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 survey 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.

 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 development 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.