What Is Strategic Performance Management? Definition, Process, and Best Practices


“Strategic performance management is defined as performance measurement, monitoring, and improvement methodology that help achieve overall organizational objectives.”

Fig 1. Strategic performance management aligns employee performance with four key areas

Table of Contents

What Is Strategic Performance Management?

Strategic performance management is defined as the methodology to improve performance measurement, monitoring, and improvement to achieve overall organizational objectives.

Strategic performance management is often practiced using the balanced scorecard framework, which matches employee performance to financial success, customer satisfaction, internal process efficiency, and organizational capacity optimization.

Mercer’s recent surveyOpens a new window of 1,154 HR leaders found that only 2% of companies currently achieve “exceptional value” from their performance management systems. This could be due to an inordinate focus on individual employee goals without adequate alignment with organizational targets. Mercer found that 83% of companies follow individual goal setting, but these are tied to business unit goals in 56% of cases.

This is where strategic performance management comes in. It places a keen focus on organizational strategy and how it is being fulfilled through employee performance and improvements in workforce capabilities. By adopting strategic performance management, you can bridge the gap between on-ground performance and high-level business transformation more effectively.

You could look at many variants of performance management, such as formal/annual performance management, continuous performance management, and agile performance management. Strategic performance management is among the most tried and tested tactic that’s been popular among large organizations such as Unilever and P&G.

To clearly understand the concept of strategic performance management, you need to take a closer look at the balanced scorecard approach.

What exactly is a balanced scorecard?

Simply put, a balanced scorecard is a popular strategic performance driver that positions individual employee performance at the intersection of four key facets:

1. Financial: How is an employee contributing to company revenues? How does employee performance directly correlate to movement in share prices by improving business outcomes?

2. Customer: Has customer satisfaction ratings (CSAT) improved as a result of employee performance? Do other indicators of customer success (net promoter score, customer lifetime value, churn, etc.) show an uptick? Has the company successfully acquired a new customer base?

3. Internal: How did employee performance make internal processes more efficient and effective? Did an employee excel in a particular process? Was employee participation instrumental in bringing about meaningful internal transformation?

4. Capacity: Has the capability of the company undergone a change due to employee efforts? Has the company become more scalable with a greater production capacity? How many new innovations have been introduced and adopted in the measurement period?

Employees are rated on these four parameters and the cumulative result indicates their overall performance score. Some companies follow a numerical 1 to 5 system, one being entirely below the expectations and five being significantly over-reaching the expectation. Others might follow a descriptive format, assigning values like “needs improvement,” “met expectations,” and “above expectations.”

By planning each employee’s performance along these four parameters as it correlates to the overall company’s performance, you can make sure that your employees successfully deliver on the near- and long-term goals of the company.

Of course, every performance metric must be communicated clearly to employees, keeping in mind each employee’s capability and capacity, and ensuring alignment at very early stages to ensure a clear expectation setting.

Learn More: Time Tracking and Screen Monitoring: Are You Having Trouble Trusting Remote Employees?Opens a new window

Key Components of Strategic Performance Management

Once you are clear on your organizational objectives and how they relate to individual talent/output, you need a strategic performance management system that can align these elements and help to orchestrate them smoothly. This system will comprise:

● A goal-setting and identification tool: Allows C-level executives and business leaders to study trends, perform forecasting, and set tangible goals for the company

● Outcome-oriented system: Monitors organizational performance and growth in line with the goals that are already set; can cover the four elements of the balanced scorecard

● Workforce segmentation: Segments employees into groups based on performance parameters for easy monitoring and alignment

● Employee-level performance management: Tracks employee performance continuously with respect, empowers regular feedback, and supports check-ins

● Seamless integration: Enables integration of employee performance management systems and organizational KPI dashboards for alignment of data

● Effective communication: Provides an internal marketing, communication, and feedback mechanism to widely share C-level goals with the entire workforce, encouraging self-improvements

Equipped with these components, a strategic performance management system can accelerate individual improvements while constantly moving in tandem with the holistic organizational direction. For example, if a company is looking to venture into new areas, the workforce can quickly upscale to meet the requirements and unlock the business opportunity at hand.

5 Steps to Launch a Successful Strategic Performance Management Plan

A look at the six elements described above suggests the core premise underlying strategic performance management. In order to pivot your employees towards a highly outcome-focused plan, here are the steps to creating and launching a multi-layered process for successful strategic performance management.

1. Collaborate with every tier of leadership

A good strategic performance plan begins with accurate and attainable goals. Once these high-level goals have been identified, you can collaborate with business unit leaders, managers, and ground-level employees to break down each goal into its actionable parts and ensure that each stakeholder understands their accountability.

For instance, revenue growth targets might entail alignment with hiring, leads, and sales targets, employee productivity in each team, and so on. To ensure effective execution, you will need to collaborate with the leaders/managers of individual teams to clearly convey the hierarchy of goal setting as per the organization’s annual targets.

2. Implement the right performance management tools

Technology can be a massive help when transitioning to strategic performance management for the following reasons:

● It integrates multiple layers of data to offer a 360-degree employee performance view

● It ensures transparency in performance evaluation without any bias or ambiguity

● It maintains a searchable record of employee performance for compliance

● It highlights trends for succession planning and leadership potential identification

● It auto-generates performance reports for feedback and improvement

Most performance management software available in the market is compatible with goal setting, progression tracking, and continuous feedback.

