PRINCIPLES OF CORPORATE PERFORMANCE MANAGEMENT

by Bob Paladino

Executive Summary

Organizations don’t win prestigious honors like the Baldrige by accident. Award-winning enterprises embrace behaviors that escape their competitors. Having researched and analyzed best practices of the best companies, the author reveals five principles of corporate performance management and illustrates how a medical device manufacturer embodies one of the principles in particular.

What do award-winning enterprises know that other organizations don’t? Are they able to leverage unique processes and best practices that others can’t?

Five key principles drawn from best practice research of globally recognized enterprises offer guidance to enable an organization to implement its strategy through integrated corporate performance management efforts.

This article borrows from my book Five Key Principles of Corporate Performance Management by focusing on principle 4: Improve performance through the integration of active customer listening post outputs translated into new product and service designs. I have selected drug manufacturer Medrad, an advanced award-winning organization, to highlight these key processes.

What the Winners Know

To obtain the best practices research, I was fortunate to participate with executives and leaders from more than 40 leading organizations that included Balanced Scorecard Hall of Fame companies as well as winners of Baldrige, Sterling, and APQC Best Practice Partner awards.

During the course of research, study, and many successive client projects, a winning company DNA started to emerge. True winners follow a discernable pattern — the five key principles of corporate performance management — within which are dozens of best practices. Case study company executives joined me in documenting their core processes and how they employ the five key principles:

Establish and deploy a corporate performance office and officer.
Refresh and communicate strategy.
Cascade and manage strategy.
Improve performance.
Manage and leverage knowledge.

Medrad’s Best Practices

Medrad develops, manufactures, markets, and services equipment and Medrad maintains an organizational focus on performance improvement by aligning the activities of functions, teams, and individuals. sterile disposable products that enable or enhance diagnostic and therapeutic medical imaging procedures. The company has won the Malcolm Baldrige National Quality Award and the APQC Best Practice Award. Its products are sold to hospitals and medical imaging centers worldwide and are used in computed tomography and magnetic resonance procedures, as well as in cardiovascular imaging performed in angiography and cardiology.

Medrad began in 1971 with the introduction of the first flow-controlled vascular injector, which improved pictures of the heart and blood vessels by precisely injecting the liquid contrast agents used for cardiovascular imaging. In 1986 and again in 1992, Medrad created new markets for vascular injection systems, first for computed tomography applications and then for magnetic resonance. In 1988, in cooperation with an original equipment manufacturer, Medrad expanded into magnetic resonance surface coils. Medrad’s expertise in the design, manufacture, and sale of magnetic resonancecompatible equipment led the company to expand into additional magnetic resonance accessory products in 2000.

Medrad was a publicly traded company until October 1995, when it was purchased by and became a wholly owned subsidiary of Schering AG, a $5.6 billion German pharmaceutical company headquartered in Berlin.

Medrad began its performance excellence quest in 1988. It adopted a quality policy at its annual employee meeting in 1990. The quality policy clarifies how Medrad values customers, suppliers, and employees by clearly understanding their requirements and meeting those requirements on time, every time.

Medrad is dedicated to improving the quality of all its products and services continually such that its customers’ satisfaction, loyalty, and respect are unsurpassed. It is its policy to understand and agree on the valid requirements of the work it performs for its customers — both internal and external — and to pursue 100 percent conformance to those requirements, on time, every time. Medrad will:

Empower, involve, and train each and every employee.
Establish partnerships with its customers and suppliers.
Foster quality improvement teams.
Eliminate defects through prevention.
Ensure that employees are recognized for achievements.

Medrad’s performance improvement efforts began with the formation of the President’s Quality Council (now known as the Performance Excellence Team), made up of senior staff. In 1997, the senior leadership team began using a balanced scorecard featuring five corporate scorecard goals. The specific targets are reviewed each year at the beginning of portfolio planning. Medrad maintains an organizational focus on performance improvement by aligning the activities of functions, teams, and individuals with these corporate goals and the top 12 objectives.

Medrad’s performance management Eliminating defects through prevention is one way Medrad pursues 100 percent conformance. system involves all employees in creating individual objectives and development plans that support corporate goals and individual growth.

At the corporate level, the annual strategic planning process identifies, selects, and allocates resources to critical projects to improve Medrad’s ability to achieve the corporate goals and objectives and to implement the portfolio plan. As needed, employees and work groups form teams to implement improvements and address process problems. Teams identify sponsors for their projects. These sponsors are usually higher-level managers, whose function is to procure resources for the group and provide feedback and direction. A charter between the team and the sponsor is developed for projects that are typically cross-functional and large in scope.

