U7 Common Characteristics of Different Concepts

Question 1

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:

Answer 1

features,
roles,
and processes.

Question 2

The vast majority of models determine the basic feature of performance measurement to be?

Answer 2

a system which measures organizational performance.

Question 3

According to many authors, the role of performance measurement is?

Answer 3

to implement organizational strategy.

Question 4

The main difficulty with comparing different concepts ?

Answer 4

attempting to stipulate characteristics of the process to determine commonality.

Question 5

However, most of the authors are inclined to think that?

Answer 5

the information provision is a key area for processes of a performance measurement system.

Question 6

Thus, a performance measurement system is comprised of?

Answer 6

performance measures and supports management infrastructure.

Question 7

It can also be utilized for measuring performance as?

Answer 7

a role and finally includes information provision.

It serves to measure design and capture data processes.

Question 8

In other words, a performance measurement system (PMS) provides :

Answer 8

to identify strategies that offer the greatest potential for meeting the targets set by the organization.

Question 9

A performance measurement system provides managers with useful information in order to help them to ?

Answer 9

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.

Question 10

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.

Question 11

Common Characteristics of Different Concepts

In this section, we will analyze two of the most successful and applicable models for business concepts:

Answer 11

the balanced scorecard
and the EFQM excellence model.

Question 12

The Balanced Scorecard and EFQM Excellence Model

Question 13

The Balanced Scorecard and EFQM Excellence Model

Question 14

The Balanced Scorecard and EFQM Excellence Model

Question 15

The Balanced Scorecard and EFQM Excellence Model

Question 16

The Balanced Scorecard and EFQM Excellence Model

Question 17

The Balanced Scorecard and EFQM Excellence Model

Question 18

The Balanced Scorecard and EFQM Excellence Model

Question 19

The Balanced Scorecard and EFQM Excellence Model

Question 20

The previous chart shows clearly that both models have?

Answer 20

much in common, in particular using measurement approaches for the improvement of performance and applying similar principles of management.

Answer 21

But despite the fact that these two models come from the same origins, they take different routes and deliver different outcomes and benefits.

Question 22

The principal difference between the two approaches is ?

Answer 22

that the balanced scorecard communicates and assesses strategic performance,

Answer 23

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.

Question 24

For example,

Answer 24

the self-assessment, which is typically an annual exercise, examines how well an organization defines and manages the process of its strategic planning.

Answer 25

It does this by determining whether the organization has a formally established and appropriate process.

Question 26

This process is reviewed ?

Answer 26

regularly and is systematically deployed at different levels.

Question 27

On the other hand, the balanced scorecard tests?

Answer 27

the validity of the strategy and monitors the organization’s performance against its delivery on a regular and frequent basis, usually monthly.

Question 28

The balanced scorecard does not assess?

Answer 28

the quality of the strategic planning process itself.

Question 29

The main purpose of the balanced scorecard is to ensure that?

Answer 29

the strategy gets implemented as well as to enable an organization to continuously learn from its performance and adapt its strategy accordingly.

Question 30

Additional comparisons of the two approaches can help to understand?

Answer 30

how they work and, what is more interesting,

how the two choose to address issues on performance management.

Question 31

Table 13: Characteristics of Balanced Scorecard and EFQM Excellence Model

Question 31

Table 13: Characteristics of Balanced Scorecard and EFQM Excellence Model

Question 32

Table 13: Characteristics of Balanced Scorecard and EFQM Excellence Model

Question 32

Table 13: Characteristics of Balanced Scorecard and EFQM Excellence Model

Question 33

Table 13: Characteristics of Balanced Scorecard and EFQM Excellence Model

Question 34

Table 13: Characteristics of Balanced Scorecard and EFQM Excellence Model

Question 35

Table 13: Characteristics of Balanced Scorecard and EFQM Excellence Model

Question 36

Table 13: Characteristics of Balanced Scorecard and EFQM Excellence Model

Question 37

Table 13: Characteristics of Balanced Scorecard and EFQM Excellence Model

Question 38

Table 13: Characteristics of Balanced Scorecard and EFQM Excellence Model

Question 39

Table 13: Characteristics of Balanced Scorecard and EFQM Excellence Model

Question 40

Table 13: Characteristics of Balanced Scorecard and EFQM Excellence Model

Question 41

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.

