Vlerick research reveals – Performance management #1 priority for CFOs
dr. Filip Roodhooft – Full Professor at K.U.Leuven and Vlerick Leuven Gent Management School – teamed with Trifinance to survey 120 CEOs in Belgium. The objective: discover how CEOs experience their company’s Finance function, including their challenges and interactions with other stakeholders.
‘Performance management’ came out as the No. 1 priority for the next few years.
This interesting finding inspired us to share some thoughts with one of Belgium’s performance management pioneers: Professor Filip Roodhooft. The objective: discuss the research conclusions and elaborate on the importance of Performance Management today and tomorrow.
Performance Management is a well-known concept, but it also has a variety of definitions. How would you define Performance Management?
It’s true; there are indeed many different definitions of Performance Management. The interpretation of ‘Performance Management’ is strongly related to the individual’s background. Finance professionals most often define Performance Management as the budgeting process, the definition of Key Performance Indicators (KPIs) and the monitoring of those indicators, while their HR counterparts often link Performance Management with individual objective setting, performance feedback & evaluation, and variable pay.
I believe Performance Management should combine both. For me, Performance Management is the entire process of defining a strategy, implementing the strategy, and translating the strategy towards the individuals in the organisation.
How do you relate Performance Management to the CFO’s role?
Each function should contribute to the company’s overall value creation. And that applies to the Finance department as well. Our research shows that the CFO and his team are expected to reduce time spent on transactional activities (through automation or outsourcing) and to spend the extra time, energy and resources on high value-added activities – risk management and performance management being the most important ones.
What are the success factors for professionalising Performance Management in an organisation?
First of all – and this is also one of the central findings of our research: accurate data and efficient data collection are crucial. You can’t build a professional Performance Management process on poor-quality data. Although data collection is merely a transactional activity – with limited value as a stand-alone – it is a must for many value-creation activities, including Performance Management.
Secondly, a well-established Performance Management cycle calls for the combination and integration of a number of different competencies. All stakeholders should understand what Performance Management is all about and broaden their scope. For example, a finance professional should have a basic understanding of the HR aspects of Performance Management, and vice versa. This requires a development effort to align the Performance Management concepts and terminology used by everyone involved.
A third action you can take is to clarify the roles and responsibilities of all stakeholders involved. Performance Management activities are scattered across an organisation. Senior management formulates strategy, the Finance department is responsible for the budgeting process, and everyone looks to HR when it comes to individual objectives. In large organisations, you can sometimes even add an internal consulting department. Are you then surprised to find that Performance Management, the process and the responsibilities of the parties involved, are not clear? Take the time to clarify the roles of all the parties and manage the interferences carefully.
And, last but not least, you need to make sure you have a clear strategy. I’m still often surprised by the vagueness of the strategy in many companies. And the lack of (strategic) communication. How can you expect business units, teams or individuals to take the right actions when the strategy is unclear? So, be sure you don’t make the same mistake. Building a strategy map can help.
Does the crisis have an impact on the way companies should deal with Performance Management?
My answer would be ‘yes and no’. The crisis demands short-term thinking and puts many companies into survival mode. Monitoring activities that help to avoid value destruction become more important in times of crisis. Furthermore, access to cash and funding are topics that should be on every CFO’s agenda today. On the other hand, it’s crucial to keep the Strategy Implementation dynamics going. You don’t want your company to stop implementing strategy and focus only on the short term. Remember that, sooner or later, the crisis will also end. You don’t want to destroy all value for the future by overreacting to the short-term issues out there.
To summarise: keep doing your current value-added Performance Management activities, but don’t try to raise your maturity level while handling other short-term crisis activities.
About dr. Filip Roodhooft
Filip Roodhooft earned a PhD in economics at the University of Antwerp in 1994. He is now full professor of accounting at the department of applied economics at the Katholieke Universiteit Leuven and chairman of the competence centre accountancy and finance at the Vlerick Leuven Gent Management School.
He has taught in executive development programs at several business schools, including the London Business School, the Rochester MBA program in Bern, the University of Antwerp Management School, and Leti-Lovanium Sint Petersburg.
His research interests include the application of case study research and experimental research in cost and management accounting and the use of financial accounting databases in business economics. His research has been published in Accounting, Organisations and Society; the Journal of Business Finance and Accounting; Harvard Business Review; Journal of Cost Management; the European Journal of Operational Research; the Journal of the Operational Research Society; and the Journal of Supply Chain Management, among others.