Cascading Kpis Throughout The Organisation 52k1r

Cascading KPIs throughout the Organisation by Patrick PC Ow

Mission/ Vision

Strategy

e th g t) tin en ica m un gn m Ali m al Co ur & ul t ng (C ni s ig ur Al io g, hav tin Be sla ip an sh Tr e r g, ad in Le ify d ar re Cl esi D

g, th Tra e S ns tra lati teg ng, y ( Al Bu ign sin ing es s A & Co lig m nm mu en nic t) ati ng

We start the scorecarding process by identifying, analysing and prioritising core business processes and key customers. Figure 1 below provides the requisite framework for scorecarding and alignment of corporate strategies. This framework helps us to analyse and define key customer requirements and critical business drivers (or Critical Success Factors) while finding the key measures (or Key Performance Indicators) that matter most to the organisation. By doing so, employees can measure their personal contribution objectively against these key drivers and measures since “what gets measured gets done”. Measures identify gaps between plans and execution.

Values

Cla r

ify in

Strategic Objectives/ Critical Success Factors (CSF)

Key Performance Indicators (KPI)/ Measures/ Targets Financial Customer

Processes

People

Action Plans, Resources and Budgets (tied to Data Collection and Structural Reform) Balancing the Scorecard & Practices

Figure 1: Scorecard Framework

Key business processes are continuously improved and aligned to corporate strategy and definable customer requirements. Translating corporate strategy into individual operating business units requires us to develop a set of “balanced” corporate measures for comparing actual performance against planned strategic objectives. We balance the following into four to five scorecard perspectives (e.g. financial, customers, internal processes, and people): ‰ Financial and non-financial indicators, ‰ Lead and lag indicators, ‰ Internal and external indicators,

‰ Long-term and short-term indicators, and ‰ Process and outcomes indicators. Using competitive intelligence, set aggressive targets (baseline and stretch) for each weighted measure. All measures must comply with the SMARTA principle in that they must be: ‰ Specific – Specific to the individual who is responsible and can be held able for the job’s performance (or non-performance) ‰ Measurable – Job-related and quantifiable based on observable behaviour that can be used for an on-going performance . Consider also the cost and benefit of performance data collection and availability of data. ‰ Agreed To – Open two-way communication will secure buy-in and commitment, making weighted measures and targets more relevant and valid ‰ Realistic (Controllable, achievable, real and relevant): •

Control – Employees must have a significant degree of control, authority, and influence over the achievement of the measures and activity

•

Achievable – Measures must be realistically achievable

•

Workload realities – Most jobs are clogged, to varying extents, by routine istrative tasks that take time

•

Work Relevance – Based on job nature, if the outcome of the job is the most important aspect, emphasise actual results. If the process is most important, focus on actual behaviour and performance methods. If what the employee 'is' on the job matters most, focus on personal aspects like management style, interpersonal skills, 'team player' attributes and/or risk-taking.

‰ Timely – Measures should be timed or have an appropriate end-date ‰ Aligned – Individual weighted measures must be directly linked or aligned to organisation goals and objectives (both vertically and horizontally integrated) Crosscheck corporate strategic objectives, measures, and targets against elements of the corporate mission and vision statements for consistency and coverage.

Figure 2 shows how corporate scorecard elements can be cascaded and strategically aligned and integrated to all business units. services’ scorecards are then developed and aligned to business unit scorecards based on negotiated service level agreements and value chain analysis. Corporate CEO’s Personal Scorecard + Corporate Scorecard (Strategic)

Financial

Process

Customer

People

Financial Customer Processes People

BU 1 Business Unit Head’s Personal Scorecard + Business Unit Scorecard (Tactical)

Individual's Personal Scorecard + Performance Improvement Plan (Individual)

(Operating Margin) (Customer Satisfaction) (Safety Index) (Employee Satisfaction)

BU 2

Financial

Process

Financial

Process

Customer

People

Customer

People

Financial

Process

Financial

Process

Customer

People

Customer

People

Financial

Process

Financial

Process

Customer

People

Customer

People

Team A Team Leader’s Personal Scorecard + Team Scorecard (Operational)

20% 25% 35% 20%

Financial 20% Customer 25% Processes35% People 20%

(Operating Expenses) (Customer Retention) (Days Absent) (Employee Turnover)

Team B

Individual 1

Financial Customer Processes People

10% 35% 30% 25%

(Variable Cost) (First Yield) (Accidents) (Cross-Training)

Individual 2 Customer 35% (On-time Delivery) Processes 35% (Log Book Violations) People 30% (Achieving Targets)

Figure 2: Cascading/ Aligning Framework Crosscheck business unit and service scorecard measures and targets against corporate strategic objectives, measures, and targets for alignment, integration and consistency. Through this cascading and crosschecking process, effective communication takes place, misunderstandings are clarified and roles and responsibilities clearly defined. Figure 3 shows how the cascading process takes place.

Overall Overall Vision Vision

Initial scorecard development

How

Objectives What

Corporate Scorecard

Measures

“I can see my value contribution to the organisational success”

Li ne -o f -S ig ht

How

Targets Action Plans

Cascade & Linkage

What

Objectives (Related)

Business Unit Scorecard

“What I Do”

Measures

How

(Related)

Targets Local Local Priorities Priorities

Action Plans (Specific)

What

Objectives (Specific)

Team/ Personal Scorecard

Measures (Specific)

Team/ Team/ Individual Individual Priorities Priorities

Figure 3: Cascading Process

Performance Improvement Plan

Targets

Business unit (and services) initiatives are rationalised, prioritised and managed. Business unit budgets and action plans are developed, consolidated and subsequently rolledup for consolidation as corporate budgets and initiatives. Resources are prioritised and allocated according to clearly defined strategic needs in rationalised budget and action plans. This is vital to ensure that all budget allocations are rationalised and aligned to corporate objectives. The Alignment Model shown in Figure 4 below demonstrates how human resource and other organisational and management practices must also be aligned and integrated with corporate strategy. This ensures congruence and synergy within and throughout the organisation. There must be a systematic and holistic approach in ensuring that corporate strategy, policies and strategies for managing human capital, especially, are all aligned, rather than operating independently in “silos”. For example, a first-rate selection system may be of no use if it is not working in conjunction with effective training and development activities since these two components can counteract each other. Vision/ Mission

What

Organisation

Synergised Practices, Polices, Processes

Align

Aligned Business Unit Scorecard; Business Plans & Budgets

Team/ Individuals

Values Statement

Align

Business Unit/ Services

Align

Align

Corporate Scorecard; Measures, Initiatives

How

Cascaded & Aligned Personal Scorecards: Measures; Targets

Align

Key Competencies/ Focused Behaviours

Figure 4: Aligning Model Finally, cascade and align the business unit’s objectives, weighted measures and baseline targets to all workgroups, teams and individuals. A strategy-linked incentive and reward system for rewarding performance is used. The use of the infamous “bell curve” must be discarded. Team-based rewards must be instituted to avoid the individual “free-rider” problem. In doing so, people transformation can truly take place, with poor performers transitioned out.

Qualified as an ant and lawyer, Patrick Ow has keen interest in performance measurement and the cascading of top-level scorecards into personal scorecards. E-mail him at [email protected].