3. Conduct change management sessions

Employees may not be able to switch to strategic performance management easily. That’s why HR needs to deploy a robust change management practice, acclimatizing employees with the new system, ironing out any bottlenecks, and ensuring that an outcome-focused culture is in place.

Remember, a high-performance culture (that’s not toxic) is at the cornerstone of the success of strategic performance management. You need to outline the organization-level targets that employees are striving for, and why they matter to them personally. This step might involve rigorous manager training so that they can motivate and mobilize the workforce effectively.

4. Reward employees and incentivize performance

A big part of strategic performance management is linking individual accomplishments to a tangible reward/compensation element.

In most companies, the framework is linked to annual appraisals (which can be broken down into quarterly MBOs), where an employee’s performance in terms of financial wins, customer acquisition, internal efficiency, and capacity improvement leads to a salary hike or promotion. Companies can even define their own balanced scorecard, with parameters such as teamwork, innovation, or culture-add.
In the short-term, you can incentivize performance through rewards or even non-monetary recognition in a social setting. However, long-term performance uptick must necessarily be linked to compensation.

5. Review performance and deploy L&D measures

To improve performance and bring it consistently closer to the desired goals, you need to invest in talent development through learning and developmentOpens a new window programs. Targeted and strategic learning programs ensure continuous employee improvement, especially in high-demand areas that are key to organizational success.

Measures could range from hands-on learning for hard skills to executive coaching for soft skills, and niche training (diversity & inclusion, emerging technologies like XR, etc.). Learning progress should be regularly tracked to ensure alignment with a strategic performance management plan, pivoting as necessary in an agile model.

Learn More: 3 Leading Trends From the 2020 Deloitte Global Human Capital Trends DecodedOpens a new window

7 Strategic Performance Management Best Practices to Follow

While there is no one-stop solution for strategic performance management – goals, priorities, and measurement frameworks will vary from company to company – here are the seven best practices that you can follow.

Fig 2. Best practices that enable strategic performance management

1. Encouraging continuous learning among the workforce

To successfully meet organizational goals, every employee must realize their true potential and advance their career trajectory within the company. This requires continuous learning as part of the workflow, aided by digital enablers such as mobile learning and nudge alerts.

2. Checking for buy-in at regular intervals

In a dynamic organization, high-level goals and employee-level understanding of targets might undergo change quite frequently. That’s why the strategic performance management plan needs to be revisited/fine-tuned every quarter to ensure steady alignment.

3. Taking advantage of sophisticated analytics

A cutting-edge strategic performance management system is incomplete without data analytics. It unearths insights from employee performance records, highlighting how people assets could be better leveraged. You can combine analytics with a natural language processing engine, so that non-technical business leaders can explore the data easily.

4. Putting in anti-bias checks and balances

There is always a risk of bias creeping into your performance evaluation, and strategic performance management is also open to this risk. Consider for example, an employee who was on paternity leave and could not meet the team productivity average. The requisite checks and balances will ensure an objective review, considering all factors.

5. Improving your decision-making systems

Without the right roles in place, strategic performance management is doomed from the start. This makes accurate and data-driven decision-making absolutely critical, equipping company leaders with a predictive view of company growth – which brings us to the next best practice.

6. Promoting a data-driven culture

A data-driven culture empowers employees to track their own progress, self-review, and share performance insights with their peers. It means that there is a culture of pervasive intelligenceOpens a new window in place, where data analytics interfaces are democratized for pan-organizational access.

7. Allocating an incubation period for ROI

Remember, a strategic performance management system won’t start to show results in the first quarter of implementation. The chances are that it might take an entire year to find resonance with your workforce and the company’s culture. It is advisable to allocate an incubation period before expecting an uptick in organizational growth, so as to avoid sunk costs.

Understandably, strategic performance management might be difficult to navigate. So, if it’s still early days at your company, there are several online courses that can help you acquire the skills you need to expertly manage this performance managementOpens a new window model.

Get a Head Start With These Online Courses

Most leading institutions offer learning opportunities in strategic performance management. And several of these courses are available online, so you can take them at your convenience. Here is our selection:

● Strategic Performance ManagementOpens a new window on Class CentralOpens a new window : This course is provided by the Indian Institute of Technology, Kharagpur, and discusses the multiple facets of performance management, its relationship with strategic planning, and how to use a rewards system. It is an 8-week course that comes with paid online certifications.

● Strategic Performance ManagementOpens a new window – Tome 1: Managing Strategy on UdemyOpens a new window : This course discusses how to develop a mission statement, the various strategic themes to explore, and the details of a balanced scorecard. It’s an excellent course for those getting started with performance management and is available in a two-hour-long video format.

● Strategic Performance ManagementOpens a new window Model on CourseraOpens a new window : This part of Coursera’s HR for People Managers Specialization, with four modules covering the strategic performance management model, its role, pitfalls, and impact on strategy. It is available as a video, which you could try for free if you are not a Coursera member already.

Strategic performance management is a field-proven formula for improving performance and achieving organizational goals.

It balances large-scale targets with employee-centricity, empowering employees to maximize their full potential by constantly pushing the organizational needle in the right direction. With the right toolkit and the requisite set of best practices, you can leverage this methodology, and take your company to new heights.

Do you think strategic performance management has a role to play in organizational growth and success? Why, or why not? Share your thoughts with us on LinkedInOpens a new window , TwitterOpens a new window , or FacebookOpens a new window .