Performance management, understood as financial leadership and strategy implementation, has increasingly become a key success and differentiation factor for organisations. This is because organisations’ need to swiftly adapt to change has rendered industrial age management approaches such as command-and-control obsolete.
A contemporary performance management approach requires the close alignment of financial control systems and leadership principles, as well as the replacement of the monetary-focussed, backward-looking command-and-control logic, based on analysing plan-actual deviations.
With the St. Gallen Performance Management Model (SPMM), we have developed and documented a holistic model to provide scientists and practitioners with a concrete solution. This is the result of more than 20 years of research and extensive practical experience that have converged at the Chair of Controlling/Performance Management at the University of St. Gallen and the Hilti Lab for Integrated Performance Management, under the leadership of Prof. Dr. Klaus Möller and Dr. Franz Wirnsperger.
With this information, we share our expertise with interested parties. As part of our innovation action research, we have implemented the SPMM in companies of different sizes and industries and have published several articles on the topic.
We are continuously improving our approach and look forward to feedback, suggestions, and conversations!
Most management approaches were developed during the industrial age. They are based on a traditional understanding of leadership characterised by the command-and-control principle and a strong focus on financial control parameters.
While such approaches promise success in stable environments, most companies face a very different reality:
an external environment dominated by a VUCA world (volatility, uncertainty, complexity and ambiguity)
requirements of working conditions and leadership styles are changing (generation Y, transformational leadership)
digitalisation is enabling and driving a fundamental shift in required management roles and tasks
performance is now defined more broadly – as a combination of financial success and social impact, with a clear reference to the organisation’s purpose.
Traditional control approaches focus on the process and system levels, neglecting behaviour-oriented, employee-oriented and strategic aspects. The SPMM includes all relevant levers to manage organisations by combining financial control and leadership practices in the form of management control packages.
Thus, we don’t refer to controlling, but to performance management, which – as a newly established discipline – brings together controlling and leadership, so as to be able to manage performance proactively and directly.
The aim is to create a high-performance work environment that balances demands and rewards.
The foundation of purposeful performance management is a clear shared understanding of the organisation’s (financial and non-financial) goals. This requires a holistic performance measurement approach based on the input-process-output-outcome-impact model combined with leadership behavior.
To emphasise the action orientation, there is a process-oriented performance management cycle at the heart of the SPMM. We distinguish between fundamental system-building processes (1 and 3) and operational system-driving processes (2a, b, c).
The inner brackets illustrate the necessary balance of ambition and motivation in leadership. This is achieved by de-coupling target-setting and coordination as well as planning and performance evaluation. The outer bracket illustrates the necessity of incorporating the external context.
The five performance management process steps
It includes a clear definition of the organisation’s purpose, values and behavioural standards, as well as a strategy and a business model.
the strategic goals are operationalised and broken down into detailed subgoals and key initiatives.
It includes the performance creation, strategy execution and, if necessary, the adjustment of resource allocation.
It covers performance measurement and evaluation.
It is again carried out in longer intervals and at a more strategic level.
The SPMM focusses on a contemporary alignment of financial controls and leadership behaviours. Via guided self-control, the agility of the organisation and its employees increase, ensuring transparency and predictability of financial indicators and control instruments.
Thus, the SPMM focusses on the organisational level, with strong links to and demands of the individual behavioural level (which we are currently researching and designing in the individual performance management submodel). The SPMM seeks to shape the future role of the financial organisation towards business partnering. It focusses on the how and where in decision-making and strategy implementation rather than on the change in (organisational) structure or the introduction of a completely new instruments set.
Organisational design research and practice focusses on innovative approaches (autonomous or network organisations, holacracy, etc.). During research projects and stays in the U.S. and Asia, we intensively examined the implementation of such innovative approaches in leading corporations (including Google and Groupon). These approaches give new and especially fast-grow m-0ing organisations enormous flexibility via strong reliance on self-control. In our view, this is not an option for most established organisations. Nonetheless, the rigidity and slowness of traditional systems based on external control must be avoided. Thus, the SPMM is positioned between these two extremes, and proposes the notion of guided self-control.
In both academic research and practical application, we are concerned with the finance function’s future. In such a future-oriented long-term perspective, the SPMM serves as guidance and target operating model, also concerning organisational design. This includes the division of labour in the performance management function and its interaction with other functions in the universe of CFO, CEO and further support functions.
Within performance management, we assume a division into four roles:
system design and further development
(system) application (via a shared service centre and analytics)
culture and transformation
At the organisational level, we expect a convergence of support functions, such as finance, governance/risk/compliance, HR, IT and, eventually, procurement. In this context, the performance management function acts as a key driver in reaching the goals of the organisation as a whole ( = performance).
The SPMM does not claim to be the best management system in every situation. In both research and application, it is well known that in small organisations or low-dynamics, rules-based and person-centred management is a very effective way to manage.
