Performance management models and techniques
The past decades have produced a range of models, tools and techniques, some more widely used than others and some more successful than others. Mapping back to the 1960s, overcapacities in production became widespread in industry and the successive oil crises (1973) and European legislations have led to complex trading environments and even more business models.
More recently optimising logistics (supply chain management); concepts borne through the infamous, “machine that changed the world” (Womack, Jones and Roos, 1984) demands a more integrated, systems approach for organisations, if they are to be competitive. In order to gain competitive advantage, organisations must learn how to control their processes; be lean with good planning and stock management; have transparent costs business wide; know and manage potential strategic and operational risks and so on so forth (Chan etc al, 2002). On the basis of this, there are reasonable grounds to assume that there is a business model for each and every one of these concepts, each completely separate to one another.
Moreover, in the quest for competitive advantage, organisations are continuously searching for the next big idea, that business methodology, model, or unique way of using a technology that will propel them ahead of their competitors and deliver increased profits and streamline operational efficiencies. Corporate Performance Management is an umbrella term, first coined by Gartner (Geishecker and Rayner, 2001), to describe the methodologies, processes and systems used to monitor and manage business performance. In summary, a Performance Management System is a corporate wide strategy that seeks to align departmental objectives, and is designed to facilitate and deliver a cross functional, transparent business tool.
Consequently interest in performance measurement and management has excelled during the last few years. Frameworks and methodologies such as the Balanced Scorecard, and the Business Excellence Model [EFQM] (which are discussed within this report) amongst many have each generated vast interest, yet subsequent attempts at company wide implementation, have not always been successful. It should therefore be noted that making a Performance Management System work is not easy because design and implementation strategies affect its’ success. In other words, there are gaps between the strategy and the theory behind such strategy and its ultimate execution. This report demonstrates that systems that looked right in the beginning can decay and become irrelevant, and that fundamentally Performance Management System integration requires specific integration and can not be applied using the same principles adopted by others. It must be completely bespoke to the organisation in question.
This report is written to provide you with a brief guide on Performance Management Systems, their application, successes and issues; including barriers to implementation, drawing from business examples. It concludes with a checklist bringing together the issues to form a brief and concise implementation and management guide in the view that a Performance Management System demands careful and accurate strategy before it is deployed in your organisation.
What are the key Performance Management Models
Organisations typically rely on financial measures when looking at Business Performance. The trouble with this is that financial accounts are the result of actions and not the actions themselves (Lebas, 1995). According to Kaplan and Norton (1996) to bridge the gap between strategy and execution, four different areas of management need to be aligned, these are Measures, Processes, People and Technology. It is these four areas which form the basis of the Performance Management Models. This section briefly looks at two key Performance Management Systems, the advantages and disadvantages, application in a case study and comparison between the two models, with the intention of providing you with an objective critical summary on the benefits of a Performance Management System, and its application in your particular organisation.
The balanced scorecard
The Balanced Scorecard was developed by Kaplan and Norton to steer businesses beyond those traditional and reactive financial measures. It is known as a cause and effect business model (Ahn, 2001). The methodology of the Scorecard is that it breaks down the organisations vision and mission into strategic objectives that can be categorised into four different perspectives; financial, customer, internal business processes and learning and growth. According to the writers such an approach promotes and maintains a completely holistic viewpoint, where one affects the other and each should only be considered in view of the other perspectives. Johnsen (2001) states that it is argued to facilitate integration between departments, by improving communication, and by focusing the entire organisation on one key objective; the benefits of which promote a single and coherent business unit capable of working independently but equally towards one long term objective.
Criticism from Young and O’byrne (2001) suggest that one of the drawbacks of the Balance Scorecard approach is that businesses have tended to be overly focused on the means and by doing so loses sight of the end objective. When this fundamental feature is overlooked, the Scorecard becomes an excuse to defend the organisation’s failure to perform. In reply Kaplan & Norton (1996, 1997) state that the business strategy defines a rationale of how value can be created to the shareholders in each four perspective by defining actions and identifying resources required to meet the overall objective, and therefore it’s a fundamental part of the approach, and where it doesn’t exist the model has simply not been applied correctly. In other words, strategic drift could occur and consequently strategies should be revisited regularly to assess the performance against the desired objectives.
Other critics including Gautreau and Kleiner (2001) have suggested that demand for new and innovative business models combined with a degree of veneration has raised expectations of what the scorecard can effectively deliver and as a result there is a danger of using the scorecard to replace a genuine systematic set of performance measures. In other words implementation of such a system should be done only where a systematic set of performance measures do not already exist.
