Three takes on measuring performance

Theories on performance management come in many guises. Ultimately, it’s all about finding the most appropriate and best available metrics to steer a particular ship through its own patch of ocean.

Ideally, those metrics should also be broad enough – staying with the marine analogy – to allow the officers to keep a weather eye out for any relevant dynamic that might radically affect the vessel’s passage – a passing hurricane, for instance.

The context in which a company is operating, the way it perceives and defines its strategic mission, and the nature of its markets often set the framework for an appropriate set of performance management metrics.

CGMA Magazine spoke with Handelsbanken UK general manager Anders Bouvin, Atlantic FuelEx chief executive Rani Awad and SGC Consulting Group Director Gautam Anumukonda to find out performance management metrics that are important to their businesses.

Gautam Anumukonda, CPA, CGMA, director of SGC Consulting Group

CGMA Magazine: You’ve been an entrepreneur and consultant to a wide variety of businesses. What have you learned about performance management?

Anumukonda: Performance management activities should include employee development plans and formal coaching programmes to nurture and cultivate talent. It should also be a systematic way of profiling your talent resources and giving management visibility into vital skills, experience and credentials that are not typically documented in résumés and personnel files. This requires an alignment between employee goals and organisational goals. It should streamline administrative processes to manage performance assessments more efficiently and more securely, but this is just the beginning. It is vital to engage and develop talent, and fill critical positions with motivated top performers.

CGMA Magazine: What are the main objectives of performance management?

Anumukonda: According to my business philosophy, a performance management system should provide management visibility into the talent pool across the entire enterprise, build the foundation for succession planning and career development, and engage and motivate employees.

It is also important to make talent management an ongoing process, not an annual obligation, and inform recruiting efforts by identifying the characteristics of high performers.

The full performance management process – setting well-aligned goals, creating development plans, coaching, assessing performance and then using this assessment information to improve and reward performance – is the true driver of organisational effectiveness.

A good performance management system should provide the following capabilities:

  • Talent profiles, which make all relevant information on employees, such as performance ratings, competences, skills and compensation, readily accessible and searchable for managers and HR professionals.
  • Employee journals. Automated journaling provides an ongoing process for capturing an employee’s achievements, goals and areas for improvement throughout the year.
  • Competences and job profiles. Performance management systems should offer an automated way to match employee competences and job profiles. Managers and HR professionals should see all information related to each job within the organisation, including up-to-date job descriptions, competences required for success and the pipeline of candidates ready to move into a job.
  • Analytics. Managers and HR professionals should be able to generate reports on key performance metrics to gain critical insight into business and employee trends. For example, they should be able to identify which high performers are flight risks, or whether compensation has been allocated appropriately to reward performance.
  • Easy interface. To ensure its consistent use, the system design must be easy to use for employees and managers, and be accessible anywhere. Dashboards and dynamic, actionable organisational charts should provide easy access to all relevant information about employees, candidates and jobs.
  • Links to other talent management functions. Performance management must be tied to talent acquisition, development, succession planning and compensation.

Anders Bouvin, general manager of Handelsbanken UK

CGMA Magazine: Since the global financial crisis of 2007, banks have been criticised for paying out large bonuses to motivate staff. What are your views on the best way to manage performance?

Bouvin: Our philosophy has always been to avoid what you might call “opportunity banking” and to stay focused on one simple principle, which is to keep the customer relationship at the heart of everything we do. It is customary for all banks to claim that they are focused on the client relationship, but there is a world of difference between saying this and doing it.

For example, the entire bonus culture, in our view, is inimical to a model that puts the customer at the heart of the relationship. If you’re going to reward a manager for meeting a target, then he or she is going to try to meet that target, whether or not it accords with what customers really need and want. You are setting up a tension between what the manager wants, namely a larger bonus, and what the customer wants, which is excellent service.

To bring it down to performance management, if you set targets for anything, be it a branch personal loan portfolio, business loan portfolio, or expanding your mortgage book by a certain percentage, then people will work to achieve those targets. If you then reward on the basis of those targets, which is what bonuses are all about, you strongly reinforce the behaviours that will allow management to achieve against those targets.

What has this got to do with relationship banking? Not a lot, in our opinion. In fact, it’s easy to see that it actually works against relationship banking. This is why Handelsbanken doesn’t pay bonuses and doesn’t have a bonus culture.

CGMA Magazine: How do you support your customer-relations focus with metrics?

Bouvin: The basic philosophy is that if you leave it to branch managers, they are best placed to know who the best customers are in their area. They will develop the long-term relationships with customers, and by focusing on what the customer needs they will, over time, grow their book steadily. So the metric that is most important to us is the branch cost-to-income ratio. We measure this regularly and have a totally transparent league table. Every branch can see where they are placed relative to other branches on the cost/income ratio table. There is a clear incentive to move up if your branch is quite far down the league table, and to retain and improve your position if your branch is well placed.

By stimulating competition among the branches and giving branch management a free hand to develop client relationships for the long term, branch performance improves over time. This enables us to meet our overall objective, which is to outperform the competition on the key financial metric that really matters to us, namely return on equity.

Rani Awad, chief executive of Atlantic FuelEx

CGMA Magazine: How important was scale to you as a performance metric when you launched Atlantic FuelEx from your base in Dubai in July 2011?

Awad: It was a very crucial metric for us. To be a global player in this business, you have to have a wide network of relationships with airline carriers and general aviation clients, as well as with both incumbent services and fixed-base operators at airports in a number of countries.

If you are dealing with a big jet fuels supplier, your importance to them is directly related to the size of the fuel orders you are placing with them and the quality of the clients they are delivering to from a creditworthiness standpoint. This has a very significant influence on the margin you can get from them.

Margins in this industry are very thin, and we deal in large quantities of fuel to generate profit. So getting to a sustainable scale that would enable us to maintain our growth was vital.

CGMA Magazine: The jet fuels business is renowned for being very competitive. Is scale enough to differentiate your business, or are there other performance metrics that are important to your business?

Awad: Another critical metric for us is value add, and it is something that we strive to make a fundamental part of our proposition to all our clients. This has both a direct economic benefit and a huge knock-on benefit, which, in the end, shows up as better margins from our major fuel suppliers.

For example, to win a good-quality carrier client, I will want to bring to their attention the fact that while they have two or three options on fuel supply in say Qatar and the Middle East, they have no good coverage in Sudan or West Africa, where I can help them. So the fact that we extended our operations to Africa at an early stage is very important to us. That goes to the scale issue, but it also goes to improving my proposition to the carrier, since I can do them a bundled deal for their Middle East and Africa business and provide them with comprehensive billing, reporting and fuel-usage statistics.

In this business you always have to look at ways of leveraging value add, while keeping a very close eye on your credit lines and the general health of your debtors. Value add, scale and cash flow, coupled with excellent logistics, is what makes our business tick.

Related CGMA Magazine content

Winning KPIs”: Accurate and appropriate definition of KPIs is vital for the effective use of Balanced Scorecards, argues David Parmenter. Here are six ways to adapt and apply the BSC model to the contemporary business environment.

The Future of the Balanced Scorecard”: As their best-known creation turned 20, Robert S. Kaplan and David P. Norton, the founding fathers of the world’s most powerful performance management tool, surveyed the horizon and offered five key steps for maximising the Balanced Scorecard.