Performance Measurement
May 7, 2012

Closing the performance gap

Together with Robert Kaplan, David P. Norton is the creator of The Balanced Scorecard, a means of linking an organization’s current actions to its long-term mission. They believe financial measures and accountability are insufficient, that a performance measurement and management system is needed to drive change. He spoke with editor-in-chief Paul Crookall.

Canadian Blood Services appears to have effectively used the Balanced Scorecard tool.

CBS did a superb job in executing their strategy. The Balanced Scorecard helped them to clarify their new mission, their strategy for achieving it and making this strategy the focal point for the entire organization. Their results give testimony to their effectiveness.

Henry Mintzberg has said that the big problem with the public sector is that there is no link between operations and strategy: politicians and the policy wonks develop legislation but there’s no feedback loop from the field, so strategy gets imbedded in legislation before its de-bugged. How does the balanced scorecard help with that problem?

At the heart of the Balanced Scorecard (BSC) approach is a technique called strategy mapping. Our premise is that “you can’t measure something that you can’t describe.” The first step in executing your strategy, then, is to describe what it is – this is the role of a Strategy Map. The map is a logical representation of (a) the stakeholder’s objective, (b) the customer’s value proposition, (c) the processes needed to satisfy these objectives and (d) the skills and technologies needed to support it. For example, the mission of the American Diabetes Association is “to prevent and cure diabetes and to improve the lives of all people affected by diabetes:” (a) stakeholders would include the governing and funding channels; (b) “customers” would include people affected by diabetes – “improving the quality of life” might be an objective for this group; (c) “reducing the wait time for a dialysis machine” might be an operational process objective that helps satisfy the customer need; and (d) reducing wait times might require new skills and technology. Using the logic and discipline of the Strategy Map helps to forge the link between strategy and operations.

I’ve never liked Kotter’s “burning platform” view of change. In contrast, you talk about defining the gap between where you are and where you want to be, and building a strategy to close it. I’ve found public sector organizations do much better when they have an agreed-on change management model.

John Kotter’s premise is that an organization must accept the need for change before it will embrace that change. The “burning platform” is a euphemism for such a dissatisfaction with the status quo. Unfortunately, the analogy has become synonymous with organizations that are failing (“burning”). Obviously, successful organizations also need to change. They also must see that change is necessary before they will accept it.

We use an idea called “performance gaps” to crystallize the need for change. Consider the vision statement for the University of Leeds, a U.K. institution of higher education: “By 2015 our distinctive ability to integrate world-class research, scholarship and education will have secured us a place among the top 50 universities in the world.”

Instead of creating a “burning platform,” Leeds has set a target of “top 50.” Their current position is in the “top 100.” They have a performance gap to close. The Top 50 goal is one which was accepted with considerable enthusiasm by the organization. Leeds’ strategy laid out a plan to close this gap by 2015. The organization implicitly accepted the need for change.

What are some of the problems in implementing a performance management system?

The single most important ingredient to the success of a performance management system is that it is owned and used by the executive level of the organization. The term “performance management” is poorly understood in most organizations. Ask an executive to describe his/her philosophy of performance management and you will most likely get a quizzical stare. Yet, the performance management system, which includes such things as strategy, planning, budgeting, goal setting, reporting and review, is an integrated system that is used by everyone. I would expect more awareness of the subject throughout an organization.

There are a relatively small number of comprehensive approaches to performance management. These would include Total Quality Management, Shareholder Value, Financial Planning, Management by Objectives, and the Balanced Scorecard. Only the Balanced Scorecard provides a link to the organization’s strategy and only the BSC provides a way to integrate each of the other approaches into one comprehensive system.

We have begun to see organizations like Canadian Blood Services create a core competency around the management of strategy. They have internalized the different approaches to performance management and built a system that works for them. They have made performance management a science. Every organization has a similar opportunity.

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