Answer 41

apart

different thinking

Question 42

The balanced scorecard is characterized by ?

Answer 42

the provision of the unique advantage,

Question 43

while the excellence model gives the opportunity to?

Answer 43

build up improved performance based on best practice.

Question 44

The excellence model and its associated self-assessment processes are assessing ?

Answer 44

best practice at the process level.

Question 45

In order to provide equitable comparison and a system of benchmarking to organizations, the assessment must be?

Answer 45

applied consistently in its structure, criteria, approach and content.

Question 46

It makes it easier for an organization to?

Answer 46

situate itself in a kind of European top-league table.

Question 47

In this case, a market niche or particular competitive environments are factors that do not ?

Answer 47

have any essential impact on the usefulness and application of the model.

Question 48

As for the balanced scorecard and its context specific approach to performance management, it is obvious that it entirely depends and is based on?

Answer 48

an organization’s positioning, challenges, competitive context, and, of course, its strategy.

Question 49

Thereby the balanced scorecard model becomes a high-level guiding framework which needs to ?

Answer 49

be tailored to the organization’s individual circumstances.

Question 50

(This process needs to be repeated every time it is applied to a different situation or framework).

Answer 50

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.

Question 51

The self-assessment process gives?

Answer 51

a critical and comprehensive description of the current processes within an organization.

Question 52

The excellence model and self-assessment process show?

Answer 52

the present-day picture very deliberately.

Question 53

It builds up knowledge on how an organization accumulates, selects and embeds best practice against a?

Answer 53

cumulative and objective set of criteria.

Question 54

The assessment gives a thorough account of an organization’s current strengths and areas for?

Answer 54

im­­provement and as a result provides suggestions as to where the organization might choose to focus some of its effort in the future.

Question 55

The recommendations might not touch upon the?

Answer 55

strategic priority.

Question 56

On the contrary, the balanced scorecard perceives performance objectives which need to be achieved in order to?

Answer 56

reach the organization’s vision in two or five years’ time.

Question 57

It asks the question:

Answer 57

“Where does the organization need to improve to achieve its three-year financial objectives?”

Question 57

The balanced scorecard is——————————-. It starts from the ———————end goal and works its way back.

Answer 57

future-oriented

visionary

Question 58

Attached to those objectives is a set of actions and initiatives which the organization needs to ?

Answer 58

undertake today to attain the objective.

Question 59

In the scorecard, the priorities for today are derived from?

Answer 59

the assumption of where the organization needs to be tomorrow.

Question 60

It then takes further analysis to determine how much effort it will take to get to tomorrow, given?

Answer 60

the current strengths and weaknesses of the organization.

Question 61

The strategy development and formalization process of the balanced scorecard approach has another?

Answer 61

valuable ‘by-product’.

Question 62

It forces the management teams to decide and discuss which measures of?

Answer 62

business performance should be monitored and thereby requires from the management to be very explicit about their performance priorities and the relationship between them.

Question 63

As a ‘communication tool’, it provides ?

Answer 63

an opportunity to resolve any hidden differences of opinion and strategic objectives.

Question 64

By using the EFQM excellence model, an organization will have a good and broad understand­ing of?

Answer 64

its own strengths and weaknesses at the process level.

Question 65

As a result of the assessment, an organization will have an indication as to where?

Answer 65

it may need to improve significantly, where it performs adequately, and where it excels against the ideal benchmark.

Question 66

However, an association may not have a strong sense of ?

Answer 66

where to invest as a strategic priority or where improvement will make the biggest impact in business performance and results.

Question 67

On the other hand, the balanced scorecard can be used to provide knowledge of where the strategic focus is?

