The Role of the Chief Performance Officer During these Perilous Times.
In the last year, we’ve seen the fall of financial legends like Lehman Brothers, crude oil prices ranging from $70 per barrel to $150 per barrel and back down to $40 per barrel and obscene financial bailouts across the globe. For those concerned with repatriating global earnings and currency risk Congress continues its out of control spending ways running up trillion dollar deficits and 8,500 slushfund earmarks this year alone. In response the surviving firms are renegotiating credit agreements, reducing customer credit limits, eliminating headcount and tearing up their 2009 strategic plans and operating plans because the next trading day brings a new paradigm. In response to the backlash that we are seeing in the market including collapse in consumer confidence and dramatic contraction in consumer spending can you give our readers some insight on why you believe we lost sight of certain fundamental business principles like Corporate Performance Management…and what you think it will take for us to regain control?
There are four fundamental barriers to good fundamentals to executing strategy as well as some behavioral ones. The inability of leadership teams to effectively communicate the strategy so employees are not fully engaged. The second reason is management teams preoccupation with reviewing financial statements during monthly meetings and failing to understand or address strategic issues. The third reason is that budgets become obsolete based on outdated assumptions, yet companies still hold their employees accountable for hitting stale targets in our fast changing world. Finally, company fail to align compensation with results so people are incented in the wrong way, sometimes guaranteed bonuses without any performance only to encourage Las Vegas style gambling with other people’s money. Look at the AIG fiasco where the U.S. Secretary of the Treasury Timothy Geithner authorized $165 million in bonuses associated with the $185 billion dollar bailout of a bankrupt company; bonus in spite one of the largest failures in history. One could argue a special investigation or criminal inquisition is in order.
In your book, Five Key Principles of Corporate Performance Management, the premise is that award winning organizations consistently outperform their peers and execute their strategies because they deploy Five Key Principles consisting of over 30 CPM Best Practices:
Principle 1: Establish and Deploy Corporate Performance Management Office and Officer
Principle 2: Refresh and Communicate Strategy
Principle 3: Cascade and Manage Strategy
Principle 4: Improve Performance
Principle 5: Manage and Leverage Knowledge
Can you talk about how you identified these five key principles as the critical pieces to realizing a firm’s strategy?
Great question, we researched over 40 Malcolm Baldrige, Balanced Scorecard Hall of Fame, Sterling, APQC Best Practice award winning organizations across commercial, public and non profit organizations. We discovered they independently observed over 30 best practices to achieve exceptional results in good times and in bad.
Can you go into more detail on the first principle?
It is critical to establish a CPM Office and CPM Officer with the following best practices: · Executive Sponsorship
· Organizational Level and Reporting Relationships
· CPM Office Staff
· Ownership of CPM process and Methods
· CPM, industry and company knowledge
· Collaborative maturity
· Ability to learn
Most of these are pretty self explanatory, but I’ll highlight a couple for your readers. The CPM office staff needs to be a small, but experienced team—these are full time roles with the CPM office. In addition, the team must exhibit collaborative maturity meaning that they can work horizontally and vertically through the organization…ultimately successfully navigating the political landscape. Lastly, I’d like to reiterate the importance of Executive Sponsorship. Without CEO sponsorship, the CPM office will not be taken seriously and the office will struggle to gain the buy-in necessary to positively impact the organization.
Principle 1 Best Practice Summary
| Best Practice | Best Practice Description |
| Executive Sponsorship | CEO or direct report actively sponsors CPM Office and CPM projects for sustained period and with the right visibility to enable maturity to processes state |
| Organizational Level and Reporting Relationship | CPM Office Executive reports to the CEO or a CEO direct report |
| CPM Office Staff | Small senior team (3 to 8 personnel) experienced in change programs, full time role in CPM Office |
| Leadership, Influence Factors | Able to organize large scale virtual teams to drive results in one of more CPM methods |
| Ownership of CPM Processes and Methods (Principles 2 through 5) | The office owns or substantially influences the portfolio of CPM processes enterprise wide, with each Office CPM practitioner possessing deep expertise in at least one methodology |
| CPM, industry and company knowledge | One or more team members with deep industry and company specific knowledge to help guide resolution of project issues |
| Collaborative Maturity | Experienced in working horizontally and vertically through the organization |
| Ability to learn | Open to new ideas, methods and approaches; ability to streamline, integrate, and adapt methods; think concurrently |
What does the typical business plan or charter for a CPM Office look like… are there significant start up costs via incremental head count for the new department or software costs to monitor the activities? Did it require Board of Directors approval?
