What Exactly Does Performance Management Mean in Relation to Strategy?

The term “performance management” has many meanings in the world of business. A common one is “employee performance management,” where businesses track how well an employee is contributing to the organization.

This is not the type of performance management we’re talking about here.

Performance management takes on a new meaning when brought up in the context of organization strategy. To fully understand the term in a strategic setting, we must first understand what successful strategy management involves.

Ultimately, successful strategy management involves achieving an organization’s predetermined vision and goals as stated in their strategic plan. The process of how they go about achieving these desired outcomes is what we call performance management.

So, how is this different from the employee-based performance management? Well, it’s important to note that performance management in the context of strategy is strictly referring to the performance related to execution of the organization’s strategy.

Here’s an easier way to think about it: comparing the organization’s “actual results” against its “desired results.” When the actual results aren’t meeting the desired results, then a “performance improvement zone exists.”  Those in charge of executing the strategy are then responsible for making adjustments in the strategic operating plan to address unsatisfactory performance.

Performance management is critical to successfully executing an effective organizational strategy. It requires a commitment from those in charge of strategy to continuously monitor and analyze how each area of the organization is performing compared to expectations. For many leadership teams, this commitment is easier said than done.

What Does the Performance Management Process Look Like?

While the concept of performance management is simple, the actual process is a bit more involved. In fact, there are four levels of performance management that need to be understood. Here’s how they are broken down:

Level 1: The overall goal to be achieved and the associated targeted results

Level 2: The specific objectives, key performance indicators (KPIs) and the desired target level of performance of each indicator associated with an objective.

Level 3: Assessing how initiatives, programs, projects and their associated outputs/outcomes perform.

Level 4: The ongoing improvement of operational processes that support execution of the strategy, e.g. accounting, HR, IT, etc.