U7 Common Characteristics of Different Concepts Flashcards
1
Q
Several authors have attempted to analyze and compare the various concepts of performance measurement. Most of these authors have come to a consensus on the three pillars of performance measurement:
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features,
roles,
and processes.
2
Q
The vast majority of models determine the basic feature of performance measurement to be?
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a system which measures organizational performance.
3
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According to many authors, the role of performance measurement is?
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to implement organizational strategy.
4
Q
The main difficulty with comparing different concepts ?
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attempting to stipulate characteristics of the process to determine commonality.
5
Q
However, most of the authors are inclined to think that?
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the information provision is a key area for processes of a performance measurement system.
6
Q
Thus, a performance measurement system is comprised of?
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performance measures and supports management infrastructure.
7
Q
It can also be utilized for measuring performance as?
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a role and finally includes information provision.
It serves to measure design and capture data processes.
8
Q
In other words, a performance measurement system (PMS) provides :
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to identify strategies that offer the greatest potential for meeting the targets set by the organization.
9
Q
A performance measurement system provides managers with useful information in order to help them to ?
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effectively fulfill their required tasks and to help the organization identify and develop the most feasible set of actions for successful achievement of its objectives.
In addition, a performance measurement system and metrics give employees a more tangible understanding of how their daily actions contribute to the organizational goals and mission.
10
Q
In this final unit we will see how the balanced score card and the EFQM excellence model meet the various requirements of a performance measurement system. Additionally, we will discuss common characteristics and differences of both concepts and how they can be used simultaneously.
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11
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Common Characteristics of Different Concepts
In this section, we will analyze two of the most successful and applicable models for business concepts:
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the balanced scorecard
and the EFQM excellence model.
12
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The Balanced Scorecard and EFQM Excellence Model
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13
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The Balanced Scorecard and EFQM Excellence Model
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14
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The Balanced Scorecard and EFQM Excellence Model
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15
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The Balanced Scorecard and EFQM Excellence Model
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16
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The Balanced Scorecard and EFQM Excellence Model
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17
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The Balanced Scorecard and EFQM Excellence Model
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18
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The Balanced Scorecard and EFQM Excellence Model
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19
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The Balanced Scorecard and EFQM Excellence Model
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20
Q
The previous chart shows clearly that both models have?
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much in common, in particular using measurement approaches for the improvement of performance and applying similar principles of management.
21
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But despite the fact that these two models come from the same origins, they take different routes and deliver different outcomes and benefits.
22
Q
The principal difference between the two approaches is ?
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that the balanced scorecard communicates and assesses strategic performance,
23
Q
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whereas the excellence model includes its various applications, such as the self-assessment process, and focuses more on the adoption of good practice across all management activities.
24
Q
For example,
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the self-assessment, which is typically an annual exercise, examines how well an organization defines and manages the process of its strategic planning.
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It does this by determining whether the organization has a formally established and appropriate process.
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This process is reviewed ?
regularly and is systematically deployed at different levels.
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On the other hand, the balanced scorecard tests?
the validity of the strategy and monitors the organization’s performance against its delivery on a regular and frequent basis, usually monthly.
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The balanced scorecard does not assess?
the quality of the strategic planning process itself.
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The main purpose of the balanced scorecard is to ensure that?
the strategy gets implemented as well as to enable an organization to continuously learn from its performance and adapt its strategy accordingly.
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Additional comparisons of the two approaches can help to understand?
how they work and, what is more interesting,
how the two choose to address issues on performance management.
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Table 13: Characteristics of Balanced Scorecard and EFQM Excellence Model
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Table 13: Characteristics of Balanced Scorecard and EFQM Excellence Model
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Table 13: Characteristics of Balanced Scorecard and EFQM Excellence Model
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Table 13: Characteristics of Balanced Scorecard and EFQM Excellence Model
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Table 13: Characteristics of Balanced Scorecard and EFQM Excellence Model
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Table 13: Characteristics of Balanced Scorecard and EFQM Excellence Model
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Table 13: Characteristics of Balanced Scorecard and EFQM Excellence Model
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Table 13: Characteristics of Balanced Scorecard and EFQM Excellence Model
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Table 13: Characteristics of Balanced Scorecard and EFQM Excellence Model
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Table 13: Characteristics of Balanced Scorecard and EFQM Excellence Model
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Table 13: Characteristics of Balanced Scorecard and EFQM Excellence Model
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Table 13: Characteristics of Balanced Scorecard and EFQM Excellence Model
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It is interesting to notice that the implementing mechanics and philosophical logic behind each model sets them----------------. Even from the first glance it is clear why users of either model follow a --------------------- process and adopt a different perspective on performance measurement.
apart
different thinking
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The balanced scorecard is characterized by ?
the provision of the unique advantage,
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while the excellence model gives the opportunity to?
build up improved performance based on best practice.
