Let’s start by saying that every organisation should embrace Corporate Performance Management, this goes without saying. However, what is more important is that any performance measurement system must be focused and must cover a broad range of areas of the business. In short, any performance-based measurement activity must ensure that it is strategically aligned with the organisation. Focusing on one or a few specific areas may result in the failure of other crucial areas of the business.

Financial performance has typically been the governing factor for many organisations, meaning that the organisation mainly focuses on how well it is doing year on year from a financial perspective. In reality, this level of focus has meant that some organisations have failed to acknowledge the importance of a holistic approach to performance management. Any savvy organisation will understand that the financial success of any organisation is linked to a far wider array of business areas, including but not limited to customer satisfaction, internal processes, innovation targets, productivity, shareholder value and much more.

Key performance indicators have long been the lifeblood of organisations and by ensuring that all aspects of the organisation are included then an organisation can increase its success factor. It should also be part of a longer strategic view and not as part of a ‘quick success observation’. What we mean by this is that if the management team and executives are focusing mainly on increasing their profit margins year after year and are neglecting performance measurement of other areas of the business then this could be damaging. An example would be that the organisation is neglecting to measure their manufacturing processes and their customer satisfaction, which could ultimately lead to problems with product quality and unhappy customers, which in turn may lead to reduced sales as customers seek out other alternatives. This in the long term would be detrimental to the organisation and the focus on profit margins only would start to see profits drop in time due to the neglect of performance management in the two example areas mentioned.

It is worth noting that financial results are critical for an organisation and we are not stating otherwise, all we are highlighting is that a tunnel vision focus of corporate performance management on the financial aspect of the business could be detrimental compared to a more holistic approach to corporate performance management. Also, when measuring financial performance, we need to ensure that we are focusing on the best performance measurements. Cash flow is one very important consideration and should be one of the focus points in terms of financial performance measurement.

More and more organisations are now understanding the importance of performance measurement in terms of customer satisfaction. Businesses understand the importance of keeping customers happy, or they should. Customer-focused businesses realise that their customers want high standards of service and that the line between being satisfied and not satisfied can sometimes be wafer thin. At the end of the day, the acquisition and maintenance of customers provide income for the organisation so key performance indicators of this area of the business are vital. In this modern era of technology where everyone has instant access to everything and expects instant responses, performance management practices have never been so important. These may include the time it takes to respond to an enquiry, the number of minutes a customer is waiting on hold and so on and so on.

Balanced Scorecard

The balanced scorecard is a great way to ensure an organisation focuses on key areas of performance.

A balanced scorecard is a strategic planning framework that companies use to assign priority to their products, projects, and services; communicate about their targets or goals; and plan their routine activities. The scorecard enables companies to monitor and measure the success of their strategies to determine how well they have performed. (Corporate Finance Institute, 2023)

The balanced scorecard was originally created by Dr. Robert Kaplan and was designed to encourage organisations to look past just their financial performance. The scorecard helps businesses look at financial and non-financial areas of the business and allows a simple yet insightful view of those areas. By having a more rounded vision of their performance, an organisation can then start to look at the activities needed to meet their vision and objectives. It also allows an organisation to identify where investment and focus is needed to ensure growth and profitability.

The four main areas that the balanced scorecard addresses are:

  • Financial
  • Customer Relationship
  • Internal Processes
  • Education & Growth

In short, the balanced scorecard is a great way for any organisation to look beyond financial performance and enhance its overall corporate performance management.

Performance measurement requires ‘key performance measures’ and these include financials, customer satisfaction, growth and innovation, organisational effectiveness and performance, to name just a few. As you can see this provides a wide array of measurements for any type of business.

Responsibility For Measuring Corporate Performance Management

We often get asked who is responsible for measuring performance within my organisation and the answer really depends on the size of the company. For example, if it is a small company or just yourself, then it is obviously you that would be responsible for measuring the performance of your business and this can be difficult as you have a thousand and one other things to think about when running a business.

If it is a larger organisation then the board and executives will be responsible for the vision and strategic direction of the organisation and the strategy would be linked to the areas of the business that would benefit from performance measurement. It would then be the responsibility of the management team to set key performance measures for the areas that they manage and are actively involved with. The responsibility doesn’t stop with management as the levels below management such as department supervisors and employees must assist in developing performance measures, albeit under the guidance of a manager or a project consultant who has experience in deciding on and implementing performance-based measures.

The Relationship Between Strategy & Key Performance Measures

Strategic focus is the primary reason why the organisation exists in the first place, the main focus of what the organisation is and what it provides and to whom. It is the clarity around the vision of the organisation, and more importantly how the organisation is going to fulfil that vision.

Let’s keep with three main types of strategic focus which have been acknowledged by many experts in their field, these are:

  • Cost-focused
  • Product-focused
  • Customer-focused

Every organisation will fit one way or another into the above three types of strategic focus. They can be cost-focused and this could mean that they offer the lowest cost product to consumers and would then focus on gaining a high market share, or could mean that the company focuses on having the lowest production costs.

If the strategic focus is product-focused then the organisation should be in a position to offer either the best products on the market or products that competitors may now be able to offer, including bringing new products to market.

On the other hand, if the focus is on the customer then the organisation sees itself as offering the highest levels of customer satisfaction through the provision of world-class service. They focus on being the best company in the marketplace and take their commitments to the customer very seriously.

There is a saying that organisations can’t be all things to all people and this is true in that a company that is cost-focused may not be able to deliver the best products on the market compared to others. This can also be true of those organisations that are product focused if they are delivering the best products then they may not be focused on being cost-focused in that respect. Take for example the car manufacturer Mercedes, they are product-focused as some of the higher-end vehicles they offer are expensive and very niche, whereas MG offers low-priced vehicles which are of a lower quality, albeit still very good cars but just not luxury orientated.

It is worth noting that although only three areas of strategic focus have been listed, there could be numerous iterations of each and too many to list in this article.

Each of the strategic focus areas will have differing performance measures relevant to each and so an organisation will need to have knowledge of what the best and most relevant measures should be used.

So, we can see that performance measures are or should be aligned with the strategic direction and focus of the organisation. This goes without saying that the strategy of the organisation must be communicated at every level of the organisation otherwise there would be no hope of identifying the relevant performance measures.

Examples of customer-focused performance measures could be:

  • Customer interactions
  • Customer retention
  • Complaint handling
  • Customer empathy
  • Customer-orientated technology (making the journey simpler)
  • Customer enquiry responsiveness

The above are just some of the examples of customer-focused performance measures and these could vary greatly between organisations of different types, sizes and industries.

Summary

Hopefully, this article has provided some insight into why corporate performance management is beneficial in building a better organisation. If we can’t measure how the organisation is doing then it is difficult to establish whether the organisation is achieving all that it should. As we have stated, financial performance is important but it should not be the primary focus, especially in this day and age where competition is all around us and people expect more from those businesses they interact with.