The Tone at the Top’s Influence on Performance Management
By Gary Cokins - Mar 11, 2015
One of the mysteries that I have pondered is why organizations are so slow to adopt enterprise and corporate performance management (EPM/CPM) methods. Why is the application of strategy maps to define an organization’s strategic objectives to determine key initiatives, core processes and performance measures displayed in scorecards and dashboards so gradual? Why do CFOs tolerate broad-brushed indirect expense allocations without cause-and-effect relationships that block visibility and accuracy of how expenses are consumed rather than use activity-based costing (ABC) techniques? Why do managers not more fully deploy the power of robust analytics like statistical forecasting, correlation analysis, pattern recognition and customer segmentation?
Who is at fault?
Several years ago I speculated that the impediment was that software tools were not sufficiently powerful or scalable to meet the needs of larger organizations with thousands of products and tens of thousands of customers. But today software vendors now offer very robust tools that meet these needs.
Next, I suspected that inexperienced project teams (including junior level management consultants from contractors) were not adequately familiar with successful techniques to properly implement EPM/CPM methods such as balanced scorecards, customer profitability reporting, and driver-based budgets. For example, financial controllers and CFOs were notorious for excessively over-building the size of ABC models to orders of magnitude larger than needed – well beyond the point of diminishing returns of extra accuracy for the extra level of administrative effort. But gradually the lessons learned from past failures on how to determine the correct levels of detail and complexity were discovered and communicated.
After those theories, I began to conclude that middle managers and employee teams were averse to applying the EPM/CPM methods. One reason is because these methods appear to be overly complicated and thus threaten to create unjustifiable extra work. Other reasons include employees’ occasional (or pervasive) reluctance to share information and the fear of being measures and held accountable that can arise from implementing formal systems. In general, resistance to change, which is human nature, might be the hurdle.
Maybe the obstacle involves affordability, limited budgets or a questionable financial return on investment (ROI) that comes with the implementation of EPM/CPM methods. EPM/CPM methods can be difficult to justify. The benefits must exceed the costs and effort to implement them. However, increased knowledge about the extended and amplified benefits from these methods as well as more efficient and economical implementation techniques has tipped the cost/benefits scale. For example, implementation methods using rapid prototyping with iterative remodeling principles accelerates learning and buy-in. It results selecting the better key performance indicators in a scorecard or dashboards. It results in right-sized systems rather than overly complex ones. Start small but think big.
Is the true culprit senior management?
In the past few years I have observed the substantial positive impact that EPM/CPM methods have on improving an organization’s performance. The proof is there. I now have a clue to the explanation for the cause for slow adoption rate of EPM/CPM methods. Maybe it is senior management. Researchers of ethics increasingly claim that executives who exhibit model behavior – the tone at the top – influence ethical behavior of their employees. Role model behavior is a very powerful influence for employees. Perhaps this also applies to deploying EPM/CPM methods.
I recently read the book The 21 Irrefutable Laws of Leadership by Robert C. Maxwell. To paraphrase Maxwell’s first law, the “Law of the Lid”: If your senior leadership cannot articulate the basic principles of an improvement initiative, then employees will never achieve or sustain the initiative. If leadership is weak, the lid is low.
There is much written about the shortage of leadership, including Lee Iacocca’s recent book, Where Have All the Leaders Gone? Maybe Maxwell and Iacocca are on to something.
Getting buy-in – the eternal quest
In many ways the EPM/CPM methods are much more social systems than they are technical systems. Of course, information technology is a key, but software serves as an enabler. Ultimately it is people who must design them, assure the source input data has high integrity, implement them, and more importantly use the results for analysis and decision support. For example, the key performance indicators (KPIs) in a balanced scorecard or dashboard will drive behavior – or as the old saying goes, “What gets measured gets managed.” Another example is managerial accounting, where the ultimate primary purpose of KPIs is to influence behavior and facilitate discovery and questioning. Management accounting information does not tell you what to do but is more of a focusing instrument telling you where to look and investigate deeper. It does not provide answers but rather it generates questions to stimulate discussions about what to change.
Getting the buy-in of managers and employees is an eternal quest in large part because there are always many options, and bad experiences from new untested programs have burned people and organizations in the past. But EPM/CPM methods are not untested – they are proven. And commercial software vendors have solved problems related to data management, data integration, and modeling.
A trait of a superior executive leadership team is their knowing which improvement initiatives among the many to pursue and in what sequence. This is particularly true with EPM/CPM because virtually none of its methods are optional – they all are ultimately essential. A key is for the executive team to set direction and then select the methods with supporting software technologies to empower employees to help drive the organization in that direction. The tone is at the top. From the top desk to the desk top.