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The excellence model and its associated self-assessment processes are assessing ?
best practice at the process level.
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In order to provide equitable comparison and a system of benchmarking to organizations, the assessment must be?
applied consistently in its structure, criteria, approach and content.
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It makes it easier for an organization to?
situate itself in a kind of European top-league table.
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In this case, a market niche or particular competitive environments are factors that do not ?
have any essential impact on the usefulness and application of the model.
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As for the balanced scorecard and its context specific approach to performance management, it is obvious that it entirely depends and is based on?
an organization’s positioning, challenges, competitive context, and, of course, its strategy.
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Thereby the balanced scorecard model becomes a high-level guiding framework which needs to ?
be tailored to the organization’s individual circumstances.
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(This process needs to be repeated every time it is applied to a different situation or framework).
Thus the key task of this framework is to lead corporate governance through a path of logical strategic thinking, which in turn can be flexed and adapted to every situation.
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The self-assessment process gives?
a critical and comprehensive description of the current processes within an organization.
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The excellence model and self-assessment process show?
the present-day picture very deliberately.
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It builds up knowledge on how an organization accumulates, selects and embeds best practice against a?
cumulative and objective set of criteria.
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The assessment gives a thorough account of an organization’s current strengths and areas for?
improvement and as a result provides suggestions as to where the organization might choose to focus some of its effort in the future.
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The recommendations might not touch upon the?
strategic priority.
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On the contrary, the balanced scorecard perceives performance objectives which need to be achieved in order to?
reach the organization’s vision in two or five years’ time.
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It asks the question:
“Where does the organization need to improve to achieve its three-year financial objectives?”
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The balanced scorecard is-------------------------------. It starts from the ---------------------end goal and works its way back.
future-oriented
visionary
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Attached to those objectives is a set of actions and initiatives which the organization needs to ?
undertake today to attain the objective.
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In the scorecard, the priorities for today are derived from?
the assumption of where the organization needs to be tomorrow.
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It then takes further analysis to determine how much effort it will take to get to tomorrow, given?
the current strengths and weaknesses of the organization.
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The strategy development and formalization process of the balanced scorecard approach has another?
valuable ‘by-product’.
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It forces the management teams to decide and discuss which measures of?
business performance should be monitored and thereby requires from the management to be very explicit about their performance priorities and the relationship between them.
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As a ‘communication tool’, it provides ?
an opportunity to resolve any hidden differences of opinion and strategic objectives.
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By using the EFQM excellence model, an organization will have a good and broad understanding of?
its own strengths and weaknesses at the process level.
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As a result of the assessment, an organization will have an indication as to where?
it may need to improve significantly, where it performs adequately, and where it excels against the ideal benchmark.
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However, an association may not have a strong sense of ?
where to invest as a strategic priority or where improvement will make the biggest impact in business performance and results.
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On the other hand, the balanced scorecard can be used to provide knowledge of where the strategic focus is?
needed and which action needs to be prioritized as well as where resources need to be allocated to.
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A distinct benefit of the self-assessment exercise is streamlining the process of ?
managing performance.
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For example,
if the areas of weakness, identified by the assessment process, are not of strategic importance to the organization, then there is less reason to prioritise spending time and money improving them.
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Certainly, there is still a need for improving performance in?
non-strategic areas, should the performance be below acceptable quality standards.
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At the same time, the assessment may uncover a set of activities where?
the organization transcends or stands out and those activities are also non-strategic.
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In this case, a reason to cut back on the level of investment committed to ?
those activities needs to be found.
However, in the process, it might be found that weaknesses of the organization lie in the field which supports strategic priorities and which do require significant attention (see figure below).
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In this scenario, the balanced scorecard complements the self-assessment in providing ?
a strategic prioritization tool.
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Resources can be committed to the strategically important areas as needed but do not necessarily have to be ?
used exclusively on improving the low scoring areas on the self-assessment.