However, when complexity increases, most organisations adopt classical management systems that follow a traditional command-and-control scheme; in other words, a clear division between instruction and execution. With a further increase in (internal organisational) complexity, and a simultaneous increase in (external market) dynamics, such systems’ inertia increasingly negatively impacts on performance. Organisations usually react to this with various attempts to increase the management system’s flexibility without changing the underlying management paradigm.
The SPMM provides an alternative design by integrating insights from behavioural research and theory into the design of control practices.
Based on the principle trust equals speed, a trust-based culture is at the centre, which – in combination with specific goal-setting mechanisms and decentralised self-control practices – is much more flexible and agile. The SPMM can have significant effects, especially in situations with high complexity and dynamics, and can significantly increase a company’s management effectiveness.
The SPMM’s application is not limited to specific industries or organisational sizes. Our experience shows that its effects are particularly noticeable in medium-sized and large corporations. We have successfully implemented the SPMM in many organisations, including Hilti. These organisations’ effectiveness and efficiency have increased substantially, which has also led to significant increases in financial performance. Firms that use SPMM practices more intensely perform much better in terms of both financial performance as well as employee and customer satisfaction compared to companies with a more traditional management approach.
With the SPMM, we theoretically and conceptually contribute to the further development of management systems, applying this knowledge in practice and continuously learn from these implementations.
Similar to Prof. Robert Kaplan, who developed the Balanced Scorecard by relying on innovation action research, we are applying this method to continuously improve the SPMM by combining three perspectives.
Research (innovate and develop)
Academic research and further developments are carried out at the Chair of Controlling / Performance Managementand the Hilti Lab for Integrated Performance Management at the University of St. Gallen , via specific research projects (especially dissertations, Master’s theses and seminar papers). By examining specific aspects through the application of rigorous scientific methods, we have established a solid foundation for the SPMM and are generating value for science and practice.
Practice (debate and dialogue)
This is a key knowledge hub, via our corporate networks Controlling Excellence Network St. Gallen (CENS) and Performance Management Network (PMN) (with partners such as Bayer, Infineon, Swarovski, ZF and several small and medium-sized companies). In our competence networks, seminars and executive round-tables, we convey, deepen and discuss the latest developments with professional experts to receive feedback and calibration from the private sector (Go to website). The networks also serve as an exchange of experience among executives about best practices.
Transfer (implement and validate)
For focussed and rapid implementation, we are working with the HSG spin-off the Performance Management Company (PMC). Since 2014, PMC has specialised in the implementation of the various aspects of the SPMM, using tailored concepts and instruments. The focus is less on consulting in the sense of pyramidal body leasing, but on an expert-oriented coaching and enabling approach as well as rapid implementation. This close cooperation enables us also to use insights from practical applications to improve the SPMM.
A key lever for effective transformation of an entire performance management system is the principle of guided self-control. In previous implementations, we identified key building blocks that have synergetic effects on the successful implementation
This includes clarity about the strategy, business model and key value drivers, as well as the application of specific control practices (relativity and flexibility) in target-setting. Thus, to structure financial targets, we follow the classification of the house of performance. We define flexible and relative targets in a top-down approach that includes the participation of the relevant manager.
This is about aligning goal-setting and compensation. The SPMM positions compensation primarily in terms of profit-sharing in the organisation’s success, linking it to the organisation’s performance progress. Research clearly shows that performance management via complex compensation systems is less important than good leadership practices – a core part of the SPMM.
Flexible, relative targets in the SPMM replaces the target-setting function of the traditional budgeting approach. Applying bottom-up rolling planning covers the remaining functions – forecasting and coordination.
Relative target-setting also requires changes to performance measurement and evaluation practices. Instead of a rigid evaluation based on plan-actual (budget-actual) comparisons, a measurement of actual-actual trends is combined with the dynamic measurement of relative targets against external or internal benchmarks.
Ultimately, since these principles and building blocks must fully live in the organisation, the instruments, behaviours and competences must be adequately documented and taught so as to enable sound business partnering and continuous organisational learning.
We regularly conduct training and executive talks on the SPMM
Trainings and executive talks on the SPMM are available in different formats:
An event’s scope depends on the associated learning objectives, ranging from a two-hour introduction to multiple-day, highly interactive and individualised workshops. For an overview, visit our Performance Management Academy’s website (Go to website). For organisation-specific events, kindly contact us.
The SPMM was developed at the Chair of Controlling / Performance Management and the Hilti Lab for Integrated Performance Management at the University of St. Gallen. As part of the Institute of Accounting, Control and Auditing, our research, teaching, and knowledge transfer focus on performance management and business analytics.
These are experts who deal intensively with the SPMM’s functions and application areas. They have in-depth experience in the practical implementation of the SPMM, as well as in teaching and training. They provide key impulses for the continuous improvement of the model.
+ 41 71 224 74 06
University of St. Gallen
Institute for Accounting, Control and Auditing
Prof. Dr. Klaus Möller
CH-9000 St. Gallen