EXCLUSIVE RESEARCH

CEOs Confront a
New Age of Leadership
How CEOs successfully overcome internal cultural barriers to
implement effective performance management

THE PERFORMANCE MANAGEMENT EXCHANGE

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octo b er 2 0 0 7
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Today’s CEOs face a wider variety of challenges than ever
before. These hurdles include game-changing advances in
technology, the push to “go green” and the globalization of
the world’s economy.
One tool that can help CEOs manage their diverse
challenges is performance management (PM). In fact, most
CEOs acknowledge the value of PM, noting that it’s a very
important strategic initiative, and that it can have a positive
impact on shareholder value (see Chart 1, “CEOs Value
Performance Management”).
However, too many companies fail to benefit from all
that performance management has to offer. Specifically,
CEOs say that their biggest barriers to effective PM involve
cultural factors, such as a fear of accountability, rather than
technical factors like the development of appropriate
metrics to measure.
The good news is that CEOs are well-suited to lead cul-
tural changes within their organizations, and there are spe-
cific techniques they can use to facilitate these changes.
These are some of the findings of a new research study
conducted by BusinessWeek Research Services and SAS.
This study was conducted among a total sample of 317
CEOs, CFOs, CIOs, CMOs and COOs within large and
midsize companies. In addition to exploring current percep-
tions, the study also sheds light on some PM best practices
C H A RT 1
CEOs Value Performance Management
PM is believed to be very important and to have
a positive impact on shareholder value
80%
59%
PM is a very important PM has a positive impact on
strategic initiative shareholder value
N=59 CEOs
Source: BusinessWeek Research Services and SAS, April 2007
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Copyright © 2007 The McGraw-Hill Companies Inc. and SAS Institute Inc. All rights reserved.

