MASTERING STRATEGY EXECUTION: MANAGING PERFORMANCE

MASTERING STRATEGY EXECUTION: MANAGING PERFORMANCE

Organizations need a performance management system that monitors the progress of the execution and demonstrates senior management’s interest and investment in attaining the goals of the strategy. The greater the internal change required by a strategy, the more important effective incentives become. Managing performance is essential for motivating employees and ensuring appropriate behavior in relation to the strategy.

Adapting a strategy or its execution involves adapting the behavior of people. In the end, people have to perform the activities of the strategy and achieve its goals. This requires managing the execution performance of managers and employees. To do this, organizations need a performance management system that monitors the progress of the execution and demonstrates senior management’s interest and investment in attaining the goals of the strategy. The greater the internal change required by a strategy, the more important managing performance becomes. Managing performance is essential for motivating staff and ensuring appropriate behavior in relation to the strategy. Organizations that excel at strategy execution place great emphasis on rewarding performance. These organizations have effective performance management systems as part of their implementation effort. Commitment to a strategy can be enhanced by realigning rewards so that they represent the intended strategy.

Induce behaviors that are supportive of the strategy. Reward systems can be used to influence employees through external means to assure that the implementation and the organization achieve their goals. Control systems aim to exert influence by identifying appropriate behavior, providing the means to monitor the behavior that is taking place, and rewarding and punishing this behavior. The aim is to induce those behaviors and the performance that are supportive of the strategy. Thorndike’s (1905) law of effect is relevant here: behavior that is reinforced tends to be repeated. Incentive systems, in combination with control systems, are essential for motivating employees and ensuring appropriate behavior in relation to the strategy.

WHY REWARD EXECUTION PERFORMANCE?

Rewarding good implementation performance and addressing poor implementation performance has the following positive influences on strategy implementation performance.

Incentives induce employees to execute the strategy. Unless compelling incentives are given, managers and employees will probably resist the proposed changes. New incentives must be created to induce organizational members to adopt the new modes and practices required by the new strategy. When organizational members believe that their performance is rewarded with a reward that is valuable to them, they become more motivated. Individuals are motivated to perform a certain task when they view the expected outcomes as valuable and reachable (Valle et al., 2003).

Rewarding performance motivates employees. When organizational members perform well during a strategy implementation effort, they want to be rewarded for it. Organizational members are unlikely to perform well when there is no link between performance and pay. When persons are not rewarded based on their performance they are not likely to be motivated to make an extra effort and achieve results.

Rewarding employees motivates colleagues. When organizational members see that others receive rewards for performance, they want those rewards as well. Consequently, they can become motivated to perform better as well. Conversely, organizational members are not motivated to work hard when their badly performing colleague gets the same salary.

Rewarding performance increases the self-efficacy of employees. When employees perform well and receive rewards such as compliments from management, they may be become more self-confident and more motivated to perform even more challenging assignments and tasks. This way, rewarding performance can build a sense of competence in employees that may increase their strategy execution performance.

HOW TO REWARD EXECUTION PERFORMANCE

The following best practices for managing performance have a positive influence on strategy implementation performance.

Give feedback about performance. Performance feedback is one of the most effective methods of increasing individual and group performance. Feedback is a prompt for motivation, performance and learning. Feedback allows employees to assess their performance, learn from mistakes, see how others perceive them, improve ineffective work habits, examine alternative behavior, and increase self-knowledge. Through honest and open feedback, employees know where they stand and what they can improve about their performance.

Deal with poorly performing organizational members. Not only should well-performing individuals be rewarded but poorly performing individuals should be addressed as well. For example, when organizational members do not perform well, deal with them by having performance interviews, transferring them to another department, not giving them a raise, demoting them, or firing them.

Tailor feedback to the receiver. Not all feedback results in improved performance. The effectiveness of feedback depends on individual differences in performance, ability, and emotion (Arvey and Ivancevich, 1980). Therefore, modify feedback to fit the receiver to maintain effort and performance. However, many managers are not trained in coaching or feedback techniques.

Use informal rewards. Informal rewards such as compliments, pats on the back, a sense of pride and enthusiasm are a very effective even more so than financial rewards. Organizational members appreciate compliments, praise, and recognition. Both financial and non-financial incentives are effective, but praise is generally more effective in improving organizational member performance. By giving compliments to organizational participants when they perform well during the strategy implementation effort, management can increase their level of motivation and self-confidence. However, base praise on real work results, progress or significant efforts toward progress (Amabile and Kramer, 2007). Otherwise, it has little effect or may even result in cynicism.

Include non-financial rewards. Rewards may consist of monetary compensation such as salary and bonuses but must also include non-monetary compensation such as compliments, positive attention, praise, recognition, and good performance assessment interviews. Other non-financial rewards include when organizational participants perform well this is communicated to the whole organization and having employees of the month and year. Non-financial rewards are especially advantageous in organizations, which lack the means to reward performance with extra salary or bonuses, such as in the public and third sector. Under such circumstances, rewarding organizational members with praise and recognition may be the only way to reward or motivate persons.

Use collective rewards. The use of collective rewards (such as profit sharing or bonuses with which an organization or a department is rewarded for its collective performance) has a positive influence on strategy implementation performance. Group incentive schemes such as profit sharing, gain sharing, and employee ownership plans can be used to align the objectives of a team to the organization.

Collective rewards promote cooperation. Collective rewards promote cooperation among organizational members as opposed to individual rewards, which may promote competition among organizational members. When organizational members are partially rewarded for their collective performance, they have more incentive to make their department and the organization perform better. When only individual incentives are used, a well performing individual does not care whether his colleagues, the department, or the organization performs insufficiently. By implementing a collective reward system, the aim is that well performing individuals help underperforming colleagues to perform better. The aim is to convey that an organization is an interdependent system – linking individual performance to organizational performance.

Collective rewards increase motivation and commitment. Collective rewards can give organizational members the feeling that they partly own the company that increases their commitment to the organization. Organizational members may feel that they are not working to increase profits only shared among management and shareholders. This tends to increase motivation to perform well and their commitment to the organization and thus its strategy and subsequently its execution.

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