Views from around the world

Citation

Bourne, P. and Bourne, M. (2005), "Views from around the world", Measuring Business Excellence, Vol. 9 No. 3. https://doi.org/10.1108/mbe.2005.26709caf.007

Views from around the world

Views from around the world

Introduction

Some surveys tell us the balanced scorecard is becoming more popular, others counter this, but one thing is certain, multi-dimensional performance measurement systems are widely adopted around the world in both the private and public sectors. As part of our review of activities for this issue of Measuring Business Excellence we asked a number of leading academics and practitioners to comment from their perspective. Surprisingly, there was a consensus across many countries on what is taking place.

The balanced scorecard

The balanced scorecard has become the predominant tool for measuring performance, it is used widely from the USA to Malaysia and Singapore, but although there are exemplar implementations, there appears to be a general concern about many of its applications. As Professor Fred Nanni[1] of Babson College in the USA put it:

I’m finding the balanced scorecard in more places, but I’m not finding it better implemented! In many cases, I think there is a simple bandwagon effect. However, what I am seeing is more instances than I used to where that fundamental activity is short-changed. These implementations cut-and-paste the standard 4-card BSC framework, with metrics imposed upon the organization by a somewhat-isolated development team.

Andre de Waal’s perspective from the Netherlands was slightly different[2]. He acknowledged the importance of performance measurement but has major concerns:

Performance management is actually becoming hotter and hotter in The Netherlands. The recession and slow recovery has forced companies to take a look at their management processes again to see if they can manage better and in a more innovative way. Performance measurement is helping them with this. The BSC itself is becoming less popular because there have been many disappointing implementations.

Professor Goran Roos[3], reflecting on performance measurement practice in Australia, cited the RMIT business survey reporting responses from 30 of the 500 largest Australian Companies. RMIT found that two-thirds of respondents had a balanced scorecard. However, the survey conclusion was that few used the scorecard correctly as a means of implementing strategy. As Goran stated:

It [the balanced scorecard] is still gaining more users albeit most of them are now trying to use it for strategy implementation rather than performance measurement, which I think is a better use of it anyway. The reason for this? It is the most widely known and published framework and there are lots of software producers/providers pushing it in order to sell their software.

When we pressed Goran if he had detected any undesirable trends, he said:

Yes – measuring things in an incorrect way and even more common synthesising several measures into one in an incorrect way. This is quite prevalent in the softer areas like triple bottom-line application, marketing/brand applications and intellectual capital. This becomes even more worrying when the process is supposed to be assurable which almost none of them are.

Performance measurement in general

If we move our attention from the balanced scorecard to performance measurement and management in a wider and more general view, the situation isn’t much different. For example, Chris Ittner and David Larcker (2003) recently writing in Harvard Business Review about their extensive field work in the USA wrote:

Companies in increasing numbers are measuring customer loyalty, employee satisfaction, and other nonfinancial areas of performance that they believe affect profitability. But they’ve failed to relate these measures to their strategic goals or establish a connection between activities undertaken and financial outcomes achieved. Failure to make such connections has led many companies to misdirect their investments and reward ineffective managers.

Similarly, Oliver Krause[4] at Faunhoffer Institute in Berlin recently conducted a meta-study of the performance management systems (PMS) of 26 companies (the majority of which were based in German-speaking countries). From his analysis, he found four areas where companies face serious problems:

1. 1.

   Inadequate structure and content of PMS:

2. 2.
   • •

     Performance indicators are not reasonably specified and also not adequately defined.

   • •

     The set of performance indicators is not balanced.

   • •

     They do not link critical success factors, business processes and performance improvement initiatives

3. 3.

   Shortcomings concerning scope and depth of PMS-usage:

4. 4.
   • •

     PMS have been implemented mostly on some selected functional areas or divisions.

   • •

     PMS are not integrated with other management systems – for instance the human resource, production, quality management or the accounting system.

   • •

     PMS have hardly been fully deployed to the level of the individual employee.

5. 5.

