In a typical organisation, business units act independently of each other and make decisions based on information that is relevant to them. For example, the sales and marketing department might collect data on the effectiveness of the various special promotions that the company employs. It would then repeat promotions that substantially increased sales, and abandon those that had little impact. Meanwhile, the operations director might independently implement an IT solution enabling warehouse managers to reduce stockpiles and respond more efficiently to fluctuations in demand. This approach might work at a departmental level, but how does an organisation obtain a high-level view of the business as a single, organic entity?

Performance management (sometimes also called corporate or business performance management) aims to bring these individual business units together and ensure that they are working towards a single corporate strategy. This means that decisions taken at board level can be used to inform performance measures, which can then be adopted by individual business units. It is a combination of two disciplines: business intelligence, which looks at historical data (such as how many units of a particular product were sold last week) and enterprise planning, which aims to steer the organisation’s future. Recently its capabilities have been boosted by technological developments that make it possible to extract and analyse data from different sources and report on them on a daily, rather than a weekly or monthly, basis. Traditionally, senior managers who wanted to see detailed reports about performance would have had to request the information from the IT department; now, they can have a dashboard on their desktop displaying up-to-date reports tailored to their specifications. Central to performance management is performance measurement, and the question of how an organisation can determine, and then measure, the indicators that are key to its success. Many organisations choose to use a formalised methodology, such as the balanced scorecard or Six Sigma, while others prefer to use a system customised to their specific requirements. A recent report from Cranfield School of Management, entitled ‘Business Performance Management: Current State of the Art’, which surveyed 780 US corporates, found that 46 per cent of those that took part were using formalised performance measurement systems; of those, 75 per cent were using the balanced scorecard technique.

First expounded by Harvard professor Robert Kaplan and consultant David Norton in the early 1990s, the balanced scorecard proposed the measurement of performance from four different perspectives: financial performance; information about customers; internal business processes; and learning and growth. They believed that this combination would enable companies not just to evaluate current performance, but also to understand how well they were likely to perform in the future. As a formalised technique, it has proved enormously popular for businesses needing to make sense of the mass of data gathered from internal and external sources. For example, knowing from the learning and growth perspective that a high rate of employee churn has a negative impact on profitability makes it possible to put in place strategies to retain staff. It would be a mistake, however, to focus too closely on whether the balanced scorecard, say, is better than Six Sigma or any other system. ‘It doesn’t matter which methodology you pick’, says Frank Buytendijk, research vice-president of corporate performance measurement at Gartner. ‘What explains success is the fact that the managers have a shared view of looking at the business.’

QUESTIONS

1. Discuss ways that IT can help performance management.

2. What are the difficulties and challenges in developing and implementing a successful performance management system?

3. Taking into consideration your understanding of the balanced scorecard, the Cranfield prism, and other such systems, develop your own version of a performance management system for innovation. Evaluate its relative strengths and weaknesses relative to previous approaches.