Implementing a strategic plan can be a complex process, involving many components, both inside and outwith the organisation. This includes the management a number of groups of people (including managers, employees, shareholders, other stakeholders, etc.) who will have an interest in the performance of the business. In addition, the plan will include projects and activities that need to be management, as well as possible changes to culture, processes, procedures, and much more. In addition, strategic plans are often “based on assumptions that are often wrong and, as a result, the strategy has unintended outcomes that could be potentially damaging to the organisation” (see our article entitled ‘Prescriptive Vs Emergent Strategies‘).
With so much going on, it is essential to have performance measures in place that test strategic assumptions, monitor the outcome of strategic activities and projects and provide information to the organisation’s various interested parties.
The problem is that measuring performance has a cost associated with it (relating to data capture, analysis, reporting, etc.) so there is a tendency for an organisation to try to develop a generic set of performance measures intended to satisfy these disparate groups and their differing requirements. The danger is that such an approach produces a generic set of performance measures that are not linked to the strategic plans and consequently do not provide any information that helps with the implementation of the organisation’s strategy.
What is required is a cost-effective approach that can be adapted for the different needs of the different groups and is integrated with the organisation’s strategic plan. The Balanced Scorecard provides such an approach.
The diagram below shows a simplified planning process and the performance measurement and feedback elements that are required at different levels, at different stages and for different groups.
At the operational level, feedback on performance is required for managers and staff to allow them to link the service results achieved to the implementation of service plans, often on a day-to-day basis. Differences, or deviations, between actual results and those planned need to be identified and acted upon. These performance measures are largely required for control purposes: controlling performance and service delivery to meet standards, targets and objectives.
A feedback loop is also required to the service planning stage so that both management control and management learning can take place. Management and organisational control links to continuous improvement, so that in the next planning cycle learning and experience from the last set of planned and achieved service results can used to improve performance further.
The same control and learning feedback must also occur at corporate level so that progress on corporate goals can be reviewed. In addition, the continuing appropriateness of these goals can be assessed and informed decisions can be made about priorities and resource allocation.
What are the wider issues in performance measurement?
There are a number of wider issues relating to effective performance measurement:
- Performance measurements need to support organisational learning so as to contribute to the continuous improvement approach required of any organisation’s performance. Managers and staff need to be able to use performance information to help them do better next time.
- Achieving service quality is about more than performing well financially or delivering at minimum cost. There is a need for a balanced set of performance measures across all aspects of performance. Whilst the financial performance perspective is, and will continue to be, critically important, measures of customer satisfaction, service quality, and effectiveness are also required. Such measures must relate to the overall strategic direction that has been set and that they provide a comprehensive view of performance.
- Managers, and stakeholders, will inevitably have to make subjective decisions about trade-offs between different aspects of performance. Improved financial performance- lower unit costs for example – may be at the expense of improved service quality. This needs to be explicitly recognised and accepted. However, such decisions should be based on reliable and appropriate measurements so that managers and stakeholders can assess to what extent improvements in one area may have been achieved at the expense of another.
- Given the potential plethora of measurements that might be collected at different levels and across different services, there is a need to focus on a ‘favoured few’. Over-detailed reports of performance measures distract managers from seeing patterns and major interrelationships.