No organisation stands still.
Each organisation should have a vision that it is moving towards over time. The vision is the ultimate expression of its mission and purpose.
As a vision tends to be a high level, aspirational statement (as an example, Nike’s vision is: ‘To bring inspiration and innovation to every athlete in the world’), the organisation needs to define how it will know when it has been achieved.
It does this by breaking the vision down into strategic goals, that when achieved deliver the vision.
The organisation then sets a strategy that it will follow in order to move it from where it is today to achieving the strategic goals that will realise the vision.
As a vision is likely to be a medium term aspiration, the strategic goals will be broken down into, usually annual, milestones or ‘Operating Plans’. It isn’t uncommon for an organisation to have an Operating Plan that comprises detailed goals and targets for the current year as well as high level targets for the following two years i.e. a three year Plan. Some may even have a 5 year Plan, however, as organisations and their industry, markets, economies, technologies etc are so dynamic, longer term Plans are recalibrated at least annually.
Once the organisation has an agreed Plan in place for the current year, it needs to translate it into:
- Tangible actions and initiatives that will deliver it
- Performance standards and targets
Obviously, as managers, we cannot wait until the end of the year to see whether the performance of our unit has achieved Plan. We need to set performance standards and targets that we can monitor actual performance against each quarter, month, week (and in many cases, daily) to see whether:
- Current performance is on track to hit the Plan
- We need to take action to correct underperformance or avert potential issues.
Many organisations begin this process by using thebalanced scorecard to break the strategy and the strategic goals down into tangible performance targets.
The balanced scorecard has become widely used since it was developed by Kaplan and Norton in the 1990’s. As the name suggests, it provides a balanced view of performance across the organisation.
The scorecard comprises 4 perspectives:
- Financial: what do we want to do with this business? What financial results do we need to deliver for our shareholders?
- Customer: how do our customers see us?
- Internal Business Process (sometimes called Process or Operational Excellence): what must we excel at in order to achieve our strategic objectives?
- Learning and Growth (sometimes called People): how do we engage our people and harness their motivation, skills and knowledge to create value, innovate and continuously improve?
For sustainable success, organisations must perform across all for areas. If for example, an organisation hits its financial targets, but does so by cutting back on customer service and product quality, not investing in business processes or squeezing the working conditions of its people, this financial success will be very short term and unlikely to be repeated!
The Financial Perspective tells us what has happened and summarises the ultimate results of all activity across the business. The other three Perspectives tell you what is happening now and provide an insight into future performance i.e. over or underperformance in these areas today will hit the numbers tomorrow.
You’ll find more detail on the balanced scorecard in its own topic.
Each Perspective of the balanced scorecard is too high level to manage day to day performance and is broken down into
Key Result Areas
Key Result Areas (KRA’s) define the areas in which the organisation needs to excel in order to deliver its strategy. Example KRA’s could include:
Financial: Revenue Growth, Cost Reduction, Profitability and Return on Capital
Customer: Market Share, Customer Loyalty, Customer Satisfaction
Operational Excellence: Product Quality, Process Quality
People: Employee Engagement, Employee Turnover
In order to manage performance day to day, each:
- KRA will be broken down into Critical Success Factors (CSF), which simply define what is critical to its success. For example, the Revenue Growth KRA above may define ‘Increasing Price’ and ‘Increasing Volume’ as critical to delivering this element of the strategy.
- CSF will have Key Performance Indicators (KPIs) that define how it is to be delivered. Using the example above, the KRA ‘Increasing Price’ may need to be delivered by the price of Product A and Product B hitting set targets. The prices achieved for Product A & B will then need to be monitored as KPI’s and corrective action taken if they do not miss these targets.
- KPI will need to be broken down into detailed SMART Performance Objectives.
This is summarised in the presentation below. Click on the forward and back buttons to progress the presentation and hear the audio.
Critical to all of the above is that the performance measures chosen are:
- The Right Performance Measures - this covered in a separate topic
- Those required to deliver the strategy
- Used to communicate the strategy and what is important to everyone in the organisation
- Used to align the efforts of everyone in the organisation to deliver the strategy (for example, are cascaded into personal performance objectives and targets)
- The measures that the organisation actually uses to manage performance day to day
- Reviewed at the right time by the appropriate people and used as the basis for decision making and corrective action
- Efficient and cost effective to gather and do not require an expensive ‘cottage industry’ to put them together.
Related topics:
Full Screen Presentation (Use your browsers back button to return here)