The key issues when managing performance at the organisation level are:

• how to plan the performance of an organisation for the next three years
• how to monitor and control progress toward strategic performance targets

The process

Strategic performance management requires four steps:

1. Confirm the vision, mission and values of the organisation
2. Conduct rigorous strategic analysis
3. Establish strategic goals for the planning period (usually three to five years)
4. Monitor and control performance according to the established goals

The following definitions will assist in performing these tasks:

• vision: the overall target — it represents the ideal performance outcome in a perfect future
• mission: the fundamental purpose — what product and service lines produced working towards the vision
• values: an organisation's beliefs — when innovation, teamwork, respect, empathy influences the way the vision is achieved
• strategic analysis: the gathering and use of information to ascertain the strategic position of the organisation — strategic analysis requires managers to recognise all the major forces at play in their respective environments (external and internal) and understand the challenges these represent
• strategic goals: the major objectives and key result areas (KRAs) of the organisation — for each KRA a number of key performance indicators (KPIs) can be developed
• performance control: the monitoring of performance according to the required goals and accountability for each element

Vision, mission and values

Begin your strategic plan by stating the following:

1. Ideal performance in a perfect future (vision)
2. The lines of business delivered in achievement of the Vision (mission)
3. Organisational beliefs (values)

Strategic analysis

Good strategy is based on evidence (not subjective preference). Hence strategy analysis, for gathering evidence, is a critical component of strategic performance management.

Gathering the evidence for strategy applies an analytical process that has three elements:

1. External analysis: the opportunities and threats that will arise in the future
2. Internal analysis: the internal strengths and weaknesses of the organisation
3. Stakeholder analysis: the likely future impact of key stakeholders

The first two elements are commonly referred to as a SWOT analysis (Strengths, Weaknesses, Opportunities, Threats).

External analysis

The key issues in this stage of the strategic performance management process are:

1. Identifying the elements of the external environment relevant to your organisation (macro-environment, industry, customers, competitors). Focus on key elements only.
2. Conducting a thorough and objective analysis of each element. Good strategy is characterised by rigorous analysis and quality strategic thinking.
3. Anticipating what each element will look like in two to three years. Remember that the future will seldom turn out to be a simple extrapolation of the past-present.
4. Specifying the implications (for your organisation) of the anticipated future for each element.
5. Developing initiatives (preferably as projects) to deal with these implications.
6. Making someone accountable and monitoring their progress.

The most important process for external analysis is to 'manage the present from the future'. This means standing in the future and imagine what it will look like for your organisation. Through this process try to understand all the possible opportunities and challenges the future will present. Then select a clear position for your organisation in that future.

Think of pulling your organisation into the future, not extrapolating it from the past.

For each of the elements, ask yourself the following:

• What will our industry look like in three to five years?
• As the industry develops in this direction, how should we position ourselves?
• What do we have to do over the next three to five years to achieve this position?

Internal analysis

Internal analysis is often referred to as an 'analysis of strengths and weaknesses'.

The opportunities facing the organisation have been identified in the analysis of the external environment. Ideally, the organisation could rearrange its skills and resources to match these external trends and issues.

However, it is not feasible for an organisation to make radical changes to meet the requirements of a changing external environment, especially in a relatively short time frame. As a result, it is necessary for the organisation to identify clearly what it is good at — and not so good at — and to match these skills and resources to the key trends and issues identified through the external analysis.

Many management teams find it difficult to agree on exactly what the organisation's strengths and weaknesses are. Managers from different parts of the organisation naturally have different perceptions about the positive and negative aspects of organisational resources and skills. It is often a laborious and conflict-ridden exercise to gain consensus on these issues.

The concept of a strength (or weakness) is also a relative one. A particular resource or skill can only be referred to as a strength if it is better than the resource or skill of a competitor. This concept of relativity makes resource analysis difficult because it requires management to know (and agree) about the skills and resources of major competitors.

A standard process for analysing organisational competency is usually as follows:

1. Use the outcome of external analysis: An internal skill or resource is only valuable if it can be used to target an external opportunity or threat. The organisation will need to change in order to meet the requirements of a changing external environment. So, complete your external analysis first.
2. Complete a 'gap analysis' — current versus future required skills and resources: In order to assess the extent of change required it is first necessary for management to have a clear understanding of the existing skills and resources on which its current strategy is based.

Stakeholder analysis

A stakeholder is usually defined as a person, or group of persons, who have a vested interest in the activities or performance of an organisation.

General categories of stakeholders include:

• regulators: what will they want in the future planning period?
• unions: what say will they need to have in establishing conditions, multi-skilling, downsizing, outsourcing?
• lobby groups: will they prejudice or enhance our ability to pursue a particular strategy?
• professional associations: what impact do we have with these and how should this affect our activities?

The steps involved are:

1. Identify each stakeholder explicitly (the personal and organisational form)
2. Specify what each stakeholder wants
3. Specify what each stakeholder gives in relation to what they want — this establishes the power relationship
4. Cluster stakeholders into groups of similar needs or constraints
5. Analyse where stakeholders are likely to be in three years time (or whatever the planning period). Where do you want them to be and can you influence their position — by how much and how hard will it be?
6. How can appropriate relationships with stakeholders be built?
7. On the basis of this analysis it should be possible to allocate a priority to each stakeholder. Remember that it is not advisable to treat every stakeholder similarly.
8. Develop initiatives to deal with stakeholder needs and preferences — according to priority.

