Frank Buytendijk Blog

I wrote about this many times. You could reason that the current economic crisis was actually caused by performance management. I realize that this is a provocative statement - but think about it. Many commentators highlighted the fact that bankers were given large bonuses based on the revenue they brought in by taking big risks. Linking incentives to targets is a performance management ‘best practice’. These same commentators pointed out that financial institutions often didn’t really understand the risk profile of the subprime mortgage packages that they bought, reshuffled into different packages, and sold. The risk calculations were based on very complex and advanced analytics; which are also part of performance management. Lastly, many organizations felt safe because they were ‘compliant with regulations’ and did all the necessary reporting. Obviously, ‘accountability’ (a large driver of performance management) was not enough. Hence, my harsh statement that performance management caused the current crisis.

So what’s the good news? I think performance management will play a leading role in weathering and solving the crisis too. The economy, despite all the mathematics, in the end is a social science and is influenced by human behavior. What was damaged the most in the beginning of the recession was ‘trust’. Financial institutions trusted the mathematical models too much. When the economy collapsed, the banks didn’t trust each other anymore. This impacted consumer confidence and trust, and the financial crisis impacted the real economy.

Rebuilding trust is the key to ending the recession. Consumers must regain trust to buy houses and cars again, which will fuel the real economy and restore the financial system. The path to trust is transparency; which is exactly what organizations should invest in.

Claire Carradice shares valuable trust lessons from Siemens. Mike Malwitz describes the role of XBRL. John O’Rourke will discuss IFRS. Thomas Oestreich looks at reputation risk, as part of risk management, and Angela Enyeart discusses how to ensure sustainability within your operations. Toby Hatch and Mike Haley discuss an interesting concept called ‘collaborative scorecarding’. Mark Conway will – as always – provide some interesting links to enable you to further dive into the subject. In my opening article, I will explore the concept of trust itself.

Download the Journal of Management Excellence here.

frank

PS. Previous issues of the Journal can be downloaded at http://www.oracle.com/solutions/business_intelligence/resource-library-whitepapers.html