Rapid Corporate Development with the Support of Rigorous Performance Management Program

Rapid Corporate Development with the Support of Rigorous Performance Management Program

Rapid Corporate Development with the Support of Rigorous Performance Management Program

“Performance management is the core of the management and control system of the Company. Its major functions in enterprise development are manifested in four respects: 1) alignment towards corporate goals, 2) guiding the process of achieving goals, 3) basis for incentive compensation, and 4) reference for management decision making. Since 2006, our business size has grown five times. The ability to achieve such stellar results was largely attributed to the effectiveness of our corporate performance management program.”

— Mr. Qiao Jin, Performance Management Department, CMPD Operation Management Center

China Merchants Property Development Co. Limited. (“CMPD”) was established in 1984 and is one of the earliest real estate companies in China. It is one of the country’s largest, tier-one, diversified property development conglomerates, with scope of businesses covering property development and sales, real estate leasing, as well as property management services. At the end of 2011, its total assets stood at RMB 79.7 billion. The Company is headquartered in Shenzhen. It has both A and B-shares listed on the Shenzhen Stock Exchange, as well as a secondary listing of B-shares on the Singapore Stock Exchange.

CMPD advocates "Integrated Community Development Model", "Green Real Estate Development Concept” and “End-to-end System of Services”. It has been highly regarded as the pioneer for “Urban Operation” and “Sustainable Development” in China’s real estate industry.

With the Company’s effective corporate governance and remarkable operating results, CMPD has been recognized as one of the Top 10 Listed Real Estate Enterprises in China for the consecutive years from 2002 to 2011. It has also been regarded as a “blue chip” real estate enterprise in China from 2004 to 2010. In 2011, CMPD had a total area under construction of 5.18 million square meters, sold 1.2 million square meters of real estate and achieved more than RMB 20 billion in value of sales contracts signed. In the same year, CMPD’s real estate leasing division had an aggregate area under lease of 8.23 million square meters while its property management services division had 17.51 million square meters under its management. At the end of 2011, CMPD had a portfolio of about 65 real estate projects in various large and medium-sized cities including Shenzhen, Beijing, Shanghai, Guangzhou, Tianjin, Suzhou, Nanjing, Foshan, Zhuhai, Chongqing, Chengdu, Wuhan, Zhangzhou, Xiamen, Huizhou, Qingdao and Zhenjiang.

CMPD has always been very concerned about achieving a delicate balance between the pace of its external business expansion and the development of its internal capabilities. At present, the Company is at the crucial stage of rapid growth in scale, hence, Mr. Jin and his team are faced with the challenge of providing comprehensive support through managing an effective corporate performance management program.

Mr. Jin is a member of the CMPD Operation Management Center. Since joining the Company in 2006, Mr. Jin has been focusing on corporate performance management (“CPM”) related work. Currently, Mr. Jin leads a team of five people, mainly responsible for the performance management of nearly 60 business units, conducting research on special management topics, as well as handling liaison between CMPD and its supervisory companies.

Continuous Improvement in the Performance Management Program

CMPD’s performance management program was established in 2000 when McKinsey was engaged to provide strategy consulting service. In the process of defining the Company’s core business, Key Performance Indicators (“KPI”) was introduced as one of the tools for strategy implementation. Through the pursuant years of operations, a more matured and customized CPM program took shape, which created a positive impact on the Company over a considerable period in its recent history. However, as CMPD’s business continued to grow and its management model evolved, problems with the original CPM program began to emerge:

  • Lack of integration among the KPIs. There are ambiguities with the levels and categorization of KPIs, and there is a disconnect between the KPIs and the Company’s strategic goals;
  • Excessive pursuit of comprehensiveness and completeness of the CPM program. The KPIs overwhelmingly covered all the tasks in each functional department, resulting in ineffectiveness in setting priorities;
  • Itemized approach used in appraisal. This detailed method of assessment not only increased the workload needed for performance evaluation, but often led to mis-reading of the real purpose behind each task. Moreover, the information collected was hard to organize and analyze, resulting in reports that are of no reference value for management decision making purpose;
  • Isolation of the assessing department. The assessing department worked mostly alone, without being able to mobilize other professional units to be involved and contribute to the assessment system;

In an effort to tackle the above issues, CMPD launched the Balanced Scorecard (“BSC”) program in 2006, and implemented the following four improvement measures:

  • Introduced a comprehensive BSC program to support the Company’s strategy.
  • Simplified the performance assessment program and focused on those critical performance indicators.
  • Gradually replaced the itemized assessment approach with a broader set of new indicators.
  • Designed various evaluation templates, and organized various professional departments to be involved in conducting evaluations.

