Friday, March 31, 2017

Performance Management vs. Decision Management

The business management is, in essence, the decision management and performance management continuum.

Enterprise performance management is about how the organization manages performance— STRATEGIC and OPERATIONAL plans, METRICS, day-to-day decisions structurally. Business decision management is how the organization leverage tools, systems, and people to weigh in varying factors for improving decision effectiveness across the organization. All companies have resource constraints, and that performance management, per definition, is “overhead.” This would imply that there exists a trade-off between the realization of value through formalizing and structuring performance management processes and practices and the attached costs. To strike the right balance between business effectiveness and efficiency, performance management and decision management are interdisciplinary management disciplines which need to go head-in-head in order to improve the overall organizational maturity.

Enterprise Performance Management is more as decision management: All company’s performance is directly related to the decisions people make every day, from executives to the frontline, across functional areas and regions. Performance management facilitates the flow of the right information to the right people at the right time to make the right decisions, to help and coordinate the business strategy, tactics, and risks, for making continuous performance improvement. Enterprise Performance Management is the integration of multiple methods with each embedded with business analytics, such as segmentation analysis, and especially predictive analytics, to achieve the strategy and to make better decisions. Furthermore, in modern socially responsible companies, it isn't just about WHAT (performance result) you have achieved, but also about HOW (the decision-action scenario), you have achieved it. The HOW aspect is unavoidably subjective because it stems from perceptions. It doesn't mean that these aspects should be disregarded because they are not objective, but it does mean that good principles and guidance need to be formulated for making effective decisions and deployed on consistently measuring and interpreting these "softer" aspects of achieving high-performance results.

The business management is, in essence, the decision management and performance management continuum: After making strategic decisions and starting implementing processes, it is important to follow-up to ensure proper and effective implementation. Once you make a decision, then you must take actions, or you really have accomplished nothing towards solving the challenge that faces you and your organization. So, the further questions are needed to keep track of actions and results: ‘Who is to take action?' 'How will we know the action is completed?' and 'What is the consequence of not taking action’?  At traditional companies, both strategic decisions and operations decisions are often based on static or even outdated information available and the “gut feeling” of decision makers. Now at the dawn of the digital era, the abundance of information flow, click-away knowledge, and the more advanced digital technologies make it possible to gain real-time insight and business foresight in making effective decisions. And the proper set of performance metrics will help present the tangible results via action taken, also make it possible to improve the future decision making. Due to the complexity and volatility of modern organizations, it is very hard to measure important things, such as performance objectively and meaningfully. Therefore, it should have decision mechanism embedded into performance management. Performance assessment has a human component, which cannot be eliminated by any metric. The participants have to make decisions from setting criteria to select performance indicators to measure things right and be capable of interpreting the measurement objectively.

The strategic decision making focuses on setting the holistic business vision and goals, and the performance management needs to ensure the whole is superior to the sum of pieces: The issue of Performance Management measurement isn't about accuracy, but of validity and reliability. It’s important to measure performance success in meeting the business vision and strategic goals which are set by the strategic decision makers of the organization. One of biggest pitfalls for performance measurement is measuring the “part” with ignorance of the “whole.” In other words, the decision makers need to assess: What are the organization's rewards and recognition structure perpetuating? does this measure what you want to measure, and if you measure repeated times, all things being equal, would you get similar results? If your work involves a standardized process where you have to follow a procedure to get to the desired outcome (like following a recipe) then performance is highly measurable. The performance problem stems from the way outcomes are being measured. When the collective outcome is the focus, the silo walls collapse. When individual and departmental outcomes are measured, the walls go up.  Differentiated performance metrics and rewards systems tend to bring this shift in perspective. Your measures should cover all areas that contribute to value creation including service quality, employee engagement, customer satisfaction and financial outcomes.

At today's digital dynamic, performance management and decision management need to go hand-in-hand, not only measure things right, more importantly, measure the right things to ensure effective decision-making for driving continuous performance improvement. Performance management must be such that it encourages and drives stretched goals or KPIs; encourages people to take initiatives, catalyze innovations and compete in a professional way. It is also important to break down silo thinking, leverage trade-offs, to ensure business as a whole achieving the optimal business result.


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