performance measurement: learning from the past and ... nbsp;· performance measurement: learning...
Post on 30-Jan-2018
Embed Size (px)
Measuring Business Excellence, 2008, Volume 12, Issue 4, Pages 67-72
Performance measurement: learning from the pastand projecting the future
Mike Bourne, Professor of Business Performance at the Centre for Business Performance,Cranfield School of Management, Cranfield University, Cranfield, UK
AcknowledgementsThe author would like to thank Dr Pietro Micheli and Dr Veronica Martinez for their inputand comments on an early version of this paper; however, any resulting errors and omissionsare all the author's.
AbstractPurpose This paper aims to review the developments in performance measurement over thelast 20 years, reflecting on the past and projecting into the future.
Design/methodology/approach The author presents a personal reflection on research andpractice.
Findings The paper identifies seven issues for management, seven issues for research andthree enduring dilemmas.
Originality/value The paper highlights a number of areas where developments fromacademic and practitioner co-creation have not been widely adopted in practice.
Article Type: Viewpoint
Keyword(s): Business performance; Performance measures; Balanced scorecard.
It is over 20 years since Art Schneiderman (1987) first used a Balanced Scorecard inanalogue devices and now over 15 years since Kaplan and Norton's (1992) first HBR article.So I thought I would reflect on what we have learned over the last two decades beforeconsidering our current dilemmas and what that means for the future.
I will therefore start by reflecting on the past and some of the shortcomings of performancemeasurement. I will then go on to highlight seven issues that I regularly see companieswrestling with, before identifying why academic research often does not contribute as muchto the development of practice as we would expect. I will then present what we do know, thesolutions that have been developed from practitioners and academics working together,before finally highlighting some of the enduring tensions in the field.
The Balanced Scorecard is probably the best known of the raft of multi-dimensionalperformance measurement frameworks developed in the late 1980s and early 1990s. Theyemerged at a time when financial measures were to the fore and the dysfunctionalconsequences of running an enterprise solely on financial measures became widely apparent.
The introduction of the Balanced Scorecard heralded an era when the non-financial measuresthat drive the business could be identified and used to direct the organisation in the mediumto long term. The expectation was that the introduction of multi-dimensional keyperformance indicators (KPIs) would solve all the problems.
But reality was very different. In some respects, non-financial KPIs are more difficult todesign and use than accounting measures. We have years of experience and augustaccounting bodies devoted to financial measurement, management and reporting, whilst thetheory and practice of performance measurement is relatively new. In practice, the result was:
Companies developed Balanced Scorecards by taking their existing KPIs andpopulating the four scorecard perspectives. This created a balance of financial andnon-financial measures but rarely reflected strategy or created direction and purpose.
Departments created measures that reflected their own internal logic. When thesemeasures were not linked to strategy, the measures encouraged local optimisation andorganisational malfunction.
Measures became linked with performance appraisals and bonuses. People becameadept at delivering the KPI results. But everyone forgot that a KPI is an indicator, notactual performance itself.
The expected performance improvement did not happen. Performance improvementdoes not simply come from measuring. Performance comes from the processes andpractices and how effectively people execute them. Measurement just keeps the score.So, to improve, you need to change what you do, or do it more effectively, somethingthat measurement may encourage, but measurement alone does not create value.
The development of the frameworks was followed by the launch of some 30 differentsoftware packages (Marr and Neely, 2004) designed to report performance to seniormanagement, to drill down into the data to problem solve and to dice and slice theorganisation's performance through a myriad of dimensions. Although these developments in
technology have made the gathering and analysis of data simpler and quicker, they are oflimited use unless the organisation develops effective ways of managing with measures.
In the last 20 years we have seen the majority of larger organisations take up BalancedScorecards to some extent (Franco-Santos et al., 2004), widespread use of KPIs, and thedevelopment of examples of good practice, but many issues remain.
Current issues for practice
Based on my experience, there are currently seven main issues for practitioners.
1. Reviewing corporate performance The Conference Board reports and other surveyssuggest that many companies have developed corporate-level scorecards and, for myexperience, have large and extensive KPI reports. However, the majority of theorganisations I see have no effective way of reviewing these measures. They havedata rather than information to guide their decisions. Two organisations I have dealtwith recently typify this position. The first had a regular KPI report that the teamflicked through in ten minutes during their monthly board meeting. The secondapproached me about assessing the comprehensiveness of their measures. When Italked to the team of analysts on this subject, it emerged that the comprehensivenessof the measures was much less of a concern than the directors having the informationin an understandable and useable form.
2. Performance measurement not delivering On many occasions the time andinvestment made in performance measurement is not seen to be delivering theexpected benefits. The performance improvement activities are not always linked tothe measures and aligned with the strategy. On the occasions when they are, thelinkages are not understood. I spent time with one organisation recently rebuildingtheir success map. The new map was not significantly better than the old one, but byengaging the managers in the rebuild, we created understanding and commitment tothe objectives.
3. Cascading the measures The companies that effectively cascaded their measuresdown the organisation tend to have branch structures (e.g. supermarket chains, highstreet bank networks, branded fast food restaurants) where central resource can createa single set of measures that is rolled out across the network. But in otherorganisations, the alignment of the measures and the strategic objectives becomes lessand less clear the further down the organisation you go.
4. Engaging the rank and file Engaging the rank and file of the organisation in themeasures is relatively easy, but organisations need to engage the whole organisationin performance. This is much harder and one reason why organisations do not performbetter. Classic examples abound in the public sector, where performance targetsproduce perverse behaviour. Four-hour targets in A&E departments can lead to fasterpatient processing, but one way of achieving the target is to admit all the patients whohave not been treated in the four hours. Moving beyond the counting mentality ismuch harder to do.
5. Managing with measures My previous point leads me to reflect that mostorganisations do not know how to manage with the measures they have. Manymeasurement charts show initial improvements followed by setbacks, with noconsistent direction or trend. On the other hand, when you go into a Toyota plant therate and direction of the improvement is clear for all to see. In the latter case, they
have a tool set and a well-developed approach to performance improvement, whilstmost companies simply focus on poor performance when it becomes apparent.
6. Keeping it up to date Keeping the measures up to date with the latest data is aproblem in many organisations, but keeping the whole system up to date so it reflectsthe latest strategic priorities is an even bigger task. Many organisations develop ascorecard, but it is rare to see organisations investing in the capability to review andupdate the system on a regular basis.
7. Leadership Finally, if measurement is simply about keeping the score, we need tomanage performance. But management itself is rather mechanistic. How do weprogress to performance leadership?
Given these seven issues, what do academics have to offer and how does academic researchcontribute to the debate?
Current academic issues
At the risk of upsetting some of my academic colleagues, I would argue that there are sevenissues that militate against academia contributing to solving the practitioner issues Ihighlighted above. These are:
1. Academic rigour Academics are becoming increasingly interested in methodologyand academic rigour. The result is a set of journals where academics talk tothemselves and the relevance to practice can be lost.
2. Focusing on minutiae One consequence of increasing academic rigour is that wefocus on smaller and smaller problems. We refine existing models and test simplyconstructed models of the world. The result is that big-picture problems are notaddressed through academic research, and in particular we are short of longitudinalstudies following policies and changes through time.
3. Academic disciplines Academic research has developed core disciplines with mostresearchers working within these disciplines. However, performance measurementand management are by their very nature cross-disciplinary, dr