The document discusses the balanced scorecard approach to performance measurement. It describes the four perspectives of the balanced scorecard: learning and growth, business processes, customers, and financial. For each perspective, metrics should be developed to measure performance. Key performance indicators (KPIs) are then used to track progress on strategies. The document outlines steps for developing KPIs, including defining objectives, selecting appropriate metrics, setting targets, and analyzing performance over time.
The document discusses the balanced scorecard approach to performance measurement. It describes the four perspectives of the balanced scorecard: learning and growth, business processes, customers, and financial. For each perspective, metrics should be developed to measure performance. Key performance indicators (KPIs) are then used to track progress on strategies. The document outlines steps for developing KPIs, including defining objectives, selecting appropriate metrics, setting targets, and analyzing performance over time.
The document discusses the balanced scorecard approach to performance measurement. It describes the four perspectives of the balanced scorecard: learning and growth, business processes, customers, and financial. For each perspective, metrics should be developed to measure performance. Key performance indicators (KPIs) are then used to track progress on strategies. The document outlines steps for developing KPIs, including defining objectives, selecting appropriate metrics, setting targets, and analyzing performance over time.
The document discusses the balanced scorecard approach to performance measurement. It describes the four perspectives of the balanced scorecard: learning and growth, business processes, customers, and financial. For each perspective, metrics should be developed to measure performance. Key performance indicators (KPIs) are then used to track progress on strategies. The document outlines steps for developing KPIs, including defining objectives, selecting appropriate metrics, setting targets, and analyzing performance over time.
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Balanced Scorecard Basics
The balanced scorecard retains traditional financial measures. But financial measures tell the story of past events, an adequate story for industrial age companies for which investments in long-term capabilities and customer relationships were not critical for success. These financial measures are inadequate, however, for guiding and evaluating the journey that information age companies must make to create future value through investment in customers, suppliers, employees, processes, technology, and innovation."
Adapted from Robert S. Kaplan and David P. Norton, “Using the Balanced Scorecard as a Strategic Management System,” Harvard Business Review (January-February 1996): 76.
Perspectives The balanced scorecard suggests that we view the organization from four perspectives, and to develop metrics, collect data and analyze it relative to each of these perspectives:
The Learning & Growth Perspective
This perspective includes employee training and corporate cultural attitudes related to both individual and corporate self-improvement. In a knowledge-worker organization, people -- the only repository of knowledge -- are the main resource. In the current climate of rapid technological change, it is becoming necessary for knowledge workers to be in a continuous learning mode. Metrics can be put into place to guide managers in focusing training funds where they can help the most. In any case, learning and growth constitute the essential foundation for success of any knowledge-worker organization. Kaplan and Norton emphasize that 'learning' is more than 'training'; it also includes things like mentors and tutors within the organization, as well as that ease of communication among workers that allows them to readily get help on a problem when it is needed. It also includes technological tools; what the Baldrige criteria call "high performance work systems."
The Business Process Perspective
This perspective refers to internal business processes. Metrics based on this perspective allow the managers to know how well their business is running, and whether its products and services conform to customer requirements (the mission). These metrics have to be carefully designed by those who know these processes most intimately; with our unique missions these are not something that can be developed by outside consultants. The Customer Perspective Recent management philosophy has shown an increasing realization of the importance of customer focus and customer satisfaction in any business. These are leading indicators: if customers are not satisfied, they will eventually find other suppliers that will meet their needs. Poor performance from this perspective is thus a leading indicator of future decline, even though the current financial picture may look good. In developing metrics for satisfaction, customers should be analyzed in terms of kinds of customers and the kinds of processes for which we are providing a product or service to those customer groups.
The Financial Perspective
Kaplan and Norton do not disregard the traditional need for financial data. Timely and accurate funding data will always be a priority, and managers will do whatever necessary to provide it. In fact, often there is more than enough handling and processing of financial data. With the implementation of a corporate database, it is hoped that more of the processing can be centralized and automated. But the point is that the current emphasis on financials leads to the "unbalanced" situation with regard to other perspectives. There is perhaps a need to include additional financial-related data, such as risk assessment and cost-benefit data, in this category. What is a Key Performance Indicator (KPI)? KPI’s are performance measures that indicate progress toward a desirable outcome. Strategic KPIs monitor the implementation and effectiveness of an organization's strategies, determine the gap between actual and targeted performance and determine organization effectiveness and operational efficiency. Good KPIs: Provide an objective way to see if strategy is working Offer a comparison that gauges the degree of performance change over time Focus employees' attention on what matters most to success Allow measurement of accomplishments, not just of the work that is performed Provide a common language for communication Help reduce intangible uncertainty Are valid, to ensure measurement of the right things Are verifiable, to ensure data collection accuracy KPIs are invaluable tools for managing work towards a desired outcome. Most of us have heard some version of the standard performance measurement cliches:
“What gets measured gets done"
"If you don’t measure results, you can’t tell success from failure and thus you can’t claim or reward success or avoid unintentionally rewarding failure” "If you can’t recognize success, you can’t learn from it; if you can’t recognize failure, you can’t correct it" “If you can’t measure it, you can neither manage it nor improve it" But while most executives and managers agree that the use of performance measures is a foundational element of good management, most struggle to:
Easily find meaningful measures
Get true buy-in to performance measurement Strongly align measures to strategy Use measures to drive improvement These struggles are due to bad habits that, in the absence of a proper performance measurement methodology and expertise, have become common practice.
How to Develop KPIs
The methodologies taught were created to help organizations redesign their performance measurement process. These practical step-by-step methodologies and tools were designed to help organizations:
Make their strategy measurable and easier to communicate and cascade
Select and design performance measures that are far more meaningful than brainstorming or benchmarking ever can produce Get buy-in from staff and stakeholders to enthusiastically own performance measurement and improvement Bring their measures to life in a consistent way, using the right data and with the right ownership Design insightful and actionable reports and dashboards that focus discussion on improvement Clearly see the real signals from their measures about whether performance is improving or not Convincingly hit performance targets, and make measurement about transformation Steps in the process include: Pre-KPI: Always begin by articulating your strategy properly. Use one of the many popular frameworks for strategy or goal setting (Balanced Scorecard, SMART, MBO, OKRs, WIGs, or other) to set objectives/goals and determine your strategy for achieving them. KPI development steps:
Describe the intended result(s)
Understand alternative measures Select the right measurement(s) for each goal/objective Define composite indicators as needed Set targets and thresholds Define and document selected performance measures Performance analysis steps:
Select the most appropriate automation tool
Collect and monitor performance Analyze and draw conclusions Improve performance