Answer 67

needed and which action needs to be prioritized as well as where resources need to be allocated to.

Question 68

A distinct benefit of the self-assessment exercise is streamlining the process of ?

Answer 68

managing performance.

Question 69

For example,

Answer 69

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.

Question 70

Certainly, there is still a need for improving performance in?

Answer 70

non-strategic areas, should the performance be below acceptable quality standards.

Question 71

At the same time, the assessment may uncover a set of activities where?

Answer 71

the organization transcends or stands out and those activities are also non-strategic.

Question 72

In this case, a reason to cut back on the level of investment committed to ?

Answer 72

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).

Question 73

In this scenario, the balanced scorecard complements the self-assessment in providing ?

Answer 73

a strategic prioritization tool.

Question 74

Resources can be committed to the strategically important areas as needed but do not necessarily have to be ?

Answer 74

used exclusively on improving the low scoring areas on the self-assessment.

Question 75

With help of both approaches, an organization can take the appropriate steps with?

Answer 75

the knowledge that the actions undertaken will be done properly.

Question 76

Figure 20: Self-Assessment & Excellence Model

Question 77

Figure 20: Self-Assessment & Excellence Model

Question 78

Once an organization has identified its strategic spurs of performance and associated measurement, it will turn to?

Answer 78

the development of targets and initiatives using the balanced scorecard approach.

Question 79

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?

Answer 79

set up appropriate quality processes which will support the strategic objectives and measurements identified in the balanced scorecard.

Question 80

Quality pro­cesses are equally important to achieve ?

Answer 80

strategic goals.

Question 81

The knowledge gathered from conducting the self-assessment provides?

Answer 81

a deep understanding of the challenges that an organization may face in delivering excellence in performance regarding its strategic objectives.

Question 82

For example,

Answer 82

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.

Question 83

That can be a valuable instrument to ?

Answer 83

inform the association on how to bridge the performance gap between present and the 3–5 year horizon.

Question 84

It can also provide a clear guideline regarding?

Answer 84

the level of process investment required as well as the time that is needed to fully implement the balanced scorecard objectives\/measures.

Question 85

The self-assessment can also act as?

Answer 85

a useful starting point to the balanced scorecard implementation process.

Question 86

The two models can add a useful dimension to the other by?

Answer 86

leveraging the knowledge and insights that each of the models brings to the organization.

Question 87

Indeed, this combination of models enriches?

Answer 87

the management dialogue and process by providing additional sources of intelligence.

Question 88

By using both, a management team can foster a deeper dialogue about?

Answer 88

performance supported by an end-to-end analysis of the organization’s performance.

Question 89

This covers all areas from strategy to operations and process quality. Both models clearly have their place within?

Answer 89

the strategy and business planning spectrum.

Question 90

Figure 21: Fitting the Two Models on the Strategy and Planning Spectrum

Question 91

Figure 21: Fitting the Two Models on the Strategy and Planning Spectrum

Question 92

Figure 21: Fitting the Two Models on the Strategy and Planning Spectrum

Question 93

Inspired by the success of the EFQM excellence model and the balanced scorecard, some organizations are?

Answer 93

trying to create either their own model or combine the two models together into a third one.

Question 94

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 ?

Answer 94

certain management decisions, there are also differences in purpose and advantages in both the models.

Question 95

There is a risk that merging the two models could be misleading when defining the ultimate goal of?

Answer 95

the organization and potentially obscure benefits that can be obtained from using the two models separately.

Question 96

The risk is creating an unnecessarily cumbersome process which will not be fit for?

Answer 96

the purpose.

Question 97

Trying to draw parallels and similarities between the two models might help in?

Answer 97

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.

Question 98

Therefore, it is paramount to define?

Answer 98

where the differences are best addressed separ­ately.

Question 99

Pitfalls in Performance Measurement and Management

Performance measurement systems (PMS) are?

Answer 99

multi-functional in their approach and quite laborious to implement.

Question 100

In many cases, efforts to implement performance measurement systems in an attempt to positively influence?