After a few years, the BSC concept became widely accepted within the Company. While there were still rooms for improvement relating to the application of the program, the basic BSC framework had taken root. In 2011, in order to catalyse the achievement of business growth and to adapt to a new authorization system, CMPD implemented another round of adjustments to the CPM program. This time, the focus was on resolving the following aspects:

  • Integration of the administrative and the assessment chains. This enables direct supervisors to be involved in the assessment, thereby strengthening supervision, guidance and accuracy;
  • Clarification in assessment objectives. This includes refinement of KPIs, roll-out of a Double-100 Scoring System based on BSC, re-prioritization of the work of each functional department, etc.
  • Strengthening the assessment of back office services performance. This includes getting front-line units to assess the work of back office services, implementing internal client satisfaction rating system, etc.
  • Strengthening program management. This includes dynamic adjustments to the rating methods, awareness on the appraisal and incentive program, quarterly inspections, evaluation, feedback, promoting the monthly individual performance management program, and formal documentation of the assessment, etc.

“Continuous improvement is always a management theme at CMPD. Improvement generally focuses on the foundation, application, and development aspects of the performance management program. The foundation aspect generally includes improving the performance assessment scheme, and strengthening statistical and data analyses. The application aspect generally includes improving the management of the assessment processes, optimizing special assessment programs, and continuous refining of key indicators. The development aspect generally gives the ‘push’ from the inner shell (Assessment) to the outer shell (Management), thereby improving business performance from within”, Mr. Jin added.

The Double-100 Scoring System Based on BSC

CMPD applied a Double-100 Scoring System based on BSC to evaluate the performance of group companies in various cities. A handbook was developed, defining the Company’s strategy objectives, operating and management targets for the year, as well as the roles and responsibilities of the operating units involved in achieving those targets. The targets set are classified into rated indicators and unrated indicators (i.e. indicators used for statistical analysis). The rated indicators are further divided into KPI and BSC Indicators, with each set of indicators worth 100 points.

KPIs are generally used to assess critical operating metrics, including the key three dimensions: scale, quality and speed. The achievement of these indicators is closely tied to the incentive compensation. BSC Indicators, on the other hand, are used to assess the auxiliary metrics and performance capabilities, i.e. ability to identify problems, resolve problems and enhance capabilities. The achievement of BSC Indicators is tied to performance ranking, recognition, rewards and promotions. The bundling of KPI and BSC Indicators drive the target operating units to focus on not only the short term results, but also long term development. Indicators for statistical analysis are designed to strengthen the process governance and operation management analysis. The achievement of these unrated indicators is not tied to the performance of any particular department.

“Theoretically, all BSC Indicators are effectively also KPIs. The reason for distinguishing the two is to highlight the performance indicators that are most important to the operating units under assessment. This is done based on practical management needs, and is a form of adapting international best practice to Chinese business realities”, Mr. Jin explained.

4-3-3 Performance Management System

“The quality of the performance management program depends, to a large extent, on the intensity of the efforts that drives it.” The 4-3-3 Performance Management System (“433”) is a management tool used to strengthen efforts in driving the CPM program, and has been gradually developed by CMPD through many years of practicing.

433 refers to the decomposition of the annual goals of each operating unit under assessment into department and employee-level targets, which would be measured on a monthly basis. Each department and employee then identify the three most important tasks that they need to complete in that month. These tasks are then assigned target scores of 4, 3 and 3 respectively. The full score shall be awarded to the departments or employees that complete their tasks on time; a half of the target score shall be awarded to those who encountered delays in completing their tasks; while a score of zero shall be assigned to those who did not complete their tasks. The progress of achieving those targets would be discussed during each operating unit’s monthly meetings, where verification and feedback are obtained. Thereafter, the results would be publicized within the Company.