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With help of both approaches, an organization can take the appropriate steps with?
the knowledge that the actions undertaken will be done properly.
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Figure 20: Self-Assessment & Excellence Model
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Figure 20: Self-Assessment & Excellence Model
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Once an organization has identified its strategic spurs of performance and associated measurement, it will turn to?
the development of targets and initiatives using the balanced scorecard approach.
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Once an organization has identified its strategic spurs of performance and associated measurement, it will turn to the development of targets and initiatives using the balanced scorecard approach. It is then the right time to?
set up appropriate quality processes which will support the strategic objectives and measurements identified in the balanced scorecard.
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Quality processes are equally important to achieve ?
strategic goals.
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The knowledge gathered from conducting the self-assessment provides?
a deep understanding of the challenges that an organization may face in delivering excellence in performance regarding its strategic objectives.
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For example,
the self-assessment might uncover some particular areas of current process weakness, which, if not addressed, will make it difficult for an organization to fulfill its vision.
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That can be a valuable instrument to ?
inform the association on how to bridge the performance gap between present and the 3–5 year horizon.
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It can also provide a clear guideline regarding?
the level of process investment required as well as the time that is needed to fully implement the balanced scorecard objectives\/measures.
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The self-assessment can also act as?
a useful starting point to the balanced scorecard implementation process.
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The two models can add a useful dimension to the other by?
leveraging the knowledge and insights that each of the models brings to the organization.
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Indeed, this combination of models enriches?
the management dialogue and process by providing additional sources of intelligence.
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By using both, a management team can foster a deeper dialogue about?
performance supported by an end-to-end analysis of the organization’s performance.
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This covers all areas from strategy to operations and process quality. Both models clearly have their place within?
the strategy and business planning spectrum.
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Figure 21: Fitting the Two Models on the Strategy and Planning Spectrum
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Figure 21: Fitting the Two Models on the Strategy and Planning Spectrum
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Figure 21: Fitting the Two Models on the Strategy and Planning Spectrum
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Inspired by the success of the EFQM excellence model and the balanced scorecard, some organizations are?
trying to create either their own model or combine the two models together into a third one.
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some organizations are trying to create either their own model or combine the two models together into a third one. Since each model is designed to induce ?
certain management decisions, there are also differences in purpose and advantages in both the models.
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There is a risk that merging the two models could be misleading when defining the ultimate goal of?
the organization and potentially obscure benefits that can be obtained from using the two models separately.
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The risk is creating an unnecessarily cumbersome process which will not be fit for?
the purpose.
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Trying to draw parallels and similarities between the two models might help in?
establishing a common language and a commonly understood context.
However, it is important to recognize the momentum at which the application of the two models together is no longer rational and clear.
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Therefore, it is paramount to define?
where the differences are best addressed separately.
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Pitfalls in Performance Measurement and Management
Performance measurement systems (PMS) are?
multi-functional in their approach and quite laborious to implement.
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In many cases, efforts to implement performance measurement systems in an attempt to positively influence?
the performance of an organization end up impeding performance or producing undesired effects.
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Certain risks associated with performance measurement systems have been identified by?
academics and practitioners discussing this topic.
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Information Overload
Since information gathering and provision are key areas of a performance measurement system, there are some cases in which ?
a large amount of information creates negative effects on an organization.
103
Management teams become overloaded with excessive amounts of information which leads to?
‘paralysis by analysis’.
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The conclusion is to reassess measurement systems and metrics which do not contribute to?
the achievement of strategic goals.
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Key Performance Indicators (KPI)
Key performance indicators, also known as KPI or key success indicators (KSI), help an organization?
define and measure progress toward organizational goals.
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Once an organization has analyzed its mission, identified all its stakeholders and defined its goals, it needs to?
find a way to measure progress toward those goals.
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Key performance indicators can be those measurements. Examples from different sectors indicate how KPIs can be applied:
A business may have ‘percentage of income’ generated from return customers as one of its key performance indicators.
A school may focus its key performance indicators on graduation rates of its students.
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A customer service department may define ‘percentage of customer calls answered in the first minute’ as one of its key performance indicators and evaluate that in line with overall KPIs.
A key performance indicator for a social organization might be the number of clients assisted during the year.
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Whatever key performance indicators are selected, they must reflect?
the organization’s goals, they must be critical to the success of the organization, and they must be quantifiable (i.e. measurable).