Answer 100

the performance of an organization end up imped­ing performance or producing undesired effects.

Question 101

Certain risks associated with performance measurement systems have been identified by?

Answer 101

academics and practitioners discussing this topic.

Question 102

Information Overload

Since information gathering and provision are key areas of a performance measurement system, there are some cases in which ?

Answer 102

a large amount of information creates negative effects on an organization.

Question 103

Management teams become overloaded with excessive amounts of information which leads to?

Answer 103

‘paralysis by analysis’.

Question 104

The conclusion is to reassess measurement systems and metrics which do not contribute to?

Answer 104

the achievement of strategic goals.

Question 105

Key Performance Indicators (KPI)
Key performance indicators, also known as KPI or key success indicators (KSI), help an organ­ization?

Answer 105

define and measure progress toward organizational goals.

Question 106

Once an organization has analyzed its mission, identified all its stakeholders and defined its goals, it needs to?

Answer 106

find a way to measure progress toward those goals.

Question 107

Key performance indicators can be those measurements. Examples from different sectors indicate how KPIs can be applied:

Answer 107

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.

Answer 108

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.

Question 109

Whatever key performance indicators are selected, they must reflect?

Answer 109

the organization’s goals, they must be critical to the success of the organization, and they must be quantifiable (i.e. measurable).

Question 110

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.

Answer 110

long-term considerations

change

closer to achieving

Question 111

Key Performance Indicators (KPI)

Answer 111

Perverse Incentives
Cost of Measurement
Cultural resistance

Question 112

Perverse Incentives

Answer 112

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.

Answer 113

In addition, different frameworks can cause negative results, especially when they are implemented in isolation, for example key performance indicators (KPI).

Answer 114

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.

Answer 115

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.

Answer 116

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.

Answer 117

Therefore, it is important to state that all performance measures must be thoroughly examined before?
defining incentives for their achievement.

Question 118

Cost of Measurement

Answer 118

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.

Answer 119

Any measures which do not do so should be elimin­ated as they incur?

unnecessary costs without providing any value to the organization in return.

Question 120

Cultural resistance

Answer 120

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.

Answer 121

Managers may also be reluctant to disseminate proprietary information to?
lower ranks and employees may resist efforts to have their performance measured objectively.

Answer 122

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.

Answer 123

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.

Answer 124

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.

Answer 125

A measurement and management system should always be altered to?
correspond with the strategy being pursued.

Answer 126

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.

Answer 127

However, there are obstacles which create difficulties in implementing a?
PMS.

Answer 128

Unlike the environment in which organizations operate, many initiatives to introduce?

PMSs appear to be static.

Answer 129

There is a conflict between?
the fixed organization’s strategy goals and rapidly changing business environments which might create some dysfunctional operational problems.

Answer 130

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.

Answer 131

The consequence is a paradox where organizational control is maintained without ?

knowing exactly what the performance is.

Answer 132

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.

Answer 133

There is great necessity to understand what is being managed and therefore ensure the reflection of ?

continuous change.

Answer 134

However, there has been little evidence of ?

the extent or effectiveness with which this takes place.

Answer 135

Moreover, literature suggests that ineffective management of ?

the evolution of measurement systems is causing a new measurement ‘crisis’.

Answer 136

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.

Question 137

We have looked at two important performance measurement systems in detail:

Answer 137

The balanced scorecard and the EFQM excellence model.

Question 138

We now know the characteris­tics of the two models and what sets them apart from
each other.

Question 139

While the two models have the same measurement approaches in common, ?

Answer 139

the outcomes and benefits are quite different.

Question 140

The balanced scorecard approach is

Answer 140

prescriptive, while the excellence model uses a descriptive approach.

Question 141

Therefore, we can state that?

Answer 141

the former is hypothesis driven and subjective, while the latter is fact-based and objective.

Question 142

The balanced scorecard approach is forward-looking, and is built around the vision of ?

Answer 142

what the organization should look like in the future,

while the excellence model observes the organization as it is currently.