“We have conducted studies and assessed the quality of the 433 Performance Management System developed internally by our group companies across various cities. We discovered that the quality of the 433 has a positive correlation to the operating results of those entities”, Mr. Jin said. He believes that the main impact that 433 has on these companies are:

  • Decomposition of targets: major tasks are broken down into, and carried out at department and employee levels, on a monthly basis. In this way, the pressure to perform is evenly applied both horizontally and vertically across the organization;
  • Timely monitoring: through monthly appraisal and feedback, the timeliness and effectiveness of monitoring the execution of major tasks are enhanced;
  • Simple and practical: the scope and focus of the assessment is clearly articulated, and the method used for assessment is simple and practical;
  • Increase dynamism: the system instils a sense of urgency on the departments and employees to perform, thereby increasing work efficiency, as well as create a healthy competitive culture among employees to achieve greater heights;
  • Facilitate collaboration: forge tighter collaboration among various operating units, departments and employees to strive for the needed resources to achieve common goals.

“There were colleagues who had doubts about the comprehensiveness of the 433 system when it was first launched. However, the main pro about this system is its simplicity and practicality. If it were comprehensive but overly-complex, then its usefulness as a management tool would be defeated. After all, management is all about “putting things into practice”, Mr. Jin said.

Inter-departmental collaboration for better performance management

Performance management covers all professional domains of the company, hence, cannot be accomplished solely by a single Performance Management Department. It is important to mobilize and leverage on resources across the entire organization. “If you are not able to describe a performance target, then you cannot measure it; if you cannot measure it, you cannot manage it.” There is no doubt that the respective operating units are much more knowledgeable about, and hence able to better describe, their performance targets compared with the Performance Management Department. However, the latter is better at measuring performance. The collaboration of the two would definitely enhance the effectiveness of the performance management initiatives.

At the organizational level, the Company established an Assessment Committee and an Assessment Team, who are responsible for providing guidance and implementing performance management initiatives. Members come from different professional domains, thus strengthening the breadth of capabilities made available for performance management. At the operating level, the Company established rating system to be used for design, engineering, cost management, sales, customer service, etc. This increase the professionalism and practicality of the performance management program.

Another important aspect of inter-departmental collaboration is the liaison between the “assessor unit” and the “assessed unit”. The performance of the assessor unit, being a supporting unit, does not directly affect the operating results of the Company, but the performance of the assessed unit does. It is only when the assessed unit truly buys in to the positive impact of CPM on its operating results, and rigorously puts it to practice, would the performance management program considered effectively implemented.

Performance Management Supports Rapid Growth

The rapid growth of CMPD in recent years is significantly attributed to the continuous improvement of its CPM program. “Ever since we expanded our business from Shekou to Shenzhen, and then to the whole country, from completing the first round of nationwide development to embarking on development of a much larger scale, our CPM program had also evolved from a simple assessment tool to a systematic management program. Currently, the CPM program can quite accurately reflect the strategic development needs of the Company, effectively communicate the goals and targets throughout all levels within the organization, and drive the Company to achieving its strategic goals.

The CPM program’s importance to CMPD’s development has increasingly gained the recognition of both senior management and staffs. Mr. Jin believes that the major functions of the CPM in enterprise development are manifested in four respects: 1) alignment towards corporate goals, 2) guiding the process of achieving goals, 3) basis for incentive compensation, and 4) reference for management decision making.

“The size of the Company was merely one-fifth of what it is today when I first joined the Company in 2006. At the various stages of the Company’s development, the CPM program has successfully adapted to the strategic objectives and organizational environment, thereby effectively supported the Company’s business expansion.”

Integrating Management Consulting with Performance Management

Mr. Jin believes that, since performance management touches almost every aspect of the enterprise, and that its practitioners mostly come from a business administration professional background, its value proposition should not be restricted to tasks such as decomposing plans, designing indicators, supervising processes and assessing performances. It should expand into a management consulting role by assisting the organization to identify root causes of problems affecting corporate performance, recommend solutions to solve those problems, thereby increasing the value and stature of corporate performance management.

Since 2006, the Performance Management Department of the Company has completed numerous researches into corporate strategies and business models, market selection, and market entrance models. The team has also published corporate planning whitepapers on headquarter operations reorganization, process re-engineering, enterprise resource planning (ERP) system and knowledge management.

“Performance management is having a more direct and positive impact on corporate performance. At the same time, the capability of performance management professionals has been further enhanced, and so is their sense of accomplishment.” Mr. Jin concluded.