What is Strategic Performance Management? Definition, Process and Best Practices – Spiceworks (2023)

Strategic performance management is defined as a performance measurement, monitoring and improvement methodology that helps achieve overall business goals.“
What is Strategic Performance Management? Definition, Process and Best Practices – Spiceworks (1)

Figure 1. Strategic performance management aligns employee performance across four key areas

Table of contents

  • What is Strategic Performance Management?
  • Key components of strategic performance management
  • 5 steps to implementing a successful strategic performance management plan
  • 7 Strategic Performance Management Best Practices You Should Follow
  • Get a head start with these online courses

What is Strategic Performance Management?

Strategic performance management is defined as the method of improving performance measurement, monitoring and improvement in order to achieve overall organizational goals.

Strategic performance management is commonly practiced using the Balanced Scorecard framework, which aligns employee performance with financial success, customer satisfaction, internal process efficiency and organizational capacity optimization.

Mercerscurrent surveyOpens a new windowout of 1,154 HR managers found that only 2% of organizations are currently achieving “extraordinary value” from their performance management systems. This could be due to an over-focus on individual employee goals without proper alignment with organizational goals. Mercer found that 83% of companies have individual goals, but these are in 56% of cases.

This is where strategic performance management comes into play. It places a strong focus on corporate strategy and how it is fulfilled through employee performance and improving workforce skills. By adopting strategic performance management, you can more effectively bridge the gap between on-site performance and high-level business transformation.

You could look at many variations of power management such as: B. formal/annual performance management, continuous performance management and agile performance management. Strategic performance management is one of the most proven tactics popular with big companies like Unilever and P&G.

To clearly understand the concept of strategic performance management, you need to take a closer look at the balanced scorecard approach.

What exactly is a Balanced Scorecard?

Simply put, a Balanced Scorecard is a popular strategic performance driver that positions individual employee performance at the intersection of four key aspects:

1. Financial:How does an employee contribute to the company's turnover? How does employee performance directly correlate to stock price performance by improving business results?

2. Could:Has customer satisfaction rating (CSAT) improved due to employee performance? Are other indicators of customer success (Net Promoter Score, Customer Lifetime Value, Churn, etc.) showing an increase? Has the company successfully acquired a new customer base?

3. Intern:How has employee performance made internal processes more efficient and effective? Has an employee excelled in a particular process? Was employee involvement instrumental in bringing about a meaningful internal transformation?

4. Capacity:Has the performance of the company changed as a result of the efforts of the employees? Has the company become more scalable with a larger production capacity? How many new innovations were introduced and adopted during the measurement period?

Employees are evaluated based on these four parameters and the cumulative score shows their overall performance rating. Some companies follow a numeric system of 1 to 5, with one being completely below expectations and five being well above expectations. Others may follow a descriptive format, assigning values ​​such as "Needs Improvement", "Meets Expectations" and "Exceeds Expectations".

By planning the performance of each employee along these four parameters, as they correlate with the overall performance of the company, you can ensure that your employees are successful in achieving the company's short- and long-term goals.

Of course, any KPI needs to be clearly communicated to employees, keeping in mind each employee's skills and capacity and ensuring alignment at very early stages to ensure clear expectations.

Learn more:Time Tracking and Screen Monitoring: Struggling to Trust Remote Workers?Opens a new window

Key components of strategic performance management

Once you are clear about your organizational goals and how they relate to individual talent/performance, you need a strategic performance management system that can align these elements and help orchestrate them smoothly. This system includes:

A tool for goal setting and identification:Allows C-level executives and company directors to study trends, make forecasts and set concrete goals for the company

Result-oriented system:Monitors the organization's performance and growth in line with the goals already set; can cover the four elements of the Balanced Scorecard

Segmentation of the workforce:Divides employees into groups based on performance parameters for easy monitoring and targeting

Employee-level performance management:Continuously follows employee performance with respect, enables regular feedback and supports check-ins

Seamless integration:Enables integration with employee performance management systems and organizational KPI dashboards to align data

Effective communication:Provides an internal marketing, communication and feedback mechanism to share C-level goals with the entire workforce and encourage self-improvement

Equipped with these components, a strategic performance management system can accelerate individual improvements while always being in line with the overall organizational orientation. For example, if a company wants to expand into new areas, the workforce can be quickly upgraded to meet the needs and capture the business opportunity as it arises.

5 steps to implementing a successful strategic performance management plan

A look at the six elements outlined above suggests the core premise underlying strategic performance management. To align your people on a highly results-oriented plan, here are the steps to create and launch a multi-layered process for successful strategic performance management.

1. Work with all levels of leadership

A good strategic performance plan starts with precise and achievable goals. Once these high-level goals are identified, you can work with business unit leaders, managers, and employees to break down each goal into its actionable parts and ensure each stakeholder understands their responsibilities.

For example, revenue growth goals might involve alignment with hiring, leads and sales goals, employee productivity on each team, and so on. To ensure effective implementation, you must work with each team's leaders/managers to clearly communicate the hierarchy of goal setting according to the organization's annual goals.

2. Implement the right performance management tools

Technology can be of great help in the transition to strategic performance management for the following reasons:

● It integrates multiple layers of data to provide a 360-degree view of employee performance

● It ensures transparency in evaluating performance without bias or ambiguity

● Maintains a searchable record of employee performance for compliance

● It shows trends for succession planning and the identification of leadership potential

● It automatically generates performance reports for feedback and improvements

Most performance management software programs on the market are compatible with goal setting, progress tracking, and continuous feedback.

