1. Rigorous monitoring
Best practice firms are ruthless in monitoring their entire production process… The basic message: information is king, and firms that collect, process, and exploit information are beating firms that do not.
Information is king, and to gather it it effectively, you need to have a consistent view across disparate business systems inside and outside the organization, and business analytics tools to exploit it.
2. Challenging targets
Best practice firms also set tough short-run and long-run targets for every stage of their process… These targets were tough but fair, so that developing them takes time and effort. But we find firms with broad and challenging targets are comprehensively outperforming their competitors.
Measurement isn’t enough: you need to turn information into action and make changes to business process. The first step is to use strategic processes to develop appropriate targets for every level of the organization, so that everybody knows how their actions affect the organization as a whole.
3. Rewards and incentives
The best firms acknowledge and reward their top performers with a range of bonuses and promotion… This motivates employees to outperform, driving firms with strong rewards and to overtake their weaker competitors.
The second step of turning strategy to execution is incenting employees to do the “right thing”. This is a difficult and nuanced task that can’t be automated, but performance measurement systems are essential to have an informed discussion with employees.
Bringing it together
Of course these practices work best together. Effective incentives require comprehensive monitoring and broad targets to enable firms to identify star performers. So we find the very best firms are adopting these performances across the board. But the rewards are stunning — going from bad management… to good management.. is associated with a 3% higher return on capital, 26% higher market valuation, and 70% faster growth.
Good IT, business analytics, and performance management systems aren’t a “nice to have” – they’re an essential part of modern management.