   Inadequate governance of the PMS development process and few techniques & tools to support implementation because:

6. 6.
   • •

     an explicitly defined strategy is missing in most organisations;

   • •

     indicator and especially target value definition is unclear;

   • •

     indicator definition is mostly based on current organisational structure and not on future business processes designed to maximise organisational performance;

   • •

     the cause & effect network of relevant indicators is mostly not clear; and

   • •

     there are shortcomings concerning participation – especially by top management and qualification in terms of performance measurement aspects.

7. 7.

   The use of PMS is a critical issue because the cultural change is rarely successful for most organisations. The reasons are:

8. 8.
   • •

     PMS are used to track performance rather than to manage performance;

   • •

     IT support is rather weak;

   • •

     dynamic change of structure and content is hardly supported. The consequence is that PMS fairly rapidly become out of date and therefore loose their relevance for management; and

   • •

     the linking with planning and budgeting is missing.

These results reflect those found by Professor Miguel Heras from ESADE in Spain (see his paper in this issue). There appears, in many cases, to be a superficiality to balanced scorecard implementations and the wider use of performance measurement.

Other key issues

There are other factors, which are becoming important. The OFR (Operating and Financial Review) in the UK requires the use of non-financial indictors to track the change in relationships with important stakeholders where these relationships might adversely impact the financial performance of the company. From the USA, there is also the spectre of Sarbanes-Oxley. These two will have an impact in the short term. To quote Goran Roos again:

The changing regulatory environment together with the changing business logic will drive increased need for performance measurement as a base for both operational management and disclosure.

But this again is using performance measurement as a reporting model rather than a true driver of performance, something that, from this edition, seems to be present in only a few exemplars.

The kernel of the issue

In summary, the view that is appearing from most commentators is that:

• •

  Performance measurement and the balanced scorecard are becoming ubiquitous.

• •

  The private sector led the way, but there are now many public sector examples.

• •

  Successful implementation is still a major stumbling block for many organisations.

• •

  There is concern that different perspectives are being measured but these measures don’t fully reflect the strategic intent of the organisations.

• •

  Those reflecting on current practice are concerned that the approaches are superficial and not truly adding value.

The concern seems to be that many organisations seem to be “doing the balanced scorecard to get the badge”. The balanced scorecard is then kept isolated from many other aspects of the business and not fully integrated into all the other performance improvement initiatives. Fred Nanni again:

To me, the value in the BSC is in the journey – the process the organization goes through to understand itself, its strategic goals, and how its parts should contribute to achieving those goals. Some organizations new to the BSC that I have seen recently have done this, especially those involved in other parallel improvement initiatives like six sigma.

To be really effective, building a success map that reflects the organisation’s goals and aspirations is essential. This success map has to then be integrated into the workings of the business, the people programmes, the customer initiatives, and the improvement projects. Many companies with successful implementations have managed successful integrations with six sigma initiatives, appraisal systems, strategy formulation processes. It is only through cascading the measurement system right down and through the organisation that the benefits are fully realised. But they don’t stop there. The success maps are simple representations of how the business is believed to work. Companies need to test their assumptions using the data they collect, to ensure the strategy is working and to ensure they learn from changes in the business and their environment.

Notes

1. Fred Nanni is Professor of Management Accounting holding the Vander Wolk Chair in Management Accounting and Operational Performance at Babson College in the USA.

2. André de Waal is Assistant Professor at Maastricht School of Management in the Netherlands.

3. Göran Roos is the founder of Intellectual Capital Services in London, UK and holds academic positions at Cranfield University’s Centre for Business Performance, Helsinki School of Economics’ Centre for Executive Education in Finland and Mt Eliza Business School in Australia.

4. Oliver Krause is Head of Department, IPK Corporate Management Division, Fraunhofer IPK and is based in Berlin, Germany.

Pippa BourneRegional Manager for East of England at the Institute of Chartered Accountants in England and Wales and Associate Editor of Measuring Business Excellence.

Mike BourneDirector of the Centre for Business Performance at Cranfield School of Management in the UK, and Editor of Measuring Business Excellence.