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Developing Performance Objectives & Measures. Prepared by: Rasha El Hagrassy. Creating Cause-and-Effect Linkages. Develop objectives and measures for each of the four perspectives . The business process perspective. The learning and growth perspective. The customer perspective.
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Developing Performance Objectives & Measures Prepared by: Rasha El Hagrassy
Creating Cause-and-Effect Linkages • Develop objectives and measures for each of the four perspectives. • The business process perspective. • The learning and growth perspective. • The customer perspective. • The financial perspective. • Create a description of your strategy from those, or completely new, objectives and measures.
performance measures—the heart of the balanced scorecard Performance measures are the tools we use to determine whether we are meeting our objectives and moving toward the successful implementation of our strategy. • Standards used to evaluate and communicate performance against expected results. • They function as a tool to drive desired action • Provide all employees with direction in how they contribute to the organization’s overall goals. • Supply management with a tool in determining overall progress toward strategic goals. • The ability to define and agree upon measures as the biggest barrier to developing your performance measurement system. • The distinction between lagging and leading measures is our starting point.
Lagging and Leading Measures of Performance • Lag indicators: represent the consequences of actions previously taken • Lead indicators: the measures that lead to—or drive—the results achieved in the lagging indicators. Examples: sales, market share considered lagging indicators. What drives each of these lagging indicators? Sales (lag indicator) may be driven by hours spent with customers (lead indicator). Market share (lag indicator) may be driven by brand awareness (lead indicator). • BSc should contain a mix of leading and lagging indicators. • Lagging indicators without performance drivers fail to inform how results will be achieved. • Leading indicators may signal key improvements throughout the organization, but on their own they do not reveal whether these improvements are leading to improved customer and financial result.
MEASURES FOR THE FINANCIAL PERSPECTIVE Scorecard practitioners consider financial measures the most important component of the Scorecard. • Cascading financial measures to lower levels. • All employees demonstrate how their day-to-day activities contribute to overall strategy & goals. • Ultimately influencing financial returns. • Financial measures should be part of any Balanced Scorecard in: • Private enterprise. • Not-for-profit organization. • Public-sector organization. • All measures selected to appear in your Balanced Scorecard should link together in a chain of cause-and-effect relationships that tell the story of your strategy. • The measures in the financial perspective help to lay the groundwork for the selection of measures in each of the other three perspectives.
As we develop linked measures in the customer, internal process, and employee learning and growth perspectives, we must ensure that their inclusion will lead to improved financial results and the implementation of our strategy. • We could focus all of our energy and capabilities on improving customer satisfaction, quality, on-time delivery, or any number of things, but without an indication of their effect on the organization’s financial returns, they alone are of limited value. Choosing Financial Measures Most organizations choose financial measures related to three areas: • Growth. • Profitability. • Value creation.