A corporate Performance Excellence Center and productivity centers in selected departments provide resources for improvement initiatives and are tasked with seeking opportunities to share best practices throughout the company. At the organizational level, Medrad has been using the Baldrige criteria to assess and improve its management system since 1994 and has received three site visits. Medrad’s senior management uses the Baldrige criteria feedback report in the Performance Excellence Team meetings, at which improvement initiatives are reviewed and selected. Medrad fosters organizational learning, most notably at a quarterly quality forum (which includes best practices sharing and the introduction of performance excellence tools), the annual Performance Excellence Conference (for team best practice sharing and training in team skills), and learning and development.

How Medrad Improves Performance

Prioritize improvement projects. Identify and prioritize strategic and operational initiatives to improve the organization’s performance along financial, customer or constituent, process, and people dimensions.
Leverage customer-facing processes. Develop and exercise customer and constituent processes to understand and recalibrate processes around changing customer needs. Gather customer and competitor intelligence through the use of regular customer survey, focus groups, call centers, quality function deployment, and related methods and approaches.
Leverage process improvement methods. Design and maintain an ongoing process improvement and problem-solving program based on Six Sigma black belt or green belt methods and tools to identify and eliminate root causes of issues.
Realize value from benchmarking processes. Leverage benchmarking and comparative methods to identify and regularly improve core and support processes.
Create a performance improvement culture. Create a virtual community of practitioners to coordinate and optimize improvement efforts enterprisewide.

Customer Listening Posts

Medrad’s marketing product line and marketing managers define market and customer segments through the portfolio planning process. Managers and other members of the platform teams determine customers and their needs according to three factors: end-user clinical modality, geography, and distribution channel.

In the product line planning phase of the portfolio planning process, teams armed with product line planning assessment guidelines analyze information that is gathered through the listening posts. These teams focus on Medrad’s product platforms: computed tomography and magnetic resonance, and cardiovascular and vascular products. An incubator team is dedicated to new products and markets.

Medrad listens to and learns from current, former, and potential customers as well as customers of competitors, through the listening posts.

The listening posts apply to both of Medrad’s basic customer groups: end users and distribution channel customers. Field teams composed of representatives from sales, service organizations, and technical applications specialists interact with customers worldwide. Team members enter information about these contacts into the field force automation (FFA) system. Field or corporate sales and services as well as marketing personnel access FFA to find current information about equipment performance, customer requirements and satisfaction, sales opportunities, shipments, product orders, customer profile information, and other customer information. The sales, marketing, field management, reliability, and customer satisfaction departments use reports generated from FFA data and customer satisfaction surveys to determine key customer requirements and expectations and to analyze and improve customer satisfaction, product performance, and sales. As needed, managers generate tracking reports on equipment performance, customer satisfaction, and opportunities won or lost. In addition, reports using FFA data are created for all regional meetings of functional groups: sales, service, and applications.

The reasons for losing any customer are entered into the FFA, where they are available for analysis by marketing and sales managers. The customer satisfaction advisory board communicates progress on resolving top customer issues. This year, the advisory board is piloting a program to create a three-in-one opportunity map that identifies what will be done to win lost customers back and address issues as they relate to all customers. Sales representatives and managers rely on listening post information to evaluate sales process efficiency and track customer retention. Sales uses a “sales funnel” to quantify the efficiency and effectiveness of the sales process. This process allows customer sales leads to be tracked through various stages of maturity. Many potential customers drop out of the process at subsequent stages, creating a funnel effect.

Funnels are also used as forecasting tools to predict likely revenues from customers at different stages in the pipeline. In addition, sales uses the funnels and FFA data on lost customers to identify the reasons they were lost. Marketing managers are responsible for analyzing listening post information to assess product and service requirements and to improve forecast efficiency. Product planners determine product and service features using the listening posts.

Fresh Approach

In his book Five Key Principles of Corporate Performance Management, Bob Paladino goes beyond offering how-to advice, describing a fresh approach to integrating multiple methods to optimize business results.

In addition to numerous case studies and best practices, Paladino reveals insights from executives who have won prestigious global recognition in business. Key process maps, balanced scorecards, comparative tables, project plans, charts, graphs, and screen shots of knowledge management and balanced scorecard systems are presented.

Each of the product lines has a product planner assigned to determine customer and product requirements and set a five-year product road map. The requirements and road maps feed the strategic planning process and are used to define the direction for each modality and for the company. Requirements or opportunities that extend beyond Medrad’s current capabilities go to business development. Business development managers determine which organizations have the resources to capture the opportunity and then, with the approval of their own advisory board, contact them In his book Five Key Principles of Corporate Performance Management, Bob Paladino goes beyond offering how-to advice, describing a fresh approach to integrating multiple methods to optimize business results. In addition to numerous case studies and best practices, Paladino reveals insights from executives who have won prestigious global recognition in business. Key process maps, balanced scorecards, comparative tables, project plans, charts, graphs, and screen shots of knowledge management and balanced scorecard systems are presented. about acquisition, joint venture, alliance, or a distribution agreement. Product development teams use extensive customer input from several listening posts to design and validate new product feature sets that respond to customer needs. In the first stage of the integrated product development process, the product planner and product development teams use listening posts to define the product and check product development.