3. Conduct change management sessions

Employees may not be able to easily switch to strategic performance management. Because of this, HR needs to put in place a solid change management practice, getting employees used to the new system, removing any bottlenecks and ensuring a results-driven culture is in place.

Remember that a high-performing culture (that isn't toxic) is the cornerstone of strategic performance management success. You need to outline the company-level goals that employees are striving for and why they are important to thempersonal. This step may involve rigorous training of managers so they can effectively motivate and mobilize the workforce.

4. Reward employees and encourage performance

A large part of strategic performance management is tying individual performance to a specific reward/compensation element.

In most organizations, the framework is associated with annual reviews (which can be broken down into quarterly MBOs), where an employee's performance in terms of financial gains, customer acquisition, internal efficiency, and capacity improvement will result in a raise or promotion. Companies can even define their own Balanced Scorecard, with parameters like teamwork, innovation or culture add.
In the short term, you can stimulate performance through rewards or even non-monetary recognition in a social setting. However, a long-term increase in performance must inevitably be associated with remuneration.

5. Review performance and implement L&D measures

To improve performance and consistently get closer to your goals, you need to invest in talent developmentlearn and developOpens a new windowprograms. Targeted and strategic learning programs ensure continuous employee improvement, particularly in high-demand areas that are critical to the company's success.

Actions could range from hands-on learning for hard skills, to executive coaching for soft skills, to niche training (diversity and inclusion, new technologies like XR, etc.). Learning progress should be tracked on a regular basis to ensure alignment with a strategic performance management plan and pivot to an agile model when needed.

Learn more:3 leading trends from Deloitte's 2020 Global Human Capital Trends decodedOpens a new window

7 Strategic Performance Management Best Practices You Should Follow

While there's no one-stop solution for strategic performance management—goals, priorities, and measurement frameworks vary from organization to organization—here are seven best practices you can follow.
What is Strategic Performance Management? Definition, Process and Best Practices – Spiceworks (2)

Fig. 2. Best practices that enable strategic performance management

1. Encourage continuous learning among the workforce

In order to successfully achieve the company's goals, every employee must recognize their true potential and advance their career within the company. This requires continuous learning as part of the workflow, supported by digital tools like mobile learning and nudge notifications.

2. Check the buy-in at regular intervals

In a dynamic organization, the overall goals and understanding of goals at the employee level can change frequently. For this reason, the strategic performance management plan must be reviewed/fine-tuned every quarter to ensure consistent alignment.

3. Use sophisticated analytics

A state-of-the-art strategic performance management system is incomplete without data analysis. It unearths insights from employee performance records and shows how employee assets could be put to better use. You can combine analytics with a natural language processing engine so even non-technical executives can easily explore the data.

4. Introduce anti-bias checks and balances

There is always a risk of bias creeping into your performance appraisal, and strategic performance management is at risk as well. For example, imagine an employee who was on paternity leave and couldn't match the team's productivity average. The necessary checks and balances ensure an objective review that takes all factors into account.

5. Improving your decision-making systems

Without the right roles, strategic performance management is doomed to fail from the start. This makes accurate and data-driven decision-making absolutely critical, and equips business leaders with a forward-looking view of business growth—which brings us to the next best practice.

6. Fostering a data-driven culture

A data-driven culture allows employees to track their own progress, self-assess, and share performance insights with their peers. It means there is a culture ofpervasive intelligenceOpens a new windowin place, where data analytics interfaces are democratized for cross-enterprise access.

7. Assign an incubation time for the ROI

Remember that a strategic performance management system will not show results in the first quarter of implementation. It may well take a year to resonate with your workforce and culture. It is wise to allow an incubation period before anticipating any surge in business growth to avoid sunk costs.

Understandably, strategic performance management can be difficult to navigate. If your business is just starting out, there are several online courses that can help you gain the skills you need to do it expertlyperformance managementOpens a new windowModel.

Get a head start with these online courses

Most leading institutions offer learning opportunities in strategic performance management. And some of these courses are available online so you can take them at your leisure. Here is our selection:

Strategic performance managementOpens a new windowon Class CentralOpens a new window: Offered by the Indian Institute of Technology, Kharagpur, this course covers the multiple facets of performance management, its relationship to strategic planning and the use of a reward system. It is an 8-week paid online certification course.

Strategic performance managementOpens a new window- Volume 1: Strategy Management on UdemyOpens a new window: This course covers the development of a mission statement, the various strategic issues to examine and the details of a Balanced Scorecard. It is an excellent course for those starting out in performance management and is available in a two-hour video format.

Strategic performance managementOpens a new windowModel on CourseraOpens a new window: This portion of Coursera's HR specialization for HR managers, with four modules covering the Strategic Performance Management model, its role, pitfalls and implications for strategy. It's available as a video that you can try for free if you're not already a Coursera member.

Strategic performance management is a tried and tested formula for improving performance and achieving corporate goals.

It balances large-scale goals with people-centricity, empowering employees to maximize their full potential by constantly pushing the organizational needle in the right direction. With the right toolkit and required best practices, you can leverage this methodology and take your business to new heights.

Do you believe that strategic performance management plays a role in an organization's growth and success? Why or why not? Share your thoughts with usLinkedInOpens a new window,TwitterOpens a new window, orFacebookOpens a new window.

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