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How to Align Performance to Organizational Goals and Objectives

Updated on May 28, 2012

What is Organizational Performance Alignment

 

Organizational performance alignment is the linking of organizational goals and objectives with performance. This is perhaps the greatest challenge to implementing a world class performance management solutions.  Most companies have problems aligning and relating strategy and plans with operations, enterprise application architecture and information systems with business processes, the organization with business operations, customer needs with product and service development, outsourced services with internal operations, human resources with business needs, tangible assets with intangible assets, management policies and decisions with business change, information reported with the actual business, and so on.  This lens focuses on aligning performance to your organization's finances, people, processes, and systems.

 

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A Process for Aligning Organizational Performance Throughout Your Organization

Performance Alignment Framework
Performance Alignment Framework

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A good performance management plan aims to optimize results and align subsystems in order to achieve the overall objectives of the organization. Therefore, focusing on performance management within your organization (whether departmental, procedural, workforce, systems or financial) should ultimately affect overall organizational success. Aligning performance to your organization's goals and objectives is critical to your organization's success and is the most important ingredient to Lifecycle Performance Management.

So, how can we align the organization to it's strategy? First, we must define our organizational strategy as something tangible and manageable with measurable indicators? We must also decide what areas within our organization are most important to align in order to get the best results.

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The Performance Alignment Lifecycle

performance life cycle
performance life cycle

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The illustration above is a basic flow of how an organization's mission and objectives can be translated throughout its people, processes and technologies.

Strategic Alignment facilitates the translation of business and functional priorities into strategy. This plan is designed to help your organization develop its performance strategy in a manner that feeds strategic alignment and leads to financial and operational metrics analysis within each value stream. This process will help you identify areas of misalignment and guide you towards realignment.

Performance alignment consists of aligning corporate strategy to the following four areas:

  • Division/departmental Performance Alignment

  • Workforce Performance Alignment

  • Resource Performance Alignment

  • Financial Performance Alignment

One step to aligning organizational performance to corporate strategy is to align divisions across the organization while ensuring collaboration and accountability toward organizational goals. Another step is aligning workforce performance to corporate objectives. Another step is financial performance alignment, synchronizing financial and operational strategy and activities across the organization. And another step is resource alignment, ensuring that your organization's acquisition and use of resources support their strategic intent, reflecting priorities.

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Aligning Business Units to Organizational Objectives

Today, more and more organizations are extending performance management initiatives enterprise-wide. These initiatives require the collaborated efforts of multiple support groups and systems communicating in an organized manner and guided by a performance management team. Integrating the different divisions and components of performance management is a complex task. It requires collaboration, commitment, and standard processes across the entire organization. Getting the individual divisions within your organization to share information, processes, decision-making and responsibility is the challenge, and this is the value add to Lifecycle Performance Management versus traditional performance management.

Many performance management initiatives are often met with resistance from operating units and divisions, especially those that view integration as a threat to their decision-making independence. Through assurance and continued communication, many discover that performance management is an enabling process that helps improve their decision-making and guides them toward their goals.

Despite the broader use of performance management, enterprise-wide initiatives are not the norm. Most efforts involve many departments, but don't strategically align these departments to organizational goals. As organizations get larger, performance initiatives tend to become less effective, because difficulties in collaboration, communication and agreement are intensified and it's more difficult for a performance team to manage push back and gain buy-in on a larger scale. In order to get around these obstacles, a performance management initiative may be more successful by performing a pilot on one division, then integrating a few key departments and expanding as the efforts gain momentum and confidence.

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Aligning Employee Performance to Organizational Objectives

Workforce Performance Alignment
Workforce Performance Alignment

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A primary goal of performance management is getting people within the organization to understand and execute what they're supposed to do in order to help the organization reach its objectives. Strong executive sponsorship, open communication, change management, and training are among some of the initiatives that can assist in this process. But in the end, the key to success is aligning all aspects of performance management with things people can understand and personally control. Alignment is a simple concept, but making it work is the most challenging aspect of Lifecycle Performance Management. When workforce performance is aligned with corporate objectives individuals in an organization develop a stake in that organization's performance. Employees understand how their roles contribute to achieving the overall goals of the business and as a result organizational objectives are met. The Workforce Performance Lifecycle assists organizations in implementing the important aspects of employee development and goal alignment.

Functions within workforce performance management are:

  • Recruit and Hire Management

  • Compensation Management

  • Incentive Management

  • Goals Management

  • Learning Management

  • Competency Management

  • Performance Measurement

Recruit and Hire Management: Ability to centrally manage and improve the process for a new or replacement employee in an organization.

Compensation Management: Ability to centrally manage compensation and analysis to optimize workforce and employee satisfaction.

