Module 2

Part 2
Performance Management System

KPI Professional Course

By
Dr. Nashwa Elsayed
Clinical Pathologist, Quality & Excellence Consultant
MBBS, MSc, MD, TQM, MQM, CPHQ, CPPS, CSSBB, ISO QMS Lead Auditor, Certified Excellence Assessor
 Part 2
Module 2
Performance
Management KPIs Management Framework Concept Map
System
Main Roles of Performance Management Systems
Balanced Scorecard
Integrating Tools into a Performance Management System
Performance Tools Overview
Governance
 What is Performance Management?

Performance management is the process of establishing a motivating work

culture in an organization, where employees and managers constantly review
themselves and work towards a few common organizational goals. Essentially, it
includes goal-setting, goals tracking, ongoing check-ins, real-time feedback, 360-
degree feedback, rewards and recognition, learning and development, and talent
analytics.
What happens in an organization that doesn’t have a performance management
system?
It fails to motivate its employees and leaves them directionless and disengaged. A
system helps an organization build a skilled and efficient workforce, which increases
its overall productivity. Here are some tools you can utilize to draw the best results.
Balanced Scorecard
 Achieve a Balance in Measurement

The diversity of stakeholders in organization system requires that

there is a need for measures across multiple domains to satisfy
their different information needs,

Performance measures are projected to express to the

organization the importance or necessary concerns for success.
 Achieve a Balance in Measurement

In the process of developing appropriate measures, it is critical

to memorize that measures are part of the overall business-
planning process; therefore, these measures should be linked to
basic businesses, goals and strategies recognized in the
business plan.

If the measure is to communicate and motivate people, then this

measure should be something they can recognize, something
which has a meaning to those responsible of implementing.
 Achieve a Balance in Measurement

Probably the most important point to remember is that developing

performance measures is a repetitive process, as it will possibly
require several modifications to find measures which provide
sufficient information.

The important point is developing final measures that clarify

Strategic Objectives of the business by utilizing the strengths in
different measurement strategies and overcoming the limitations in
it.
 Achieve a Balance in Measurement

A number of approaches have been developed to assist in identifying a

balanced set of KPIs including:

• The “Balanced Scorecard” which was originally developed by

Kaplan and Norton.

• The “Three Es” framework uses the three domains of

Economy, Efficiency and Effectiveness.
 The Balanced Scorecard

The Balanced Scorecard is a management tool that provides stakeholders with a

comprehensive measure of how the organization is progressing towards the
achievement of its strategic goals.

ü Balances financial and non-financial measures

ü Balances short and long-term measures
ü Balances performance drivers (leading indicators) with outcome measures
(lagging indicators)
ü Should contain just enough data to give a complete picture of
organizational performance.
ü Leads to strategic focus and organizational alignment.
 The Balanced Scorecard
Origins:
Multi-company research from 1990's undertaken by R. Kaplan & D. Norton aimed
at developing alternatives to purely financially based performance management
tools (e.g. budgets)
Early Scorecard experimentation at Analogy Devices Inc. documented from 1987"

Purpose:
• Originally a performance measurement tool
• Now a strategic communication and performance measurement framework

Underlying philosophy includes:

• The importance of clear communication of goals and priorities
• The benefits of learning & team-working
 The Balanced Scorecard

• Focuses on a few measurements

• Reflects mission and strategies

• Provides a quick, but comprehensive, picture of the organization’s

health
 Benefits of using
Balanced Scorecard

ü To achieve strategic objectives.

ü To provide quality with fewer resources.
ü To eliminate non-value added efforts.
ü To align customer priorities and expectations with the customer.
ü To track progress.
ü To evaluate process changes.
ü To continually improve.
ü To increase accountability.
 Balanced Scorecard Variations
The Key Performance Indicator Scorecard
§ An outgrowth of the quality movement
The Constituent Scorecard
§ Array of measure categories
§ Focused on major stakeholders
§ No cause and effect relationships among measures § Incomplete description of corporate strategy
§ Identify the most important processes to be monitored § Fails to identify drivers to achieve goals
§ Define which aspects of the process to monitor
§ Agree on what is considered best practice

The Strategy Scorecard

§ Focuses on the organization & on its strategy
§ Show how each measure fits in a cause/effect sequence that drives high-level strategy outcomes
§ Strategy map approach offers logic for measure development
§ Focus on what the organization is trying to achieve
§ Work out what needs to happen to achieve it
§ Monitor whether it is achieved
Strategic Performance Management System

1 • Strategic Direction Create Environment for Change

2 • Communicate Strategies

3 • Define Objectives

4 • Implement BSC

5 • Measure Performance

6 • Improve Processes

7 • Evaluate and Adjust Continuous Improvement

• Redefine Initiatives
 Management Process Linkages
The management process of discovering, defining and
implementing business activities that will result in a value-
enhanced future of the firm

