Performance Management Systems Flashcards
(28 cards)
Why is performance measurement critical to strategy?
It converts strategic plans into measurable goals and checks progress
What are 4 purposes of performance measurement?
Check current position
Communication position
Confirm strategic priorities
Compel progress towards goals
Why are non-financial measures important?
They drive innovation, customer value (e.g. CRM), and long-term strategy
What are risks of relying only on financial measures?
Lagging indicators
Short-term focus
May ignore customer satisfaction or learning
App Tip: If the case shows short-termism, suggest adding innovation/CRM to KPIs
What is a Critical Success Factor [CSF]?
An area where the organisation must perform well to achieve its strategy
What is a KPI?
A measure used to assess is a CSF is being achieved [can be financial or non-financial]
What makes a good KPI?
Linked to CSFs
Should be SMART: Specific, Measurable, Attainable, Relevant, Timely.
Regularly monitored
Balanced between financial & non-financial
Example of a CSF and KPI combo?
CSF: Customer satisfaction
KPI: Net Promoter Score or complaint resolution rate
What is the Balance Scorecard?
A tool that tracks strategy implementation from 4 perspectives
- Financial - Measures profitability, cost efficiency, and financial sustainability
🧠 Application tip: Use when the question asks about value to shareholders or financial performance.
- Customer - Measures customer satisfaction / retention / loyalty
🧠 Application tip: Choose this if the scenario talks about “reputation,” “retention,” or “customer loyalty.”
- Internal processes - Measures how well internal operations are running
🧠 Application tip: Often correct when questions refer to “efficiency,” “quality,” or “operational issues.”
- Learning & growth - Focuses on innovation / staff development / culture
🧠 Application tip: Choose this if question refers to “future skills,” “training,” or “innovation.”
What is the logic behind the Balance Scorecard?
Strategy is delivered through processes, supported by learning, to satisfy customers and improve financials
Steps to build a Balance Scorecard?
- Identify CSFs
- Define KPIs for each perspective
- Capture data
- Set improvement actions
Balance Scorecard in real life?
Amazon uses internal process KPIs like delivery time and learning KPIs like tech training
Exam tip for BSC?
Link poor performance in one area (e.g. employee training) to failure in another (customer satisfaction)
What does the performance pyramid show?
It connects strategic objectives with operational performance across 3 levels
What are the 3 levels in the performance pyramid?
Corporate - market / finance
SBU - flexibility / productivity
Operational - quality / time / delivery
What is the benefit of the pyramid?
It shows the linkage between strategy and day-to-day performance
What’s a typical operational-level measure?
Delivery time / defect rate / process waste
What is integrated reporting (IR)?
A framework to show how an organisation creates sustainable value over time
What 6 capitals are monitored in IR?
1 Financial - traditional capital
2 Manufactured - physical goods and infrastructure
3 Human - skills / knowledge / experience
4 Intellectual - intangible assets
5 Natural - environmental resources
6 Social - relationships and reputations
Why is IR useful strategically?
It links sustainability and performance, promoting long term thinking
What is the purpose of performance targets?
Motivate behaviour aligned with strategy
What are dangers of badly designed targets?
Short-termism
Gaming
Dysfunctional behaviour
What is the Building Block Model?
A way to design reward systems using:
- Results [profitability]
- Determinants [quality / innovation]
- Standards [fairness / achievability]
What are stretch targets?
Ambitious goals to challenge staff - good for innovation but must be realistic