Establishing strategic goals

This stage of the performance management process formalises what the organisation wants to achieve.

Take the information from your strategic analysis and convert it into a set of objectives that will drive your organisation over the next three years.

The process of formulating strategic objectives is often relatively simple.

This process is summarised in the following model:

• key external issues and trends (opportunities and threats): involves answering the question: 'what do we intend to do about challenges that face us in the external environment?'
• internal skills and resources: involves asking the question: 'we now know what our strengths and weaknesses are, what do we intend to do about it in order to meet the challenges posed by the changing external environment?'
• analysis of the constraints: requires asking the questions: 'what constraints do stakeholders impose on our future operations?' 'what restrictions, physical, human and financial, will we have to operate under?'

Given that all organisations suffer from resource constraints, and that it is not feasible to achieve every strategic objective, a process must be established whereby a 'wish list' can be converted into a actionable list of strategic objectives. This is normally achieved in two stages:

1. It is necessary to allocate priorities to alternative objectives. The method of allocating priorities will vary from organisation to organisation, depending on the particular requirements of each and the available resources.
2. Management must ensure that the strategic objectives conform to the following appropriate attributes:
   • are they measurable (to allow evaluation of performance in the future)
   • are they acceptable to those in the organisation who have to implement them
   • are they flexible enough to allow for deviations from the original plan
   • are they motivating
   • are they consistent with each other

Key result areas

Key result areas (KRAs) group objectives into cohesive and related areas of strategic concern. This ensures that organisational effort is not a disjointed quest for a multitude of objectives, thus reducing fragmentation and isolating key issues.

This process facilitates effective communication of organisational thrusts to both internal and external audiences.

For example, one regional planning authority in Australia grouped a multitude of strategic objectives into five KRAs:

• employment creation
• environment
• tourism development
• industrial infrastructure development
• management performance and structure

This process facilitates effective communication of organisational thrusts both to internal and external audiences.

The 'From'/'To' technique is a useful and simple approach to using the information derived from the external and internal analysis to formulate strategic objectives. It requires management to ask:

• 'where are we currently positioned with regard to (i) trends in the external environment and (ii) our internal resources?' (the 'From' component)
• 'where would we like to position the organisation in the future with regard to (i) trends in the external environment and (ii) our internal resources?' (the 'To' component).

This technique enables management to identify the 'gap' which exists between where it currently stands and where it wants to be (for each relevant internal and external issue).

The strategic plan should be formatted as follows:

• Section 1: key issues confronting the organisation over the next three years
• Section 2: how you will deal with these issues
• Section 3: the specific objectives that need to achieved
• Section 4: the teams / individuals accountable for achieving each of these objectives
• Section 5: appendices (external analysis, internal analysis and stakeholder analysis)

Strategic performance monitoring and control: the balanced scorecard

If you are new to the concept of a balanced score card, see the 'About balanced scorecards' page to find out what a balanced score card is and why it is used as a management tool.

Next, create a list of the goals your organisation must achieve, things you have committed to or that have been given to you by key stakeholders as 'non-negotiable'.

Develop your balanced scorecard

To create a balanced scorecard, you need to answer the following six questions which all form an element of the balanced scorecard:

1. Are my customers satisfied with my performance?
2. Are my internal business processes and resources good enough?
3. Are the values and capabilities of my people suitable for what I need to achieve?
4. Am I performing well in financial terms?
5. Are my stakeholders satisfied with my performance?
6. What is the capability of my unit to innovate and improve

To do this you will need the lists you created out of your rigorous thinking in your strategic analysis. You may also find the performance measurement examples useful in developing critical sucess factors and performance measures.

Customers (internal or external)

Focus on the performance indicators that show whether your customers are satisfied with my performance and perform the following tasks:

1. Review the issues previously identified that relate to the requirements of your customers
2. Create a list of the critical success factors (maximum of five)
3. Specify how you will measure these
4. Nominate the target you want to achieve

Example:

Internal processes

Focus on the key indicators that show whether your internal processes and resources are performing well and perform the following tasks:

1. Review the issues previously identified that relate to internal processes
2. Create a list of the critical success factors (maximum of five)
3. Specify how you will measure these
4. Nominate the target you want to achieve

Example:

Innovation

Focus on the key indicators that show the capability of your unit to innovate and improve and perform the following tasks:

1. Review the issues previously identified and select any that relate to the need for your unit to innovate and improve
2. Create a list of the critical success factors (maximum of five)
3. Specify how you will measure these
4. Nominate the target you want to achieve

Example:

Financial performance

Focus on the key indicators that show if you are performing well in financial terms and perform the following tasks:

1. Review the issues previously identified and select any that relate to financial performance
2. Create a list of the critical success factors (maximum of five)
3. Specify how you will measure these
4. Nominate the target you want to achieve

Example:

People

Focus on the key indicators that show if the values and capabilities of your people are suitable for what I need to achieve and perform the following tasks:

1. Review the issues previously identified and select any that relate to the values and capabilities of your staff
2. Create a list of the critical success factors (maximum of five)
3. Specify how you will measure these
4. Nominate the target you want to achieve

Example:

Stakeholders

Focus on the key indicators that show whether your stakeholders are satisfied with your performance and perform the following tasks:

1. Review the issues previously identified and select any that relate to the requirements and preferences of your stakeholders
2. Create a list of the critical success factors (maximum of five)
3. Specify how you will measure these
4. Nominate the target you want to achieve

Example: