Performance Management done right is a gold mine of insight

We are pleased to welcome Mr. Anders Liu-Lindberg back to the Jedox blog. Check out his blog series on The Future of FP&A. Mr. Liu-Lindberg is the co-founder and COO of the Business Partnering Institute (BPI). A purpose-driven consulting firm aiming at cracking the code on business partnering, BPI helps unlock the value potential of the finance function.

Historically, the predominant role that the finance function has played in the company was the role of a controller – the person or function that came to hit people in the head when they were either doing something they were not allowed to do or were not hitting their targets. We call it “performance management” because the company needed to manage that each function was doing what was best for the business and delivered according to plan.

To a large extent, the performance management cycle has had a very negative tone to it and has not aided finance in our efforts to become a valued business partner. Does that mean we should get rid of controlling and performance management though? No, they still play very important roles in the company, however, we might want to think about them in a different way and give them a more positive spin. How can we do that?

We should flip the conversation that we have with our business stakeholders upside down. Instead of solely looking at the financial targets (and KPIs) we should ask them what their strategy is for achieving the business goals they have set out and do our utmost to help them achieve it. That is true customer focus and showing a genuine interest in making them successful.

We do that by understanding the critical business drivers that determine business success. Business drivers are leading indicators for financial drivers hence if we help the business deliver on these drivers, we should reach our overall financial goals.

From strategy to execution

Performance management is not about being the nasty person that always points out gaps and the holes in the cheese. No, it is about ensuring that we understand if the strategy we have decided in the strategy room is working by enforcing the feedback loop we described under stronger execution.

Business partners should play a strong role in defining the strategy or plan, report on how we are progressing, analyze where we are falling short and point out recommendations for improvement. It is this simple cycle and that is what performance management is all about.

• Plan: What are you trying to achieve for the year and how are you going to realize it?
• Report: How are you progressing on your initiatives to realize the plan?
• Analyze: Understand why things are going the way they are.
• Improve: If things are going according to plan ask what else can be done to improve further and if you are behind the plan, help your stakeholders brainstorm for ideas on how to get back on track.

Instead of beating business leaders up about not hitting their targets, we instead ask “How are you going to achieve the targets and realize the strategy?” and follow that up by saying “given how you are going to realize the strategy, here is how we are going to help you follow up on this.” We should continue to use our strength in the numbers and discuss with business leaders what we see and share the insights with them. Now that they know we are genuinely interested in helping them succeed the conversations becomes much more constructive and positive.

Business performance reviews – not financial

This is exactly what Anders did in his most recent role as a business partner and in a matter of weeks, the conversation around the value of finance had flipped upside down.

Situation

During 2018, the company was in a tough spot financially and an immediate turnaround plan was needed. However, finance had not been able to deliver needed insights to build the plan. This left business leaders with little confidence in finance’s ability to be a true business partner.

Complication

The situation was about to escalate further leaving finance without a seat at the table by the time Anders joined late 2018. Finance focused too much on the numbers and the financials with few commercial insights to share with the product managers.

Resolution

As the customer focus was lacking there was a need to reconnect with business leaders and understand what was important to them. Through a series of lunches, Anders got to know the stakeholders and their challenges better. Following the lunches, he asked to see their strategy material for the year and converted them into a business performance review deck. He proclaimed if that is what you want to achieve then this is how I am going to help you follow up on it. That changed the conversation immediately!

Impact

The business leaders realized that finance could help them meet or beat their targets rather than just beating them up. It was a completely different way of doing performance management that led to new conversations where questions like “what can we do to get back on track?” or “it is great to see that we are ahead of the target and I am wondering if we can leverage this strength to do even better?” were asked.

Doing this over time also gets finance into the strategy room because another realization dawned on the business stakeholders. Maybe finance can even challenge us to come up with much better strategies!

The classic battle of balancing risk and return

Performance management can become a strong tool for generating insights that can drive better decisions. In fact, it is THE tool to balance the relationship between risk and return. It does not mean that we should always caution business leaders to take fewer risks. Rather it means we should help them take the right risks and mitigate where needed.

This change in approach can have a revolutionary effect on your controlling function as you approach business leaders in a different way. You can try this too. Just reach out to your business stakeholders and tell them you would like to take a new approach where you forget the financials for a while and focus on helping them succeed with their plans. Then come back and tell us their reactions. We doubt that anyone will respond negatively to your efforts!