Analysis drives Performance
Numbers can mislead. Relative performance reveals the truth.
Indexing operating performance manages the company with market comparisons. Instead of measuring performance by target deviation, performance is measured as market deviation - market-oriented. With indexing operating performance, company performance is better evaluated because it shows performance independent of external factors such as economic or business cycles, the ups and downs of exchange rates and raw material prices and extraordinary events such as mergers & acquisitions.
Such external factors dilute the target and budget deviation analysis used in traditional performance evaluations which leads to false signals, especially in volatile markets. These misleading signals are avoided by indexing operating performance.
Obermatt CEO Dr. Hermann J. Stern has published a Financial Times Top 10 book on market-oriented management on this approach. There is also more information on indexing operating performance on our sister website of the non profit organization Obermatt Institute.
Methods of indexing operating performance
Indexing operating performance uses a range of tools to measure performance in a market-oriented manner. The principle is always the same. Instead of agreeing on goals that later serve as a reference point, performance is measured - as in sports - by how good the performance compares to other, similar performances.
Obermatt's indexing operating performance service offerings
Indexed compensation compares company performance with a market index. This indexed performance measurement motivates for profitable growth. Target-based compensation systems typically obstruct high performance because of the use of realistic, in other words average, targets.
Indexed strategy controlling expresses performance relative to the market which makes strategic controlling independent of the business cycle which classic strategic controlling cannot do.
Indexed performance measurement is the heart of Obermatt's history
In this German interview, Carola Repky and Hermann Stern from Obermatt reconstruct the origin of indexed performance measurement and its later integration into executive compensation. Obermatt started indexed performance measurement in 2001 and implemented relative performance measurement in compensation systems for the first time in 2009, which was new in Switzerland at the time. Relative performance measurement is a more reliable way to motivate executives in any economic environment. The first Obermatt customers are still satisfied customers today.
Consulting is important when introducing indexed performance measurement, as mistakes may later cause unnecessary costs for the company.
The coupling of compensation and planning is especially problematic, because this leads to realistic, therefore average, goals. Companies should avoid the coupling of remuneration and budgeting. With the Corona pandemic, this has also become practically impossible, because now it is hardly feasible to make reliable plans for the future. It makes more sense to use so-called rolling forecasts which give the company the flexibility it needs. Such flexible planning systems are supported by indexed compensation, which does not require any agreed compensation targets at all
Even in a crisis it is important to know how well you are coping with the crisis because even if the figures look bad, it may be that you have done better than comparable companies. If you know where you stand in relation to the market as a whole, you also know better what tactical priorities to set.