Keeping the balance
Adgiid Hop, senior consultant, Capgemini, on using performance management tools
1 June 2006
Publication
Running an organisation boils down to the art of managing a complex set of levers that are all linked to each other. Reducing personnel costs is great and has an impact on operating profit but it may have a detrimental effect on employee satisfaction and therefore customer satisfaction and sales. The list of examples is endless, which is why retail management is so difficult and inconsistent. Each manager focuses on different levers at different times and different layers of an organisation can focus on different levers as well. So how can we ensure more balanced and consistent management?
One tool that can help is the so-called balanced scorecard - a performance management tool that has two main aims:
- Balanced management of the levers that impact performance
- Consistent management across an organisation
As a tool it is a summary of performance in four categories: financial, operational, customer, and employee. When using the balanced scorecard, each element of the organisation uses the same set of 15-20 performance indicators; including the store managers and regional managers.
These measures are then compared to a consistent set of targets which ensures that all managers have a common set of goals. The other distinguishing factor of the balanced scorecard is that it is not the actual numbers that matter but whether these numbers are above, near or significantly below target. This is communicated in colours and not numbers; green for equal to or above target, amber for near target and red for significantly below target
The balanced scorecard, if used correctly, can help drive consistency and improve performance. The only remaining risk is that it is just a piece of paper that summarises performance.
Underperformance still needs to be transformed into action. This balanced scorecard should form the basis for periodic review meetings aimed at generating action to drive improvement, whether that be meetings between regional managers and store managers or between store managers and junior managers. This represents the balanced scorecard process.
But how is this done?
If a certain indicator is red, the management team discusses why that is the case, what the root causes are, and what action will be required by whom and by when to rectify the problem. Again, nothing revolutionary; the difference is that we recommend doing this very explicitly through a scorecard logbook. When discussing a ‘red; the required actions are identified, accountability is agreed and this is recorded in the logbook.
During the next meeting these next steps are reviewed to confirm that:
- They have they been completed
- They have they had the desired effect
The scorecard is then reviewed to identify and agree new next steps. Most organisations go through comparable processes but they tend to focus on one or two commercial measures and they tend not to explicitly record actions or next steps. This means that agreed actions are too often forgotten and not followed up and the measure therefore remains red.
In summary, the balanced scorecard takes some of the better elements of modem management practices and combines these into a tool that ensures a consistent and balanced management approach that drives continuous and sustainable improvement.
