The Model

The SPMM – St. Gallen Performance Management Model describes the design of a company’s performance management system by means of a control loop of five management processes, as well as the systematic linking of these processes with ten management practices. The model’s objective is the development of an agile and flexible performance management system that is consistently oriented towards the organizational goals. The model creates a self-control mechanism through the systematic integration of management processes and management practices. The actual model design is always dependent on the internal and external company context. The objective here is to create an optimal balance between performance orientation (Discipline & Stretch) and behavior orientation (Support & Trust) by means of goal-oriented influencing of the internal context.

 

The performance management cycle defines a structure, which differentiates between more fundamental system-building processes (processes 1 and 3) and more operational processes (processes 2 a/b/c). The operational processes (processes 2 a/b/c) are inspired by the plan-do-check-act improvement management process, but consciously shortens this to enable and drive decentralization and self-control.

Step 1, “define & engage,” includes a clear definition of the company’s objective, the fundamental values, and behavioral standards, as well as a strategy description, the strategic goals, and the business model. In this step, the SPMM specifically emphasizes the importance of the clarity of formulation and communication, as well as the high relevance of value-orientated management for employee motivation.

 

In step 2a, “target & plan,” the strategic goals are broken down into detailed sub goals for the company’s next management levels. This allows a link between the short-term operational and the long-term strategic goals, and an operationalization of the strategy. The SPMM especially emphasizes clarity and responsibility, the involvement of the participants in the goal-setting process, and the use of flexible, relative goals to increase flexibility.

 

The aim of process step 2b, “execute and adjust,” comprises the implementation of steps 1 and 2a. The SPMM thus strives for a context of optimal flexibility in the resource allocation process, and also reviews the extent of the decentralized decision-making ability for increased adaptiveness.

 

Step 2c, “review & assess,” is also allocated to the operational management level and describes the performance measuring process, as well as the performance assessment. The SPMM strives for a holistic measurement of the achievement level. The balance between financial and nonfinancial measures, as well as between the appraisal processes, is specifically scrutinized. Here too, relative measurement and evaluation are of significant importance.

 

Step 3, “align & reward,” is again a strategic process. This step strives to optimally link performance assessment to the remuneration system. The SPMM also emphasizes the necessity of a regular review of the entire performance management system’s alignment. In this respect, as much self-control and self-guidance as possible should be encouraged.

 

In the SPMM, the processes in the management cycle and the underlying design principles are systematically linked with ten central management practices from which a concrete performance management system can be derived. The promotion of higher ambition, while simultaneously promoting intrinsic motivation, is the overriding design principle for the design of management practices. The brief description of management practices are based on design principles that have been practically tested and aligned with scientific findings, and/or concrete instruments. The model’s effect arises from the systematic integration of the performance management practices with the control loop, which leads to a consistent overall design with high synergy. The practices and the control loop therefore “operationalize” a company’s strategy and its cultural principles. Simultaneously, the design also influences a company’s decision making and organizational structure. This demonstrates that the SPMM is a holistic performance management approach with a high impact potential for the entire organization’s effectivity and efficiency.

 

The SPMM does not claim to be the “best” management system in each situation. In research and application, the idea took hold that in small organizations, or in not very dynamic context situations, rule-based and person-centered management is a very effective way of management. However, when complexity increases, most organizations adopt classical management systems that follow the traditional command & control schemes; in other words, a clear division between instruction and execution. With a further increase in (internal organizational) complexity, and a simultaneous increase in (external market) dynamics, the inertia of such systems has an increasingly negative influence on performance. Organizations usually react to this with various attempts to increase the management system’s flexibility – but do not change the underlying management paradigm. The SPMM provides an alternative design by integrating insights from behavioral sciences into the design of financial control practices. The design of the control practices within the SPMM systematically foster transparency and openness and thereby a trust based culture which based on the “trust equals speed” principle, together with particular goal-setting mechanisms and decentralized management practices, is significantly quicker and more flexible. The SPMM can have a significant effect, especially in situations with high complexity, and can significantly increase a company’s management effectivity. The application of the SPMM is in principle not limited to specific sectors or organization sizes. Experience has shown however, that its effect is particularly noticeable in medium sized and large corporations.