The importance of linking strategy and performance

Managing business performance can be compared with sailing a boat from one place to another. At the beginning of any boat journey you need to be clear to which port your journey is heading. You wouldn’t set off on a boat journey without a clear idea of where you would like to get to and the travel-milestones you would like to hit. For that you need a map of how to get from where you are to where you want to get to as well as the ability to keep track of where you are during your journey.

On any successful voyage the destination and the route are understood by everyone and they are clear about their role in making the journey a success. Once the boat has left the harbour and you are sailing in the middle of the ocean, you need to assess whether the boat is still on course or whether corrective actions have to be taken. Without a clear route map and appropriate instruments that help you understand where you are you are unable to establish whether you are still on route, and you are unable to understand whether any actions you have taken have brought you closer to your destination or not.  Without a clear plan and the necessary information it is impossible to navigate the boat to success, and the same is true for managing an organisation’s business performance.

When it comes to managing business performance your performance framework with your strategic objectives is your sailing route and map, your performance indicators are your navigation instruments that help you understand whether you are on a successful journey. Business performance management and strategy rely on each other. You need to understand your strategy and strategic objectives before you can develop meaningful plans to get there and relevant indicators to monitor progress. At the same time, your BPM approach will help you implement your strategy and ensure you are sailing to success.

There are three major problems with many BPM approaches in use today:

1. The majority of organisations spend too little time clarifying and agreeing their strategy and strategic objectives.
2. Most organisations seem to spend too much time measuring everything that is easy to measure. A huge chunk of management time is taken up with collecting meaningless and irrelevant performance indicators, which means organisations end up drowning in data while thirsting for information.
3. Organisations don’t spend enough effort ensuring the performance data is turned into meaningful strategic insights and learning.

If any organisation wants to reach its goals, it must first know what they are, so everyone can pull in the same direction. Strategy development is a layered process that should start with an analysis of the environment in which the organisation operates including an assessment of the key stakeholders and competitors. This allows organisations to clarify their outcome objectives and output deliverables in the form of a clear value proposition. However, that is not enough.

Organisations have realised that they need to ensure they have the appropriate internal competencies and resources to deliver the outcomes and outputs. Having ambitious objectives without the underlying ability to deliver them will not lead to success. One strategy thinker brought this to a point when he said that “opportunism without competence is a path to fairyland.” 1 In order to create a more complete picture of the strategy an organisation needs to clarify its overall aims, outcomes, outputs as well as the enablers of performance.

It is important to understand that these various components of strategy are interdependent and sit in a cause-and-effect relationship with each other. An analogy might help to illustrate how these fit together. Think of the organisation as a tree. Its foliage is how it presents itself to the external world and its fruits (say, apples) are the products or services it offers to its customers and stakeholders. The major branches of the tree represent the set of departments and service units in the portfolio of an organisation. The tree’s trunk represents the core activities that give it its strength and hold the tree up; they ensure the tree can deliver its apples (products and services). The tree’s hidden roots, on the other hand, represent the enablers of performance; i.e. the tangible and intangible resources it needs to have in place in order to provide the sustenance it requires to grow the apples that customers and stakeholders require. The trunk therefore provides the channel leveraging the resources to create value. Similar to organisations, all trees are made up of the same elements and share the same biological processes of photosynthesis and nutrient extraction, but the shape of the trees and their fruits differ widely. 2

What apple trees cannot do of course that organisations usually must do is to grow a blend of red and green apples at the same time in different quantities according to the demand for each type. Nevertheless, defending this slight snag with the usefulness of the analogy, the owner of an orchard can plant a mixture of trees that provide a supply of both green and red apples. The organisation might then perhaps be better considered as an orchard rather than a single tree.

By creating the tree picture organisation can answer the following questions:

• Why do we have a tree (company) – e.g. to make money
• What apples do we need to produce (our products or services) – e.g. red, sweet apples
• What does our trunk look like (the processes we must excel at) – e.g. optimising the production of red apples
• Which of our roots do we need to take care of (our enablers) – e.g. having the right people, with the right skills, the right culture, the right IT systems

Once organisations understand the different elements of their strategy they can map them into a strategic map that illustrates how the different elements work together to create value. Such a visual representation of the organisation strategy is one of the most important components of successful business performance management as it allows communication of the strategic plan on a single piece of paper. This integrated and coherent strategy is then the starting point for organisational alignment and the starting point for any performance indicators.

Once the strategy is clearly mapped out can we start managing and monitoring the execution of this strategy. 

1. Andrews, K.R. (1971), The Concept of Corporate Strategy, Dow Jones-Irwin, Homewood, IL.
2. Collis, D.J. and Montgomery, C.A. (1997), Corporate Strategy - Resources and the Scope of the Firm, McGraw-Hill, Boston (page 130).

Bernard Marr, Advanced Performance Institute  

Since Bernard Marr wrote this article in 2013, he and others have carried out further research into the advantages of linking business performance management and strategy.

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