Director Development Centre

Principal: Richard Winfield

Adopt performance measures*

It is management's responsibility, not the board's, to implement strategy.

However, it is important to ensure that business strategies and plans for different parts of the organisation are consistent with corporate strategy – and that they are implemented and the results monitored.

Although, on the face of it, the board's main role is to direct, in practice, monitoring is even more important.

When the Americans launched rockets to the moon, they were rarely on the exact correct course. NASA in Houston was continuously monitoring the direction and applying course corrections.

The board needs to be in a similar position – receiving enough information to enable it to know when to apply a course correction. The challenge is to communicate direction and to monitor key information (metrics) in order to maintain an effective but light touch.

This is a particular challenge for non-executive directors; to judge how much information they need in order to discharge their responsibilities without interfering.

An initial focus on business objectives enables definition of appropriate metrics – those that are meaningful to stakeholders and to the business. Effective metrics measure results in terms of defining action and improvement, rather than merely monitoring performance.

By selecting a few key metrics to begin with, organisations can secure initial successes and add more strategic elements and complexity. At board level about six high-level metrics should suffice.

It is helpful if information can be delivered in a user-friendly manner – not in complicated computer print-outs or spreadsheets. There are two processes that can help here.

Balanced Business Scorecard

The balanced business scorecard is a management system that is used to align business activities to the vision and strategy of the organisation, improve internal and external communications, and monitor organisation performance against strategic goals. It provides the key business drivers and criteria to motivate managers to develop and apply processes that will contribute to future success – rather than dwelling on historic performance.

The traditional means of measuring success through financial performance focuses on achievement to date. It is backward looking and can be counter productive in terms of securing a successful financial future.

By requiring four perspectives, the business scorecard provides a richer more holistic view of the organisation and balances financial success with processes that will generate success in the future.

The financial perspective is retained and 'balance' is achieved by introducing a customer perspective, an internal perspective and a learning and growth perspective. In addition, it introduces objectives and measures, identifying both critical success factors and critical measurements.

This creates a four column by three row matrix. You can download an example of the scorecard applied to Investors in People and a set of blank forms for your own use.

The business scorecard model

The four perspectives generally used are shown below. However, the model can be used with any selection of perspectives appropriate to a particular exercise.

Financial perspective	Customer perspective	Internal business processes	Learning and growth
To succeed financially, how should we appear to our shareholders?	To achieve our vision, how should we appear to our customers?	To satisfy our shareholders and customers, what business processes must we excel at?	To achieve our vision, how will we sustain our ability to change and improve?
Objectives Measures Targets Initiatives	Objectives Measures Targets Initiatives	Objectives Measures Targets Initiatives	Objectives Measures Targets Initiatives
What are the critical success factors?

What are the critical success measures?

The balanced scorecard has been around for a few years now and in some organisations is seen as a flavour of the past. However, it remains a valuable and powerful tool.

Performance Dashboard

A performance dashboard is a performance management system that translates the organisation's strategy into objectives, metrics, initiatives and tasks customised to each group and individual in the organisation.

A performance dashboard lets business people:

Monitor critical business processes and activities using metrics of business performance that trigger alerts when potential problems arise.

Analyse the root cause of problems by exploring relevant and timely information from multiple perspectives and at various levels of detail.

Manage people and processes to improve decisions, optimise performance and steer the organisation in the right direction.

Dashboards can be designed and developed to address a wide range of objectives, from monitoring the viability of a global organisation's business strategy, to keeping a check on a department's ability to achieve service-level targets.

At its simplest, a dashboard can simply be a set of visual display mechanisms that deliver performance information in a user-friendly way. However, a performance dashboard can also be a full-fledged business information system that is built on a business intelligence and data integration infrastructure that knits together the data, applications, and rules that drive what users see.

Properly designed and implemented performance dashboards will deliver the right information to the right users at the right time to optimise decisions, enhance efficiency and accelerate bottom-line results.

Corporate governance

Does your board have performance measures to monitor implementation of strategy, policies, plans and legal and fiduciary obligations that affect the organisation?

Measures are complementary to and consistent with management's planning and control systems?

Clearly identify and explain variances between planned and actual performance?

Are able to provide early warnings of major risks and notice of changes to the external environment?

Are presented in time for directors to respond and for the board to ensure corrective actions are taken?

Are presented in a manner that is convenient, appropriate and accessible to directors – including non-executive directors, who are independent of the day to day operation of the organisation?

* Inspired by the Institute of Directors Standards for the Board