Implementing the Performance Management System

The process that we recommend for developing a balanced scorecard in conjunction with a single management team is indicated in the following diagram:

Once a balanced scorecard has been developed in this way for the organisation as a whole, separate scorecards can be generated for each of the functional or support business units within the organisation.  This ‘cascading’ of the scorecard to lower levels of the organisation typically involves repeating the process illustrated above for each business unit.  The management teams within each business unit need to develop their own objectives, measures, targets and initiatives, consistent with the objectives of the corporate scorecard.

Balancing the Measures

To support an objective performance management system there needs to be a set of measures for each level within the organisation.  So that distortions and short term practices are not encouraged, these measures need to be comprehensive and ‘balanced’, both across the different perspectives as well as between ‘lead’ and ‘lag’ measures.

For instance, if only performance against financial budgets is measured, a manager could look very good on paper, but not be training his/her staff or maintaining the assets involved.  In the longer term this department would be in trouble, although its current performance looks OK.  Running an organisation on the basis of financial results alone (a ‘lag’ indicator) is analogous to driving a car by looking only in the rear view mirror.

Cascading, Deploying and Maintaining the Balanced Scorecards

It is theoretically possible to cascade balanced scorecards to teams and individuals.  In practice, it is rarely practicable or cost-effective to do so.  Instead, managers and staff in the departments can determine their Key Result Areas (KRAs) – the critical things they need to do which will contribute most to improving the performance of the business unit.  From these KRAs, their team or personal objectives can be determined and negotiated, for instance through the annual appraisal process.

The scorecard development process should also allow for changes in business objectives, measures and targets in the course of time.  These may require changing in response to a change in the business environment, a competitive threat, a change of government policy, or an abuse of the chosen measures to pursue undesirable behaviours.

Managing Ongoing Operations

The performance management system is only one part of the overall management process. If the culture of the organisation is not right, then no amount of measures and targets will give high performance results.  A performance management system needs to fit in with the other essentials of good, modern management:

• Customer focus

• Team-working at all levels

• Process management

• Philosophy of continuous improvement

• Learning, knowledge-based organisation

To achieve this, the style of management needs to be participative and consultative, open and honest, supportive, empowering and visionary.  This should in turn be driven by excellent communications, effective training, and appropriate rewards and recognition.

Effective performance management requires every member of the organisation to adapt their behaviours to match the strategy set out and communicated by senior management.  If they don’t understand or believe the strategy, or trust the management team, they won’t change their behaviours to match.