Get with the Plan: Aligning Performance Goals With Corporate Strategy - InformationWeek

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Get with the Plan: Aligning Performance Goals With Corporate Strategy

Disjointed improvement initiatives can work at cross purposes and throw your company into chaos. Here's how to get operational performance management programs in sync with the strategic mission.

Like other journeys, the road to performance management starts with a single step. Sometimes, however, that first step isn't toward the goal, but rather away from the brink of disaster.

Take the case of a computer network equipment provider that lost more than $300 million over three consecutive quarters. To the outside world, the company appeared to have a financial performance problem; after all, its quarterly numbers showed declining revenues and rising costs. Internally, however, senior managers knew the problem was more complex. It lay in the fact that for three years they had been unable to align their organization's strategic goals with operational initiatives to improve product quality, simplify highly structured pricing and upgrade customer service.

As this company discovered, individual improvement initiatives can end up working at cross purposes and throwing the larger organization into disarray. Indeed many companies come to this realization even as they develop metrics and attempt to solve seemingly isolated operational problems. That's why it's essential for various operational goals to be aligned with the big-picture strategic mission of the organization. Using tools such as scorecards and linking business intelligence to business processes can help (see related Q&A interview with scorecard pioneer Dr. David Norton), but alignment isn't easy and it won't happen without agreement and coordination across the organization. Read on to learn about the cultural and technological changes required to bring operational execution and corporate strategy into harmony and to unleash truly dramatic performance improvement.

Disaster by 1,000 Improvements

The trouble at the computer network provider was that they had no way to ensure that everyone in the organization was focused on making progress toward the strategic goals. For example, the new-product development team had done a good job of sourcing materials from the least-expensive providers; semiannual departmental metrics showed average materials costs had dropped. However, quality suffered; field rework and product return costs went up, driving up total activity cost. The quality problem also created a customer satisfaction issue. Ultimately, new product sales declined.

At the same time, the pricing team was trying a new tactic for build-to-order items, shifting from a per-component markup to pricing by complete package. The idea was to simplify pricing of the fully configured products and stimulate sales. But repeat customers complained that each time they purchased, the price was different. The net result was declining build-to-order sales. To make things worse, trying to compensate for the drop in sales, account managers created overly optimistic forecasts that did not pass freight and expediting costs along to the customer.

That wasn't all. These and other missteps meant that the company's contact center experienced an increase in calls that exceeded the usual five-minute limit to resolve. As waiting calls stacked up, managers added customer service representatives. But they had no way to measure the effectiveness of their call-resolution efforts. Without metrics, the contact center managers were blind, for example, to the number of call terminations due to customer frustration. They also had no way to identify new-product service problems and relay those issues to an upstream team (such as sales or product quality) to resolve.

Individually, each improvement initiative looked reasonable: lower production costs, simplify pricing, ramp up to meet contact center demand. But they were undertaken in isolation and thus weren't aligned; together, they pushed the organization toward disaster. In response to this crisis, company leaders decided to engage in a process of performance alignment that could turn the business around.

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