Editor's Note: No two successful performance management programs are the same, but all successful performance management programs share common principals. To shed some light on what separates a good company from a great company with regard to performance management, DC VELOCITY will publish a column on one of the 12 Commandments of Successful Performance Management each month. This month we will drill into the second commandment: Balance.
The Second Commandment
Balance: Use a balanced approach when selecting your measures
In the early 1990s, Robert Kaplan and David Norton caught the business world's attention with their proposition that business success was driven by more than merely making the numbers. Sure, you have to follow the money, they argued in a series of Harvard Business Review articles. But financial performance is an incomplete picture. Gross profit numbers may tell you where you've been, but "soft" measures—employee satisfaction, innovation, the time it takes to get products to market—provide something more important: a picture of where you're going.
Study after study has shown that companies that use a balanced set of financial and non-financial strategic measures outperform their less-disciplined rivals in both performance and management. But it appears that Corporate America remains unconvinced. Surveys indicate that less than half of all organizations set goals for the "soft" issues—those related to managing people, suppliers, customers and innovation. That's risky: If you don't keep score, you have no way of knowing whether you're keeping up with the times.
Consider, for example, the old story about the buggywhip maker whose sole mission was to sell the absolute best buggywhips on the planet. Sounds fine, except that its failure to focus on innovation—not to mention the customer—meant it was blindsided when its clientele traded in their buggies for cars. It's easy to laugh, but consider how often companies— particularly third-party logistics providers—fall into the trap of overservicing their customers without understanding their costs.
That's not to say that establishing metrics for the "soft" factors will be easy. There are no national or international accounting standards for measuring customer satisfaction, innovation or employee satisfaction.
So where do you start? Most proponents of the Balanced Scorecard approach urge companies to focus on the following:
That's fine as far as broad guidelines are concerned, but what about the specifics? Managers seeking more detailed guidance have a number of options. Both the American Productivity and Quality Control Center and the Supply Chain Council have developed lists of more than 100 non-financial metrics. Managers can also sign up for seminars and workshops, and they can hire consultants to help them get started.
Then there's always software. Faced with yet another analytical task, many companies decide to install formal Balanced Scorecard software. But that's not mandatory for success. One third-party logistics provider turned its operations around following this simple rule of thumb: Every department must have three measures—one for quality, one for service, and one for productivity. The rationale? You need quality to get the customer, you need to provide service to keep the customer, and you must be productive or you won't make any money!