The Business of Performance Management

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For global firms, the recent past has been marked by financial crisis, an unpredictable recovery and persistent uncertainty. Looking to the future, the dominance of fast growing economies leaves industrialized nations facing ever greater challenges to maintain a competitive edge. Those that survived the economic crisis now need to shift gear – the race is on.

A familiar failing To find out how business leaders intend to increase their competitive advantage and boost business performance 
in the post-economic landscape, Hay Group asked global 
business leaders about the state of the global economy 
and its impact on growth ambitions. We asked about the 
challenges these ambitions present and the solutions firms 
are putting in place to achieve them.
Having relied heavily on the classic business improvement 
levers over the past three years such as cost cutting and setting 
aggressive sales targets, what new approaches should business 
leaders be adopting in order to drive a new growth strategy? 
Despite the M&A market picking up, firms cannot rely solely 
on acquisitions to achieve growth. Businesses looking to grow 
organically however are going to need a radical step-change 
in workforce productivity if they are to meet projected growth 
targets. This in turn will mean rethinking their approach to 
performance management if they are to change gear and 
compete effectively in what is increasingly becoming a two 
speed economy: Asia and the rest of the world. 
Yet when it comes to performance management, global firms 
are still making the same mistakes they were over 20 years ago. 
Back in the early-1990s work carried out by Kaplan and Norton1
demonstrated that for performance management to be effective, 
firms must link their approach directly to corporate strategy A quarter of a century on, our research finds 
the great majority of firms failing to do so. 
Our forthcoming report reveals the need for 
a laser focus on individual and organizational 
performance management if firms are to achieve 
their ambitious growth targets for 2011. 
Our study also highlights a further critical 
success factor for effective performance 
management: company culture. An overwhelming 
majority of business leaders stress the importance 
of linking culture to performance management. 
Yet most fail to connect the two. 
Without an approach to performance 
management tailored to strategy and 
culture, firms will not be in the right shape 
to deliver the growth expected of them.
Ambitious growth targets
Having battened down the hatches and got 
through the recession, business leaders are 
now in a bullish mood, setting ambitious 
growth objectives for 2011 and beyond. 
Global firms are aiming for five per cent 
growth on average – targets which outstrip 
most prevailing economic forecasts, in some 
cases to a significant extent (see figure one). 
In this context, a large majority – two thirds 
(63 per cent) of business leaders admit 
that their firms’ growth targets present 
a significant challenge. 
The performance challenge
Despite the M&A market showing signs of picking 
, executives remain cautious about growth 
through acquisition, as they recognize the challenges 
inherent in delivering shareholder value3
To achieve these goals therefore, leaders are 
expecting to drive significant productivity 
improvements through their workforces. 
Yet after three years of turbulence, CEOs have 
exhausted the measures they typically rely on 
to shore up business performance: cost-cutting, 
discounting, divestment, aggressive sales targets. 
Business leaders are therefore turning to the 
performance lever: executives plan to increase 
workforce productivity by some six per cent 
on average. 
Risk factors 
Firms need to harness the collective power of their 
workforces to deliver their growth ambitions. 
Yet business leaders fear the repercussions of 
asking for more from staff who have worked 
hard to support firms through a prolonged 
period of uncertainty: almost half (44 per cent) 
are concerned that their employees are already too 
stretched to deliver current business objectives. 
Measures such as salary rises and other reward 
mechanisms will not bridge the productivity 
gap revealed by Hay Group’s research. 
Business leaders identify a series of critical risks 
inherent in asking for more from their employees. 
Around half agree that their focus on productivity 
improvement will lead to a significant risk across 
the board from employee disengagement to 
internal conflict as figure two demonstrates.

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