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Key performance indicators are usually ---------------------------------------------. The definition of what they are and how they are measured do not
-------------------often. The goals of a particular key performance indicator may change as the organization’s goals change or as it gets ---------------------------------- a goal.
long-term considerations
change
closer to achieving
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Key Performance Indicators (KPI)
Perverse Incentives
Cost of Measurement
Cultural resistance
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Perverse Incentives
Another obstacle lies in the creation of incentives and their application. The risk in this case is that incentives which are linked to performance may motivate employees only temporarily and thus an incentive scheme will not result in any long-term commitment to performance.
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In addition, different frameworks can cause negative results, especially when they are implemented in isolation, for example key performance indicators (KPI).
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Some authors argue that there may be cases where certain KPIs will undermine others, especially if ?
those in management fail to consider all KPIs together.
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Consider the following example.
A retail outlet may have a KPI which measures ‘stock outs’, a situation which occurs when the outlet cannot satisfy demand because of insufficient stock.
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In addition, the retail outlet also has a KPI to keep?
a lean stock inventory. If the retail outlet excels at the latter KPI (i.e. keeping a lean inventory), it may increase the amount of ‘stock outs’ and thus delay or fail to realize the first KPI.
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Therefore, it is important to state that all performance measures must be thoroughly examined before?
defining incentives for their achievement.
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Cost of Measurement
Every measurement activity, the implementation as well as the maintenance, creates costs.
Every additional measure potentially reduces the efficiency of the process.
In addition, all proposed measures must be examined to determine if they are adequately contribute to the strategic intentions of the organization.
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Any measures which do not do so should be eliminated as they incur?
unnecessary costs without providing any value to the organization in return.
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Cultural resistance
Many authors also state that using too many performance measurement metrics may generate resistance from employees who potentially feel that the amount of observation is excessive.
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Managers may also be reluctant to disseminate proprietary information to?
lower ranks and employees may resist efforts to have their performance measured objectively.
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Employees who are instructed via using performance measurement metrics must be?
equipped with appropriate information and knowledge to act on these measures accordingly.
If, however, they are unable to do so, it may lead to employee disillusionment and reduced staff morale.
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Management systems are designed to support the achievement of?
the organization’s strategy.
So when this strategy is about to be changed, it is important to adjust the measures accordingly when assessing how the new strategy is to be executed.
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So regardless of which framework or approach is used to?
develop the original performance measures, it is necessary to adjust these in the course of time to reflect the organization’s changing circumstances.
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A measurement and management system should always be altered to?
correspond with the strategy being pursued.
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Driven by interest and further theoretical developments in the field of measuring performance, many organizations began to?
introduce new performance measurement methods and management systems, often at considerable expense.
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However, there are obstacles which create difficulties in implementing a?
PMS.
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Unlike the environment in which organizations operate, many initiatives to introduce?
PMSs appear to be static.
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There is a conflict between?
the fixed organization’s strategy goals and rapidly changing business environments which might create some dysfunctional operational problems.
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There is also the danger that organizations are constantly creating?
new performance measures which are significantly different and do not correspond to already existing measures.
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The consequence is a paradox where organizational control is maintained without ?
knowing exactly what the performance is.
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However, it is necessary for all organizations to evaluate and modify their performance measures, and hence their performance management, in order to adapt to?
a rapidly changing and highly competitive business environment.
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There is great necessity to understand what is being managed and therefore ensure the reflection of ?
continuous change.
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However, there has been little evidence of ?
the extent or effectiveness with which this takes place.
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Moreover, literature suggests that ineffective management of ?
the evolution of measurement systems is causing a new measurement ‘crisis’.
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Organizations may implement new performance measures to reflect ?
new priorities but fail to discard measures reflecting old priorities, resulting in uncorrelated and inconsistent measures and hence the loss of focus of performance management.
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We have looked at two important performance measurement systems in detail:
The balanced scorecard and the EFQM excellence model.
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We now know the characteristics of the two models and what sets them apart from
each other.
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While the two models have the same measurement approaches in common, ?
the outcomes and benefits are quite different.
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The balanced scorecard approach is
prescriptive, while the excellence model uses a descriptive approach.
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Therefore, we can state that?
the former is hypothesis driven and subjective, while the latter is fact-based and objective.
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The balanced scorecard approach is forward-looking, and is built around the vision of ?
what the organization should look like in the future,
while the excellence model observes the organization as it is currently.