Business
Strategy

Business
Processes
Performance Stakeholder
Measurement Value
A business process is a
System collection of linked Propositions
A management process that is used to business activities that
enable or deliver goods, Descriptions of the “give and get” relationships
monitor business activities and thereby
services, information or between the firm and each of its stakeholders,
facilitate achievement of the firm’s
money relative to alternatives
objectives
 Value-linked measurements for business
strategy, stakeholder needs, process
attributes and the business environment

Sophistication of
Measurement Balanced scorecard
Systems Economic value added

Quality-related operating measures

Activity-based costing

Operating measures
Traditional accounting measures

Time
The Increasing Sophistication of Corporate Performance Measurement
 The Balanced Scorecard use in
Strategic Performance Management System

Ties performance measures to corporate strategy

“Balance” includes:
• Short & long term objectives
• Financial and non-financial measures
• External & internal measures
• Various perspectives

Purposes:
• Clarify & translate vision & strategy
• Communicate & link strategic objectives & measures
• Plan, set targets & align strategic initiatives
• Enhance strategic feedback & learning
 The Balanced Scorecard as a Management System

BSC reviewed regularly to enhance operational decision-making

Ø Success of initiatives assessed based on DATA… not opinions
Ø Leading indicators evaluated to confirm accuracy of assumptions

The BSC is a “Living Document” that requires regular revision of

objectives, measures and initiatives:
• How are we doing?
• Are we measuring the right things?
• What initiatives do we need to get us where we want to go?
• Have our organizational goals changed?
 Perspectives of balanced Scorecard

Customer Finance
perspective perspective

Internal Learning
process & future
perspective perspective

The scorecard measures are “balanced” into four areas (Perspectives)

 Customer Perspective

To achieve our vision; what customer needs?

v Possible Performance Measures:

• Customer Satisfaction
(Average)
• Satisfaction Gap Analysis
(Actual Satisfaction vs. Level of accepted satisfaction)
• Satisfaction Distribution
(% of each area scored)
 Financial Perspective

To satisfy our constituents; what financial objectives must we accomplish?

v Possible Performance Measures:

• Cost / Unit
• Unfunded Requirements or Projects
• Cost of Service
• Budget Projections and Targets
 Internal Process Perspective

To satisfy our customers; in which business processes must we excel?

v Possible Performance Measures:

• Cycle Time
• Completion Rate
• Workload and Employee Utilization
• Transactions per employee
• Errors or Rework
 Learning and Growth Perspective

To achieve our goals and accomplish core activities; how must we learn,
communicate and work together?

v Possible Performance Measures

• Employee Satisfaction
• Retention and Turnover
• Training Hours and Resources
• Technology Investment
 Elements of the Scorecard

Perspectives
.................... Perspective
Strategic Objectives Objective Measure Unit Current Target Initiative

Metrics

Targets
 Financial Perspective
Objective Measure Unit Current Target Initiative

How do we look to shareholders?

Customer Perspective Learning and Growth Perspective

Objective Measure Unit Current Target Initiative Objective Measure Unit Current Target Initiative

Strategy

How do customers see us? What must we excel at?

Internal Process Perspective
Objective Measure Unit Current Target Initiative

Can we continue to improve and create value?

Ø The Balanced Scorecard Links Performance Measures

 Advantages to this Approach

ü Simple to Use and Understand

ü Based on Vision and Strategy
ü Multidimensional
ü Quantitative and Qualitative Measures
ü Current and Future
ü Provides Measurement of and Method for Improving our Services
ü Ties QI initiatives together
ü Serves as a Communication Tool
 The Balanced Scorecard Strategy Map
Improve Shareholder Value

Financial Revenue Growth Strategy Productivity Strategy

Perspective Build the Franchise Increase Customer Value Improve Cost Structure Improve Asset Utilization
New Revenue Sources Customer Profitability Cost per Unit Asset Utilization

Product Leadership
Customer Intimacy

Customer Value Proposition Operational Excellence

Customer
Perspective Product/Service Attributes Relationship Image

Service Relationships Brand

Price Quality Time Functionality

Internal Perspective “Increase Customer “Be a Good Corporate

Internal Process “Build the Frnchise”
“Achieve Operational
Value” Citizen”
Perspective (Innovation Processes) (Customer Management
Excellence”
(Operational Processes) (Regulatory & Environmental
Processes)
Processes)

A Motivated and Prepared Workforce

Learning & Growth
Perspective Strategic Competencies Strategic Technologies Climate for Action

Source: Kaplan & Norton, The Strategy Focused Organization

 FINANCIAL CUSTOMER
To satisfy our constituents, what financial To achieve our vision, what customer
& regulatory objectives must we needs must we serve?
accomplish?

INTERNAL PROCESS
To satisfy our customers and
stakeholders, in which business
processes must we excel?

