Greg Gough of Hitachi Consulting on Performance Management
A quick scan of recent news accounts illustrates just how much the temperature within the consumer goods (CG) industry is rising toward the boiling point. Whether it's a product recall, upward spiraling commodity costs or shifting consumer spending patterns, it's imperative that CG companies be more market responsive than ever.
How you respond to market changes is predictive of your company's future performance. To get an idea of how effectively your company responds to market changes, take the quiz below (be painfully honest).
The Importance of Performance Management
Performance management is a set of processes enabling better execution of defined strategies for profitable growth. Think of it as the system of sensors showing what key measures are on course, what is off course and why, and what can be done to get things back on track. One of the bedrock principles of performance management is a closed-loop process for aligning performance measures with strategic objectives, rapidly identifying issues and taking corrective action.
Performance management capabilities dictate the ability to sense and effectively respond to market changes.Traditional management tools can impede responsiveness to market stimuli. For example, if a market trend is taking off faster than expected, and funds are constrained until the next budget cycle, an opportunity could be lost. Similarly, if consumer tastes shift but incentive plans reward execution of last year's product mix, an opportunity is missed.
Performance management uses key business drivers to forecast and analyze expected performance while there's still time to have an impact. It minimizes the rear-view, variance-to-budget drill with its account-level minutiae. The drivers include rolling forecasts and dashboards with key performance indicators. Improved focus and alignment that comes from clearer priorities and accountabilities of a performance management program mean increased agility and fewer missed opportunities. The result can be faster revenue and growth.
Delivering growth and return on capital requires strong execution. Few companies connect the processes and tools necessary to manage performance and meet goals.
Common disconnects include:
Potential Rewards
The rewards for improving performance management processes are plentiful.
There is no doubt CG companies are getting more complex and face more market-changing events than ever before. There is also no doubt that a strong performance management program can provide the clarity and insights required to be more responsive, and ultimately, more competitive.
How you respond to market changes is predictive of your company's future performance. To get an idea of how effectively your company responds to market changes, take the quiz below (be painfully honest).
The Importance of Performance ManagementPerformance management is a set of processes enabling better execution of defined strategies for profitable growth. Think of it as the system of sensors showing what key measures are on course, what is off course and why, and what can be done to get things back on track. One of the bedrock principles of performance management is a closed-loop process for aligning performance measures with strategic objectives, rapidly identifying issues and taking corrective action.
Performance management capabilities dictate the ability to sense and effectively respond to market changes.Traditional management tools can impede responsiveness to market stimuli. For example, if a market trend is taking off faster than expected, and funds are constrained until the next budget cycle, an opportunity could be lost. Similarly, if consumer tastes shift but incentive plans reward execution of last year's product mix, an opportunity is missed.
Performance management uses key business drivers to forecast and analyze expected performance while there's still time to have an impact. It minimizes the rear-view, variance-to-budget drill with its account-level minutiae. The drivers include rolling forecasts and dashboards with key performance indicators. Improved focus and alignment that comes from clearer priorities and accountabilities of a performance management program mean increased agility and fewer missed opportunities. The result can be faster revenue and growth.
Delivering growth and return on capital requires strong execution. Few companies connect the processes and tools necessary to manage performance and meet goals.
Common disconnects include:
- A strategic plan disconnected from the operational and financial plans
- A financial plan serving as a substitute for a strategic or operational plan
- Poor alignment of individual rewards with organizational strategy
- A budgeting process that hinders performance by creating negotiated targets that neither encourage stretch performance nor provide flexibility and agility to change strategic direction
- Decision makers lacking the visibility required to make decisions
Potential Rewards
The rewards for improving performance management processes are plentiful.
- Greater Strategic Alignment: Performance management is about breaking strategy into actionable components, knowing the right measure for each, and holding people accountable for following the plan. It is not enough to prepare an insightful strategy binder if it's just left on the shelf. There is no doubt that developing a strategic plan gives companies some of the components for success. But that's not all. Additional components are needed such as clear objectives, aligned metrics, stretch targets and well-understood accountabilities. Companies that address only portions of the strategic plan are missing profit-improvement opportunities.
- Increased Transparency and Visibility: A successful performance management model encourages companies to measure the right components. While measuring is important in any corporate scenario, what's being measured is also key. For example, augmenting the typical "quantity" of sales metric with "quality" of sales metrics can lead to new insights for both percentage-of-gross margin and mix of strategic product.
- Improved Agility and Responsiveness: Many leading CG companies often say "We are data rich, but starved for insights." Yes, CG companies often are drowning in data, but do not have the tools and processes to quickly analyze the root causes of performance issues, evaluate alternatives and take decisive actions. Enhancing visibility into key performance measures has a significant payoff for CG companies. Specific examples include:
- Trade promotion management and pricing becomes more accountable and responsive to market needs
- Collaboration with channel partners improves and becomes more extensive
- Manufacturing and distribution assets are more responsive to market changes
There is no doubt CG companies are getting more complex and face more market-changing events than ever before. There is also no doubt that a strong performance management program can provide the clarity and insights required to be more responsive, and ultimately, more competitive.