that CEOs can use to communicate with the other members
of the C-suite and improve their corporate performance. It
may be time for CEOs and their colleagues to take a sec-
ond look at performance management.
CEO Priorities
Why do CEOs believe that performance management
should be a priority? The answer probably lies in corporate
agility. The vast majority of CEOs believe that their orga-
nizations are deficient in their ability to respond and react
to market risks and opportunities. Only two in 10 CEOs
describe their companies as being “very agile.” In addition,
two-thirds of CEOs say that it’s very important for their com-
panies to become more agile in order to reach their strate-
gic goals (see Chart 2, “CEOs See an Agility Gap”).
According to our research results, CEOs are the mem-
bers of the C-suite who are most interested in improving
agility. Specifically, CEOs are the strongest advocates for
investing more resources into processes and initiatives that
will increase their organizations’ responsiveness to market
conditions. In addition, CEOs want to improve their organi-
zations’ internal collaboration efforts and workflow processes,
all of which are highly related to agility (see Chart 3, “Con-
cern with Fundamentals That Drive Agility”).
Since CEOs pursue these kinds of goals, it makes
sense that CEOs want to pursue better performance man-
agement. After all, at their best, PM tools allow organiza-
tions to leverage data so that they can forecast the future,
leading to better performance and faster responsiveness.
Specifically, PM leverages organizational data to deliver
fact-based insight, which is usually vastly superior to de-
cisions based on internal politics or mere intuition. And
organizations that implement PM in a systematic way
can eventually develop “predictive PM,” in which they run
experiments based on data to anticipate situations, proac-
tively leverage opportunities and maximize profits.
Common Cultural Ground
CEOs also want to pursue “smart growth,” or a kind of
growth that focuses on both the top line and the bottom line.
Specifically, more than half of CEOs say that they will focus
on a balance between top- line and bottom-line growth during
the next two years (instead of favoring one or the other)
(see Chart 4, “The Aggressive Pursuit of Smart Growth”).
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C H A RT 2
CEOs See an Agility Gap
CEOs want to be agile, but see significant gaps
67%
20%
Being agile/responsive CEOs who describe their
is “very important” to company as “very agile”
strategic goals
N=59 CEOs
Source: BusinessWeek Research Services and SAS, April 2007
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How do CEOs plan to achieve smart growth? Our results
show that, on average, CEOs believe that performance
management is an optimal tool for pursuing a balance of
top-line and bottom-line growth.
To gain a better perspective on the overall impact
of performance management, BusinessWeek Research
Services compared the views of CEOs from companies
that are successfully executing PM with the views of CEOs
from companies that are less successful with PM. Specifi-
cally, CEOs from PM-effective companies are more likely to
enjoy the following kinds of corporate advantages: greater
agility and responsiveness to opportunities and threats;
enhanced innovation practices; acquisition of new cus-
tomers and improved customer loyalty; new distribution
channels; improved business alliances and partnerships;
improved internal collaboration; enhanced up-selling and
cross-selling; improved business processes and workflow;
improved organizational effectiveness; and improved risk
evaluation techniques.
And CEOs are not the only members of the C-suite
who are interested in achieving smart growth through
the use of performance management; the rest of the
C-suite shares the same goals. Therefore, the quest for
smart growth through effective PM can provide common
ground within the C-suite, and a way for all members to get
on the same page.
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Copyright © 2007 The McGraw-Hill Companies Inc. and SAS Institute Inc. All rights reserved.
Generating Cultural Change
As the leaders within their organizations, CEOs are perfectly
placed to facilitate the cultural changes that are needed in
order to execute effective PM. For example, CEOs can
leverage the common pursuit of smart growth to foster
greater support for PM initiatives.
One of the greatest barriers to effective performance
management is a fear of accountability. Many people are
afraid that if their performance becomes transparent, they
will be punished for deficiencies. However, to counter these
fears, executives can publicize the kinds of benefits that
PM can bring. After all, psychologists like B.F. Skinner dem-
onstrated long ago that it’s more effective to inspire people
through the use of rewards than by the threat of negative
consequences.
Part of the organizational cultural change process may
involve convincing employees that the established perfor-
mance targets and expected rewards are realistic. Chris
McCann, CEO of 1-800-FLOWERS.COM, says that “the
first challenge for us as a company was getting people to
believe that we could achieve the results [and] targets that
C H A RT 3
Concern with Fundamentals
That Drive Agility
Few CEOs are satisfied with the performance of
specific initiatives that can lead to agility
(% indicating satisfaction with specific initiative)
33% 33%
28%
Business Improved risk Internal
processes and evaluation collaboration
workflow techniques
N = 59 CEOs
Source: BusinessWeek Research Services and SAS, April 2007
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C H A RT 4
The Aggressive Pursuit of Smart Growth
(% focusing on a specific type of growth)
Focus on top-line growth
Focus on top- and bottom-line growth
Focus on bottom-line growth
2007 36%
2009 20%
N = 59 CEOs
Source: BusinessWeek Research Services and SAS, April 2007
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we laid out.” In addition to promoting the kinds of effective
predictions and decisions that can be generated from PM,
it can be helpful for executives to discuss specific smaller
benefits so that everyone in the organization understands
that both employees and the overall corporation will win
when appropriate measurement takes root. CEOs who
have organizational performance facts at hand can gain the
trust of their colleagues and employees.
Although the thought of revamping a performance
management system can be intimidating, executives can
make this change more manageable by pursuing a series
of small incremental improvements. As the saying goes, the
longest journey begins with the smallest step. For example,
McCann used a three-step process to systematically
improve his organization’s performance management
system, focusing on different goals at different stages
of growth. Specifically, 1-800-FLOWERS.COM first pur-
sued “human capital development” in order to measure
employee performance and put the right people in place.
Next, the organization pursued “capability sourcing” to
develop metrics for every aspect of its performance.
Then, 1-800-FLOWERS.COM was able to focus on
“PEP” or “performance enhancement programs.”
In addition, to promote a culture of rewards and ben-
efits, executives can publicize concrete real-world ex-
amples in which improvements were gained from the
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Copyright © 2007 The McGraw-Hill Companies Inc. and SAS Institute Inc. All rights reserved.
48% 16%
54% 26%
measurement process. These examples can come within
their own companies or from successes achieved at other
companies.
In order for organizations to achieve cultural change,
it’s also important for them to have employees who have
the right skills. McCann acknowledges that skill sets were
an essential factor as his organization implemented new
PM processes: “First, we needed to look and say, OK, do
we have the skill sets in the right places and the people
with the experience to help us transform the company? So
it started with having to bring in a couple of people that had
the right skill set.”
Finally, the PM process can progress more effec-
tively when leadership comes from the top. Successful
PM involves change management, and everyone in the
organization will be looking at the example set by the CEO.
As Chris Rogers, Director of BusinessWeek Research Ser-
vices, points out, “In order for an organization to really drive
performance management, the executive leadership has to
make it a high priority throughout the organization, among
all business units and right down to each individual employ-
ee.” When the CEO sets the proper stage for performance
management by finding common ground with colleagues
and promoting benefits, the rest of the C-suite may follow
along, creating the opportunity for everyone in the organi-
zation to become a PM believer.

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Developing a Culture
that Embraces Performance
Management
n  t its best, performance management offers a fact-based
A quantitative and qualitative methodologies, including on-
path to smart growth.
n The comprehensiveness of smart growth can be used to
drive internal support for PM.
n PM programs can be driven from the executive suite, with
the CEO as the leading advocate.
n When CEOs set clear and obtainable goals, organiza-
tions can develop a culture that supports PM.
n If the corporate culture is not ready for accountability, PM
results will probably lag.
Study Methodology
BusinessWeek Research Services (BWRS) launched a
research program in February 2007 to determine C-level
executives’ views on the use and value of performance
management. This program was designed to develop ideas
and insights on how companies can optimize performance
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Copyright © 2007 The McGraw-Hill Companies Inc. and SAS Institute Inc. All rights reserved.
management to drive accountability through all areas of a
business to achieve profitable growth.
To capture this information, the project used both
line survey interviews in February 2007 with 317 C-level
executives in large and midsize companies from across
the globe. In addition, in-depth one-on-one phone inter-
views were also conducted with senior officials at large
and midsize companies known to be actively involved in
performance management, including 1-800-FLOWERS.
COM, Allstate Insurance, Energizer, Holt Cat, ICO Holland,
Maine Medical Center and TD Ameritrade. Interviews
were also conducted with several leading industry analysts
to provide context to the findings.
This research article was funded by a grant from SAS but was written by
Chris Rogers and Marc Scheer, PhD, both of BusinessWeek Research
Services. The editorial department of BusinessWeek was not involved
in this project. For more information, please contact Chris Rogers at
chris_rogers@BusinessWeek.com.