Performance measurement lies at the heart of every organization. Every business or organization do whatever it does to achieve one or two objectives. The difficult task comes in deciding what to measure and what not to measure.
The most popular framework that has been adopted by many organizations both private and public sector as well as not-for-profit is the Balanced Scorecard.
The Balanced Scorecard framework was initially introduced to help organizations move solely from focusing on only financial metrics to incorporating non-financial metrics when evaluating business performance.
With the balanced scorecard, the organization can focus on four measures of performance i.e. (1) Financial (2) Internal Business Processes (3) Customers (4) Learning and Growth.
These four pillars are interconnected and should not be viewed in isolation as the improvement of one leads to the improvement of the other.
For example, if the aim is to increase profit, by looking at the customer metrics, it might be that quality of products or services need to be improved, maybe by implementing new technologies hence a focus on the learning and growth metrics, as employees need to be trained on how to operate certain technologies.
When an employee gains the knowledge, processes are improved, the customer is satisfied and this results in loyalty and repeat sales hence increased profits and return on investment.
However, as the business environment has changed and continues to do so, I believe organizations should not use the scorecard in isolation. They should support it with other frameworks like the Performance Prism.
The Performance Prism is a performance measurement framework that also helps in designing performance measures:
1. The framework looks beyond the two stakeholders mentioned in the Balanced scorecard (Shareholders & Customers). It asks the question, “Who are all the business stakeholders that have an interest in our business?”
It also considers suppliers, business partners, regulatory authorities, the government, the society and pressure groups like trade unions. All these stakeholders play an important role on the success of the organization thus their needs and wants should be clearly identified.
2. The framework helps in formulating and implementing strategies that yield the desired outcomes. For example, having identified the key stakeholders, an organization can then come up with appropriate strategies that meet those needs and wants.
3. The framework helps to put in place processes that are linked to the strategy. It helps to answer the question ” What processes need to be put in place to allow strategies to be executed?”
4. Having identified the processes required to execute the strategies, the framework also help answer the question, “What are the capabilities required to operate the business process?”
This will aid in making the right decisions when it comes to investments as management know that they are investing in a project or someone who will produce a positive return.
5. The framework recognizes the reciprocal relationship between the stakeholder and the organization. Instead of just focusing on what the stakeholders can get from the organization, management can also identify what they can benefit from the stakeholders.
For example, through the use of this framework, management can become aware that even though the employee receives a salary, training, recognition etc., in return the organization benefits from his ideas and suggestions, expertise and loyalty which all help in driving enterprise performance.
This will also help identify appropriate structures that need to be in place to maintain and develop this relationship further.
By combining more than one or two performance management frameworks, management can have their key questions on performance measurement which are not answered by one framework, answered by another framework.