Incentive Management: Ability to centrally define strategies for incentives and rewards and measurement of outcomes on expected performance improvement.

Goals Management: Ability to centrally manage objectives of employees and compare performance to objectives in order to reach the desired outcomes on an annual or initiative basis.

Learning Management: Ability to centrally define, manage and track the impact of training and education programs outcomes on employee performance.

Competency Management: Ability to centrally manage competencies in the organization and be able to leverage them across the organization.

Performance Measurement: Ability to provide flexible reporting and analysis of employees from a cost and performance perspective to determine their potential and value.

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Performance Alignment Flow
Performance Alignment Flow

How to Align Performance Measures to Organizational Goals

Many high-level performance measures are so abstract they don't mean anything to the people who actually do the work. These high-level measures need to be broken down into a set of more focused measures that are meaningful to employees at every level. For example, net cash flow might be a critical performance measure for the CEO and the organization overall - but what does it mean to an Accounts Receivable clerk, and what can that person do to improve net cash flow performance?

Lifecycle Performance Management addresses this issue by translating each high-level target into a cascading series of focused performance measures, each designed to drive specific behavior at a particular level in the organization. Using our previous example, the CEO might focus on net cash flow while the CFO looks at debt-to-equity ratio. The controller might focus on liquidity ratio, while the accounts receivable manager looks at days sales outstanding, and the accounts receivable clerk worries about percent of collections over 30/60/90 days. With Lifecycle Performance Management employees at every level are measured by something they understand and control, and clearly link to the goals of their direct supervisor and the organization as a whole.

Many business processes within an organization may span across business units and functional support groups. To avoid bottlenecks, finger-pointing, and redundancy of work, shared performance measures that align people across organizational boundaries need to be identified and responsibilities accounted for. For instance, a performance measure that includes percent of collections over 30/60/90 days might be applied both to accounts receivables clerks and sales representatives. Shared and integrated performance measures encourage people to collaborate - boosting the organization's overall performance.

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Aligning IT Performance to Organizational Objectives

IT Performance Alignment
IT Performance Alignment

IT/IS departments provide technical support for the entire organization. While we know that this alone is a complex task, today's business model requires IT/IS to not only support users, but to align technology to meet the business needs of the organization. Understanding business unit objectives and translating them quickly and accurately into IT priorities is essential today. Just as critical is the ability to effectively communicate IT planning and performance data in a way that is useful to business unit management. The growing complexity of IT/IS, the frequent technology changes which take place, and its continuous critical impact on organizations, have made managing IT performance a critical function for most organizations. Executives are constantly looking for ways to use IT/IS more effectively, and identify uses which generate a higher value add. At the same time they must guarantee the effective integration and return on investment in order to achieve organizational goals and gain a competitive edge.

So how does a performance management team measure how well an organization's IT/IS is aligned to organizational objectives? To answer that, first let's take a look at the different vehicles for aligning and measuring IT performance. The IT Performance Lifecycle utilizes service level agreements, performance-based contracts, and products and services catalogs to generate reports that help an organization understand how well they are measuring up to business objectives (see above).

Service desk, capacity planning, data integration, security and custom business application development are a few of the functions IT departments support which are critical to the success of a business. It is the performance management team's responsibility to ensure that they identify and report on metrics that capture true business effectiveness.

Questions the performance management team should ask senior management regarding IT strategic alignment and performance:

  • Which of your business unit's processes support the organization's mission the most?

  • Do the metrics we report on drive those processes?

  • Do our metrics address the company's critical needs?

  • Do our reports provide the required information to make business decisions?

  • Do they identify areas of misalignment?

  • Do IT initiatives appear to be prioritized appropriately?
The IT Strategic Planning Process

The planning process involves asking such questions as who participates in the work group, who is responsible for the plan, how can user participation be guaranteed, how can coordination of the different departments involved be assured and how can the quality of the process be reached. The composition of the group responsible for IT/IS planning is a key factor in the planning process. Therefore, the team that finally approves the strategic plan for IT/IS is usually comprised of the top management of the company, the managers of the different functional areas and by the IT/ IS managers whom, with their teams, prepare the plan. Companies that fail to commit senior and departmental management to the strategic plan have a difficult, if not impossible task of aligning IT systems to Business Strategy.

Why is it important to evaluate strategic planning when it comes to Performance Management? Because measuring the right processes is the difference between an organization that is barely functional and one that's highly efficient. Measuring the right processes allows an organization to eliminate investments that are not producing favorable results, and it allows them to focus on the areas that most affect the success of the organization.

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Aligning Financial Performance to Organizational Goals

In an economy where results need to be achieved fast and investor confidence is low, CFOs and finance organizations are implementing integrated performance management to improve information quality and visibility. One challenge organizations face implementing performance management initiatives is identifying financial performance measures that are meaningful to those responsible for carrying out the work. Using the example from the last section, net cash flow is a critical performance measure for executives and understanding overall organizational performance; but it probably means very little to the accounts receivable clerk who has no idea of how their contribution improves net cash flow performance. Lifecycle Performance identifies high level targets such as net cash flow and breaks them down into divisional and individual performance measures so that every employee within the organization focuses on the processes and tasks that enable the organization to meet those targets. Remember, the key to success is aligning all aspects of performance management with things people can understand and personally control.

There are some common financial metrics many organizations utilize in order to measure their financial performance and progress towards financial goals. The following steps illustrate how your organization can maximize the effectiveness of these metrics and position the organization for financial success:

1. Identify which divisions within your organization are most responsible for carrying out the success of each metric. For example, if you are interested in maximizing your Accounts Receivable Turnover ratio, you would focus your attention on the sales and accounting teams.

2. Once the divisions are identified, the processes within those division(s) must be examined. In the Accounts Receivable example, you might want to identify the processes within the sales team regarding closing sales and getting paid the first time around. You may focus on the accounting team and alternative payment processes or method of sending statements. You may want to focus on accounts receivables and their process of prioritizing outstanding accounts.

3. Redefine the processes that are out of date, or if tools exist for automation or shortening the process.

4. Baseline the performance for the processes that have the most effect on the outcome of the financial metric.

5. Set performance measures for those processes and monitor how the improvement of those processes affects the overall financial metric over time.

The following are common financial metrics and ratios:

Return on Net Assets - Ratio measures total economic return and indicates whether the institution is financially better off than in previous years. A decline may be appropriate if it represents an institutional strategy to fulfill its mission. An improving trend indicates increasing net assets and additional reserves which provides financial flexibility.

Return on Net Assets = Change in Net Assets / Total Beginning Net Assets

Net Operating Revenues - Ratio indicates whether the institution's operating activities resulted in a net deficit or surplus for the year. Net operating ratio measures whether available resources are sufficient to fund operating activities.

Net Operating Revenues Ratio = Income before Other Items / Adjusted Net Operating Revenues

Viability Ratio - Ratio measures the ability of the institution to cover its debt as of the balance sheet date, should the institution need to settle its obligations. A positive ratio of greater than 1:1 indicates the institution has sufficient expendable net assets to satisfy its indebtedness.

Viability Ratio = Expendable Net Assets / Total Debt

Debt Burden Ratio - measures the financial strength of the institution by indicating how long the institution could function using its expendable reserves to cover operations should additional net assets not be available. A positive ratio and an increasing ratio over time denote strength.

Debt Burden Ratio = Debt Service / Total Expenses

Primary Reserve Ratio - measures the financial strength of the institution by indicating how long the institution could function using its expendable reserves to cover operations should additional net assets not be available. A positive ratio and an increasing ratio over time denote strength.

Primary Reserve Ratio = Expendable net assets / Total Expenses

Customer profitability metrics - Customer profitability metrics provide a link, where organizations measure the incidence of unprofitable customers and the magnitude of losses from unprofitable relationships. This is accomplished by focusing on managing customers for profits, not just for sales-thus making the customer focus align with financial objectives.

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Avoid These Common Pitfalls When Aligning Performance to Organizational Goals

While the goal of a performance initiative is to align performance to organizational strategy, the following are three common pitfalls to avoid when attempting to do so.

  • Inflexibility. Sometimes performance teams make the mistake of

    developing a performance plan that defines performance goals, but

    does not revisit the goals on a continuous basis. As a result, there is

    no process for adjustment in the event of improved performance or

    performance decline. This means there is no mechanism for timely

    adjustments, and the organization remains tied to outdated strategies

    where no actions are taken for improvement.

  • Insufficient vertical alignment. Successful vertical alignment

    involves ensuring that organizational goals start at the executive board

    level, and align through the CEO, executives, senior management,

    management and individual employees. Insufficient vertical alignment

    occurs when goals are set without sufficient and cumulative tie-in to

    the goals of supervisors. The result is employees and managers with

    performance objectives or projects that are irrelevant to strategic goals,

    performance gaps due to lack of support in certain areas, and time

    wasted on tasks that do not support business objectives.

  • Insufficient horizontal alignment. When departmental and individual

    goals are set without enough understanding as to how they

    interconnect with the goals of other groups, there is often redundancy

    of services, ineffective competition, and departmental and personal

    goals that are misaligned with organizational goals.

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