Performance measurement, analysis and review are critical steps in an organisation’s progress towards its goals and vision. The objective of performance measurement is to steer the company to goal attainment, and enable it to respond to changes in the environment.
Dr David Norton and Dr Robert Kaplan introduced the Balanced Scorecard (BSC) as an integrated measurement framework that enables the organisation to align its performance with strategic objectives. It retains the traditional financial parameters to measure the firm’s current performance, but supplements it with learning and growth, customer and business process metrics that evaluate its long-term improvement measures.
In BSC implementation, quantifiable metrics are developed based on key business drivers identified from the strategic plan. Data relevant to these metrics are collected and made available to various levels of decision-making for analysis. Norton and Kaplan suggested a step-by-step process for developing the BSC:
- Define the scope of measurement: The first step is to identify processes and structures for measurement - should the scorecard be applied at the business unit level or the larger corporate level?
- Define strategic objectives: The strategic plan is analyzed to identify objectives from each perspective.
- Develop strategic measures: Metrics are derived from the objectives, to evaluate progress in attaining them.
- Develop action plan: Systems are designed for linking the strategic measures to lower-level operational measures, and the BSC is integrated into the organisation’s management structure.
Performance management in action: caselets from the industry
As the Learning Organisation leaps from infancy to maturity, organisations across the globe are eager to employ “cutting-edge” tools for improving organisational efficiency and performance. Few, however, have managed to implement them successfully. Here are a few remarkable examples:
- The commercial vehicles business unit (CVBU) of Tata Motors was among the first Asian organisations to be inducted into the prestigious Balanced Scorecard Hall of Fame, in recognition of its exemplary success with the model. The company is one of the world’s top 10 truck manufacturers and the CVBU began deployment of Balanced Scorecard in 2000, in an attempt to remedy years of poor financial performance. The focus was on achieving a turnaround, and then progressing to sustainable growth. Within 2 years of implementation, the company began to show tangible improvement in performance including a 40% growth in revenue.
- Polibrasil, a Suzano Petroquimica Company, implemented the Balanced Scorecard to align its business activities to its overall corporate vision and strategy. The company used this tool to deal with big issues and wanted big results. The company wanted to integrate its line businesses with its support units. This was to be done by creating uniform metrics to measure and monitor local and global performance. The company also wanted to ensure that strategy was implemented effectively. The results were dramatic enough to merit the company a place in the hallowed Balanced Scorecard Hall of Fame within 2 years of BSC implementation. After all, a 126% jump in sales, improved access to information leading to reduction in time taken to prepare for meetings, faster decision making and most importantly, a deep commitment to creation of value are definitely big results.
If there is a single recipe to competitive advantage, it must be the ability to respond to changes in the business environment. This response is an ongoing process, backed by consistent measurement and performance review. Success in the future is shaped by learning from the past and implementing these lessons in the present. Small wonder, then, that Performance Management has been the buzzword in strategic management in the recent years. After all, this is one element of quality that firms would want in large measure.
Suresh Lulla is the managing director of Qimpro Consultants, founder of the BestPrax Club, and chairman of the IMC Quality Awards Committee. In 2005, he was awarded the Distinguished Alumnus Award by the Indian Institute of Technology, Bombay, in recognition of his outstanding achievements in Quality Management Consultancy.