Integrated Organizational Performance Management
Chris McGrath
H2 Performance Consulting
Abstract: I-O psychologists not familiar with integrated organizational performance management (IOPM) often think it is a process focusing on individual performance improvement and appraisal within an organization. In fact, although it does deal with individual performance, it actually focuses on the organization as a whole and the management integration of all performance-related processes. Due to its management focus, consultants working in this area often are business-degreed experts as opposed to I-O psychologists. This article provides a brief overview of what IOPM is and what the general process entails, with an aim to encouraging more I-O psychologists to get involved with this very important area of consulting.
When the subject of organizational performance management is brought up in conversation with my SIOP colleagues, the expected context usually revolves around employee appraisal systems. As a performance management consultant though, my use of the term includes performance appraisal systems but goes far beyond them.
As a practitioner of integrated organizational performance management (IOPM), my working definition is that it is a process-oriented management system that integrates operational performance horizontally and vertically within an organization, such that all activities support the organization’s strategic goals and associated objectives.
Verweire and Berghe (2004) state in the preface to their edited text, Integrated Performance Management: A Guide to Strategy Implementation, that “performance management will only deliver sustained success if it is integrated.” Integration in this case is defined as “strategically aligned.” They go on to add: “Integrated performance management systems should focus on those activities which, if done well, will lead to competitive advantage and long term growth. Thus strategy is a central element for every performance management system.”
Unfortunately, the state of strategic planning begs for improvement. A McKinsey survey of worldwide business executives of companies with $500 million or greater in revenues received 796 responses (McKinsey, 2006). Results showed that fewer than half of executives are satisfied with their processes, and although 75% of companies surveyed did have formal strategic planning processes, less than 25% say that it is effective. Only 58% stated that their processes had significant impact on the company’s actual executed strategy, and only 56% stated that strategic initiatives were actually tracked in terms of outcome.
The whole arena of IOPM is fertile ground for I-O practitioners, but I feel that it is often shied away from due to the perception that it is an area better off left to the MBAs. In fact, I-Os can be indispensable as facilitators of this process because of the very fact that I-Os do their best to prevent the “people factor” from getting lost in business strategy and tactics. We bring approaches that are critical to consider in strategic planning such as organizational climate, communications assessments, team-building needs, organizational development, training needs, and of course employee rewards and appraisal systems.
Picture a company picnic with departmental or divisional “tug-of-war” teams. It is easy to assume that the team with the biggest team members will always win. However, as both an observer and participant in these types of events, I’ve found that teams establishing a consistent rhythm to their tugs, pulling in a straight line, and demonstrating the agility to take ground quickly often defeated physically bigger and stronger teams. IOPM is all about getting everyone in the organization to “pull on the rope” in the same direction in a coordinated manner that maximizes results.
What are the basic elements of a good IOPM program? Number 1 is the strategic plan itself, the foundation upon which the process is built. This includes developing or updating standard mission, vision, and values statements; analysis of current and future operational and market environments with a planning horizon of typically 5 years; and the development of activities and timelines to reach the strategic vision at the end of the time horizon. These activities also define annual goals and objectives. Many organizations also develop an annual business or operating plan from the 5-year strategic plan.
It is during the strategic planning phase of IOPM that many I-O psychology core competencies can be brought to bear to answer such questions as:
- Does the current organization climate support the organization’s mission, vision, and values?
- Are there intergroup conflicts holding the organization back from top performance?
- How effective are organizational communication processes?
- Do team processes need to be strengthened?
- Will current employee reward and appraisal systems support the strategic direction?
- Is the organization selecting the right people for employment and promotion?
- Will the organization’s current investment in training meet future challenges?
These issues are sometimes completely overlooked in the gap analysis phase of standard business strategic planning processes. The power of a strong IOPM program can be evidenced by demonstrating that employee appraisal goals leave no doubt as to how the employee supports the strategic plan in their daily work efforts and annual development activities.
Once the strategic plan and annual operating plan has been drafted, annual goals and objectives need to be measured and reported. This is often the most difficult part of IOPM. Selecting the right metrics is critical to success. Far too often I have seen organizations measure the wrong thing, driving employee behavior in exactly the opposite direction as that desired. Take a purchasing operation for example. It is critically important that purchasing provide the right material and services, at the right time, and at the best possible price. However one of the most common goal measures in a purchasing agent’s appraisal is purchasing lead time: the time from when a purchase request is received to the time the request is delivered. If that is made the sole focal goal, as I have seen before, the result is that employees will perform purchases as fast as they can, processing small dollar value noncomplex first, leaving higher dollar value more complex purchases to age, and also commit more ordering errors such as wrong part numbers, wrong units of issue, delivering to inventory before need, and often not getting the best price. The lead-time metric may be the best in the industry, but I guarantee that the purchasing process itself will be broken.
Developing key performance indicators (KPIs) requires close operational analysis and consideration of the results of managing to the values provided. It involves not only selecting the metrics but locating the data to support its calculation, determination of the data gathering process, design of reports and displays, and publication timeframes and media format. Often, limitations associated with these steps dictate key features of the metric chosen, if not the actual metric itself. In measurement, to paraphrase an old adage, you must not only measure the right things but also measure things right. It is also important to establish both leading and lagging indicators for key areas. It’s useful when you can not only distinguish the “light at the end of the tunnel” but be able to determine whether it’s the goal or an oncoming train.
After KPIs and publication processes have been developed, the organization can pursue the standard Shewhart (1986) process of plan–do–check–act by relying on their KPIs to guide their judgment on how well they are doing in pursuit of their strategic goals and objectives, as well as determining necessary corrective actions and changes in direction as necessary. Although the entire IOPM process is more complex than outlined here, I hope that I have piqued some interest amongst my fellow I-Os to pursue this area of practice. All our organizations—public, private, and nonprofit—are desperate for expertise in this area to help them improve their performance and ultimately achieve their full purpose.
References
McKinsey (2006). Improving strategic planning: A McKinsey survey. McKinsey Quarterly. Retrieved from: http://www.mckinseyquarterly.com/Strategy/Strategic_Thinking/Improving_ strategic_planning_A_McKinsey_Survey_1819
Shewhart, W. (1986). Statistical method from the viewpoint of quality control. Mineola, NY: Dover Publications.
Verweire, K. & Berghe, L. (2004). Integrated performance management: A guide to strategy implementation (p. 8). Thousand Oaks, CA: Sage Publications.