To tell you the truth, the award winning companies do not use a business plan because the payback is so short and astronomical that the project doesn’t lend itself to requiring board approval prior to creating the CPM office. The market continues to evolve more rapidly which is driving firms to maintain fluid strategies. Otherwise, either the market or their competitors will consume them. There isn’t any significant start up costs because most firms are doing bits and pieces of performance management throughout the organization, but the effort isn’t centrally coordinated. The formation of the CPM office doesn’t necessitate incremental headcount because most organizations are able to realign work loads to create the department and rework reporting structures. For example, the CPO is often pulled from FP&A and the other positions are filled with senior managers or directors currently on the “Hi-Potential” employee list…meaning that these are the top performers within your organization.
What is the typical makeup of the Corporate Performance Management Office (i.e. how many people, are they internal vs. external candidates, titles etc?
The size of the CPM office ranges from three to eight senior, mature and experienced individuals. On average, the office is comprised on four to five employees. The scalability of the office allows it to be utilized by start up firms with 10 employees or multinational firms with an employee base approaching 100,000. In regards to internal or external candidates…I rarely see firms pull from the external market when filling these positions. Management fills these positions almost exclusively with internal candidates.
Based on your experience, are the CPOs a direct report to the CEOs or the CFOs? And if they are a direct report to the CEOs, how do companies handle the politics of having two key financial leaders directly reporting to the CEO?
About half of the time, the CPO is a direct line to the CEO and a dotted line to the CFO. In the remaining 50%, the CPO is either a direct line to the CFO or a COO. The key is allowing the CPO to have an enterprise view and empower him to arbitrate between business units because of both his expertise and direct access to the CEO. I’ve seen companies struggle to successful implement a CPO when the CPO didn’t have a direct line of sight to the CEO.
What is HR’s role in the implementation of Five Key Principles of CPM?
Human Resource’s role in the implementation of the Five Key principles is critical to the long-term success of the CPM office. The HR team’s focus is to ensure the alignment of personal development plans, personal goal setting and reinforce the p performance through total rewards program. In addition, HR is responsible for supporting and tracking the cascading the objectives of the firm.
I can understand how this process would be applicable for larger sized firms, but can you really implement a Corporate Performance Management Office everywhere? Do you have any examples of medium and smaller firms successfully following these principles?
Organizations of all sizes require strategies and proven methods for their implementation to sustain their business models. For example, nonprofit municipal Corporation City of Coral Springs in Florida recently won both the State Quality award and National Malcolm Baldrige awards.
Interesting…have you seen success across all industries?
So far, I haven’t seen an industry where implementing the CPM office was unsuccessful. I’ve witnessed varying levels of success in the telecommunications industry, non-profit, universities, manufacturing and high technology. The industry does not appear to be a gating factor in driving substantial ROI from the CPM office.
What are the common pitfalls that prevent firms from successfully following your road map and delivering superior results?
Based on my experience and Fortune research, roughly 90% of companies fail to implement their business strategies because of vision barrier, management barrier, resource barrier or people barrier. What I mean by vision barrier is that only a small percentage of the workforce truly understands the corporate strategy. Management barrier occurs when executive teams spend less than one hour per month discussing strategy—and sadly this occurs a lot more frequently than you would imagine. Resource barrier and people barrier are simple concepts too (i.e. the budget isn’t linked to the strategy or management’s incentives aren’t linked to the strategy).
Bob thanks for your insight. We look forward to hearing more in the next issue on Principle: 2 Refresh and Communicate Strategy and Principle 3: Cascade and Manage Strategy. In closing, can you provide our readers a quick summary and share with them where they can go to get more information on this subject?
Principle 2 is focused on formulating the enterprise wide strategic plan, defining core and adjacent business models, and integrating goals with planning and budgeting. Principle 3 is focused on cascading balanced scorecards horizontally and vertically throughout the organization and aligning them with team and personal goals to drive performance. Readers can locate the book on Amazon and Barnes and noble.com, #1 in the CPM categories on both websites.
*****
Bob Paladino is the Founder and Managing Partner of his firm, which focuses on advising Boards of Directors, Executives and their teams on formulating strategy, establishing CPM Offices, and implementing and integrating Balanced Scorecard, Knowledge Management, and Six Sigma competencies. He has a long history as a successful executive and global practitioner of these concepts in a corporate setting and as an advisor and consultant to Fortune 500 firms across a wide range of industries. For more information visit www.paladinoassociates.com.
Add this page to your favorite Social Bookmarking websites
Hits : 1367
