<div>A CEO has to work many strings to make a business successful. Clearly, no scalable business can rely on the brilliance of a single individual in these times of dynamism and innovation. There is a need for processes, policies, guard-rails, governance cadence, and a suitable incentive structure to promote a performance-driven culture besides others things.<br /><br />Often, in businesses, the focus is on the prime drivers of profitability — product life cycle management, go-to-market strategy, sales and channel management, labour and machine productivity, etc. These factors more often than not work in tenured or yet-to-scale businesses. In large, diversified, multi-product or multi-location set-ups, where complexity is high, due to the spread of product base and geographical coverage, conventional drivers of business need supplements. <br /><br />The issues raised in the case are more about governance cadence, performance management and incentivisation of top leaders. One has to have the right balance between delegation of authority and rewarding success.<br /><br />Let’s talk about the former first. A robust performance management system is one of the key success factors. A manager from my early career days told me that the best way to find what a person does is to ask for what he measured.<br /><br />An interesting concept. Now all well-managed companies are getting inundated with documents referred to as scorecards, dashboards, cockpits, etc. All very good stuff. But the question really is if the metrics used have been thought through, and drive the right behaviour.<br /><br />Those who have been part of a budget process know that often the key to a good budget discussion is to carry enough bad news and views to drive lower targets since such discussions are mostly about bargaining for a lower target or seeking significant investments.<br /><br />Budget discussions are healthy since this is the time when contrarian views can be aired, and with the right data and mind-sets, the most informed decisions can be made. <br /><br />But from an individual’s perspective the entire dynamics can get very tense, especially so if the unit manager has a significant portion of his compensation linked to revenue. The boss is always keen on pushing a higher number down the chain to build contingency while the subordinates want lower targets. It is a no-brainer that such conversations get more and more animated as the stakes are measured by the value of incentives.<br /><br />Does this process really drive optimisation of targets or is it more about testing the participants’ negotiation skills? <br />The other complexity here is the metrics being defined to measure performance. The challenge always is to align performance criterion with corporate objectives, and make them as tangible and measurable as possible. For example, in the IT industry, where there are multi-year contracts, the business leader may be incentivised to deliver in terms of per-year revenue and/or the full contract value. The key here is for the leadership to invest a significant amount of time and effort in defining metrics for performance management.<br /><br />That done the next big thing is ethics. Can there really be ‘service before self’? Is there any correlation between ethical conduct and money at stake? In the same situation, do managers with differing performance incentives behave differently? This is an interesting paradox and would have differing views.<br /><br />To add it all up, senior managers in diversified companies often face the challenge of how to task and reward their teams, especially if the team is a high-performing one or the situation is such that their expertise is not adequate to opine. It is important that adequate time and attention is spent to find the most appropriate performance measure and have rewards based on performance to get the best out of the operating teams. <br /><em><br />The author is a CFO for global applications business for CSC . He has over 20 years of experience, including at GE and HUL</em><br /><br />(This story was published in BW | Businessworld Issue Dated 03-06-2013)</div>