Case Study implementing a Balanced Scorecard
Arran Ltd is a financial services firm, who introduced a Balanced Scorecard as a Performance Measurement System for its Retail division. The objective was to provide core management information on performance of the retail branch. It was led entirely by an in house development team and built partly round bespoke performance management software. Initially it was successful, and as a result it was implemented company wide throughout the group.
Over a period of time, a corporate Scorecard and several other divisional Scorecards were developed using the retail division design and systems as their basis. It is clear that the Scorecards developed subsequent to that designed specifically for the retail division were less successful, and over time became less valuable. It is a fair conclusion that the Scorecard approach became marginalised and as only the various financial perspectives of the Scorecard were being used, therefore losing the holistic principles and many benefits the Scorecard approach is meant to deliver. It is argued that the problems derived primarily from Arrans’ inability to adjust to changes in market conditions because of the disjointed nature of the performance system.
At the beginning of this report it states that there is a gap between strategy and execution when adopting these models and this is a classic example. A key component to corporate planning is the use of standardised vocabulary, and it clearly works when applying that principle to a local business area. However the adoption of a standard content for this type of model is less likely to be helpful, as it risks diminishing the local relevance of each Scorecard and therefore its important to make the application of the cards local within a wider framework to ensure maximum buy in, as suggested by Brewer (2003). This full case study is available at 2gc.co.uk.
In conclusion Balanced Scorecard
When introducing this type of business model, organisations must first become clear about their objectives, then use a design and design process appropriate to these objectives.
In the case of Arran, the reason that the Scorecard implemented in retail division was successful was because it was the right tool for the right purpose. A Balanced Scorecard approach therefore demands the need for the Performance Management System to be organised, in order to drive wider changes in management style and behaviour, and help develop locally tailored strategies as part of the wider objectives.
In consideration of using this model, organisations should take care to ensure that their internal design teams (or external consultants) are able to deploy such best practice in their work. Failure to do so could compromise the long term success of the initiative.
The Business Excellence Model (EFQM)
The Balanced Scorecard, in its four perspectives downplays the importance of other stakeholders, such as suppliers and employees. The EFQM Excellence Model is a framework designed for helping organisations in their drive towards being more competitive. This framework is a practical tool to help organisations measure where they are on the path to excellence; helping them understand the gaps; and developing solutions to bridge those gaps. Unlike the Balanced Scorecard approach this is not a cause and effect model, it is a gap analysis tool.
The model is comprised of nine criteria, five ‘enablers’ and four ‘results’. It is based on the principle that the five key enablers of excellence which are leadership, strategy, people, processes, partnerships and resources; enable excellent organisational performance. These are then translated into performance results and are used as indicators of progress towards the organisation’s aims and objectives.
The strength of this model in comparison to the Scorecard approach is that it is not only a holistic approach; it is also an approach that fits in well with various existing improvement tools within an existing framework. So employee development techniques and even those that look at streamlining organisational processes for example. In doing so identifies strengths and areas for improvement, against the five enablers identified above.
However this model is not without its drawbacks, as according to Eskildsen and Kristensen (2001) implementation requires a rigorous self assessment process, which is carried out subjectively, meaning that there is often some variance between users. In addition it is argued that the model can not be as effective in its execution as the enablers are set against a criterion (best practice) which is not specific to the organisation implementing the system.
The Balanced Scorecard versus The Business Excellence Model
Both tools allow organisations to identify a limited number of performance measurements that together inform the individual units about the performance of the organisation for which they are responsible. The key differences between these two models are the ideas about organisational performance. In other words the Scorecard approach assesses performance of selected activities believed to be core contributors to the achievement of specific goals of the organisation. That is a shared strategic vision, working backwards to define the priority strategic activities and outcomes that need to occur to achieve that success. In contrast the EFQM model assesses performance against a standard set of activities against generic best practice standards and identifies areas for improvement, making use of existing organisational tools and techniques.
Performance management for call centre services
It is noted that Benchmarking and Performance level evaluations are crucial to call centers in order to eliminate criticism such as, poor training of agents who are said to be incapable of processing customers’ requests effectively and so on (Marr and Neeley, 2004). Performance Management System, such as the ones identified during this report, if implemented effectively will allow for the evaluation of business processes in relation to best practice and help to develop plans to increase performance and improve customer satisfaction levels
Tags: balanced scorecard, business excellence model, corporate performance management, logistics supply chain management, performance management system, performance measurement, stock management, umbrella term