LEARNING & GROWTH

To achieve our goals, how must we learn,
communicate and grow?
https://youtu.be/TDUf8mpjTDM?si=FJPYlf-0XulwHnKc
 Implementing BSC

• Designing and rolling out a any kind of Balanced

Scorecard makes little sense if it is not used to trigger
behavioral change
• Nothing will be achieved if everybody continues
doing what they have always done
• For maximum effect, the Balanced Scorecard can be
used to form the center of an organization's strategic
management system
• Scorecards then help secure strategic alignment of
goals, initiatives, people, processes and systems
throughout an organization
• The individuals and teams should be committed to
making the scorecard process work across all levels of
the organization
• By-in must be gained up and down the organization
• Keeping the commitment is a full-time job
 Implementing BSC

Ø Seek to close any gaps that open in the process in

the same way they manage their daily activities
• Make BSC a “project” like any other
• Plans, budget, and deliverables
Ø Understand that without the commitment and
dedication, not only will Balanced Scorecard fail,
but the underlying business process will also suffer
as well.
Ø Don’t reinvent the wheel—dig into the lessons
learned from related approaches
• Management By Objectives (MBO)/ goal-based
evaluation
• Multi-level needs assessment/ organizational diagnosis
• Theory-based evaluation/ linkage research
• Return On Investment (ROI)/ utility analysis
 Implementing BSC

Ø Add the employee’s perspective

• They represent most organizations’ greatest
source of value
Ø Don’t go into (quantitative) detail on
everything - increase flexibility/agility
• Keep some things at “big picture” level
• Build in qualitative/mixed method rating systems
Ø Leave some aspects of performance open
• Allow creativity, innovation, and serendipity
Ø Balanced Scorecards used at the center of
the strategic management
• process effectively address the key challenge of
most organizations - the need to identify, pursue
and achieve strategic goals
 Implementing BSC

Ø Add the employee’s perspective

• They represent most organizations’ greatest
source of value
Ø Don’t go into (quantitative) detail on
everything - increase flexibility/agility
• Keep some things at “big picture” level
• Build in qualitative/mixed method rating systems
Ø Leave some aspects of performance open
• Allow creativity, innovation, and serendipity
Ø Balanced Scorecards used at the center of
the strategic management
• process effectively address the key challenge of
most organizations - the need to identify, pursue
and achieve strategic goals
 The Balanced Scorecard
support

• A clear sense of direction

• A profound understanding of the
business model
• An ability to focus and prioritize
• Organizational agility
Ø The scorecard should:
• Measure performance against goals
• Determine if the goals are appropriate
• Determine if the strategy or measures should be changed
• Provide direct measurable outcomes traceable to the actions
of individuals and teams
Ø These measures and metrics should
• Have scalar units of measure: dollars, defects/1000,
percentiles, etc.
• Have metrics that are first order derivatives from the work
process: quality, response time, budget compliance
• Have independent variables that can be controlled which are
connected to the dependent variables
 Potential Problems with the
BSC

v Excessive Centralization & Rigidity

• Top-down works best when expertise is at the top
• Bottom-up/flexible works best for knowledge work
v High level of (heavily quantitative) detail:
• Substantial set-up costs (time & money)
v Low system agility:
• Difficult to keep pace with turbulent business
environments
v Deals with meeting shareholder & customers’
needs, but ignores employees’ needs
v Testing strategic cause-and-effect assumptions =
run some correlations?!
v Weak on unintended outcomes—lack of an open-
ended element
 Potential Problems with the
BSC

v Any room here for emergent strategy?

v Some of the goals are hard to create metrics for
• “Manage requirements?”
• Who get to say we’re managing requirements?
v The customer wording is too soft at times, since
the metrics for satisfaction are hard to come by
in our environment
v “Strategically deploy services”
• This is a tautology
v “Deliver solutions on schedule”
• This is easy, and having a program office makes it
easier
 Potential Problems with the
BSC

v Lack of time for the decision makers to focus on

strategy
• Having strategy sessions on a continuous basis is difficult
• Running the business seems to come first
v Confusion between operational efficiency and strategy
• This is a continual problem
• Always ask “do I have options?” if so then it’s strategy
v Difficulty in creating well defined metrics and
connecting them to deliverables
• Scalar metrics with defined “units of measure”
v Cascading the objectives down to the staff that can
deliver the results
• This is the hardest and where there is the most resistance
 Potential Problems with the
BSC

16. “Keep my systems running”

• This can be measured everyday
17. Once the strategy has been defined, loosing the picture focus
and delving into the details
• Continuous re-visiting of the strategy to test the hypothesis
• Adjusting metrics and measures to increase the confidence in the
hypothesis tests
18. Becoming enamored with the “pretty pictures, charts and graphs”
• The real measure is the improvement in the operational effectiveness of
the organization.
• This is the other half of strategy that needs to be delivered as well if
not better
19. Facing the reality that this is much harder than it looks
• Strong convictions are needed to overcome objections
• In the end delivery of the results MUST be done
4th Generation BSC