Clinical partnering with end-users is used to initiate market development, confirm product features, and perform beta site testing. As part of Medrad’s ongoing customer relationship enhancement initiative, a project team assessed customer relationships along multiple dimensions that included product attributes, service, applications support, interactions, intimacy, information provider, and innovation. The assessments included all major customer groups across several geographic regions.

Methods for Improvement

Medrad keeps its listening and learning methods current with the company’s needs and directions primarily through zone manager meetings, European and Asian managers meetings, a customer satisfaction advisory board, the market research department, and the global customer satisfaction department. Zone managers in North America meet formally every quarter, after which they meet with sales, service, and applications representatives in their respective zones to share information. Cross-functional team members attend the zone meetings and participate in discussions about customer preferences and requirements and the methods of determining and meeting them. Field team members use the customer information to develop and refine individual and team support strategies that enhance customer value and satisfaction.

Sales managers in Europe and Asia meet quarterly to discuss sales progress against objectives and to exchange information on the market dynamics. Twice yearly, corporate executives and marketing managers join these meetings. The customer satisfaction advisory board leads improvement of the customer satisfaction process. Representatives of information technology, field, customer support, engineering, operations, marketing, and international subsidiaries participate on the customer satisfaction advisory board, bringing diverse information about business needs and trends to the group. Improvements include refinement of listening posts, such as improvements in customer survey questions. The global customer satisfaction department manages and improves Medrad’s customer surveys to keep them current with the company’s directions.

Complex Business Strategies Undervalued

Successful strategies are often those that are innovative: They combine resources or businesses in unique or complex ways that other firms may fail to recognize. But research finds that the market actually tends to undervalue companies with complex or unique strategies. The reason is that they receive less analyst coverage.

“Firms pursuing more complex or unique strategies receive less market notice as measured by analyst attention,” said Todd Zenger, the Robert and Barbara Frick Professor of Business Strategy in the Olin School of Business at Washington University. “Analysts find such strategies too costly to cover, leaving the market with limited information about their stocks. As a consequence, the stocks are discounted in the market.”

The result is that CEOs often have to choose between an innovative strategy that will deliver the strongest long-term financial returns and a more transparent strategy that is more highly valued in the short term but will bring limited returns in the long run, said Zenger.

Improving Processes

Medrad gathers, integrates, and delivers data and information from all sources through its extensive information technology network, which includes core information systems, desktop systems with e-mail, and the Medrad intranet. Examples include converting the financial tracker from paper to Web pages on the intranet; adding reporting via the value-added financial analysis project; and business intelligence based reporting.

Medrad intentionally gives extra attention to sharing data critical to achieving the five corporate scorecard goals. For example, data on revenues and margins critical to growth and profitability are made available in real time. The information stored in this data warehouse can be sorted and totaled in numerous ways, thereby enabling finance, marketing, and sales to track and analyze performance and to plan and initiate effective field actions. Daily reports are published to the intranet, updating revenue and margin data globally for analysis of the latest results.

Departments such as operations, sales and service, marketing, and new product development deploy and maintain work group-level systems and applications as well as support major systems such as FFA, product data management, project management, and computer-aided design tools.

The focus is on data that help achieve scorecard goals, such as daily production and on-time shipments, or those critical to ensuring prompt response to out-of-bounds conditions, such as quality levels. In-process measures are used to manage a wide variety of functions. Field service uses statistics on preventive maintenance services due and average on-site labor per repair to assure proper customer service. Quality assurance monitors trends in warranty repair. Human resources uses data to manage filling open positions, including the number of days jobs have been open, the number of resumés and interviews, and more.

The selection of overall organizational performance measures begins with the five corporate goals and the top 12 corporate objectives identified and updated during the strategic planning process.

In its Performance Excellence Team meetings, the senior staff annually confirms and prioritizes the top 12 objectives and sets targets and measures. Since these objectives support corporate scorecard goals, Medrad approves only those proposals that project substantive improvement and innovation. The top 12 objectives are reviewed regularly by the objective sponsors, in depth on a rolling three-month basis by senior staff, and more frequently by exception.

Executives waterfall objectives and progress measures throughout the organization, working with relevant sub-functions and teams. At both the corporate and sub-function or team level, measures are selected based on their ability to predict performance or measure results, with collection and reporting established to enable course correction at appropriate time intervals. Functions and sub-functions identify challenging continuous improvement objectives and measures that align with the corporate goals through the waterfall objective process. Support of the top 12 objectives demands improvement and innovation in these functional level goals.