan in every part of the organization is aligned to the overall growth plan and the business outcomes. The test? Can you tease out the data and logic chains in your plan so it is clear how your activities are directly connected to objectives that are directly connected to the outcomes, with clear performance targets along each link in the chain? If your answer is no, this is the first step in improving performance management.

Even with the chains, performance management success depends on establishing a data-driven culture. This culture is essential for using the performance management data for informed decision-making and continuous improvement initiatives.

There are B2B companies making substantial headway when it comes to performance management, leveraging it to drive growth and enhance customer value. These companies implement robust systems that align performance metrics with strategic objectives, resulting in measurable business success. For example, GE uses data-driven insights to optimize its supply chain and enhance product quality.

Know Which Important Functions Do (and Don’t) Excel at Performance Management

Functions such as Finance, Operations, and Supply Chain consistently excel at performance management due to their focus on measurable outcomes. Sales, Customer Success, HR, Marketing, and Product Management find performance management more challenging. In our research, only about a third of functions responsible for Marketing have a performance management plan and excel at performance management. Given the investment many companies make in marketing activities and programs, it is imperative the leaders responsible for these investments systematically advance their performance management practices.  Where to start? By creating a measurable outcome-based plan.

With leadership and the right culture, every part of the organization can improve performance management. Executives and board members play a crucial role in leading and influencing performance management, the selection of metrics, and the use of data-driven insights for decision-making. The BOD, in particular, can guide and empower the leadership team by setting a clear vision for customer-centricity and establishing customer-centric outcomes.

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Improved Performance Management: 9 Steps to Get You There

What steps can you take to enhance performance management in your organization? Start with establishing clear, customer-centric KPIs tied to business outcomes, for example, customer lifetime value, customer effort score, customer engagement rate, and customer advocacy index. We have found these nine steps pave the way to better performance management:

1. Evaluate Current Metrics:
   • Place existing measures on the metrics continuum.
   • Conduct the “so what test” to assess the relevance of each metric. If a metric doesn’t pass, determine what needs to change to make it meaningful.
   • C-suite Role: Ensure performance measurement aligns with business outcomes and will positively impact both business and customer value.
2. Define Strategic Programs:
   • For each strategy on your map, define at least one program that will enable its implementation. Write each program on its own Post-it note.
   • Frame an outcome-based performance target and create a name for each program, especially those of strategic importance or requiring significant resources.
   • BOD Role: Validate and approve programs to ensure resource allocation supports corporate priorities.
3. Align Programs with Strategies:
   • Add the programs that support each strategy to your strategic map, ensuring alignment with the business outcomes.
   • C-suite Role: Ensure cross-functional alignment and support for program execution.
4. Assemble a World-Class Data and Analytics Team:
   • Focus on building a team capable of elevating your analytics maturity level to predictive.
   • BOD Role: Ensure investments in talent and technology support long-term success.
5. Identify Relevant Patterns:
   • Identify meaningful patterns in your data and trends that inform strategic decisions.
   • C-suite Role: Promote data-driven decision-making throughout the organization.
6. Implement Insight-Driven Strategies:
   • Follow these eight steps for leveraging data-driven insights.
   • BOD Role: Monitor progress and ensure accountability for strategic execution.
7. Foster a Culture of Accountability:
   • Encourage a culture where accountability is prioritized over blame.
   • C-suite Role: Lead by example, ensuring accountability is embedded in performance evaluations.
8. Ensure Cross-Functional Collaboration:
   • Promote collaboration across departments in performance target setting and measurement.
   • BOD Role: Set expectations for leadership accountability in cross-functional initiatives.
9. Regularly Review and Refine Practices:
   • Conduct regular reviews of and benchmark performance management practices.
   • C-suite Role: Ensure continuous improvement efforts are a leadership priority.

The implementation of these steps will strengthen your organization’s accountability and performance management capabilities.

Is It Time to Better Your Performance Management Approach?

Have you implemented performance management systems in your organization? There’s no question that enhanced measurement and accountability create more value — so what are you waiting for? If you have questions or need some support to get started, we’re here to help.