Throughout the years, many studies have examined the use of the balanced scorecard (BSC) in a board’s performance evaluation. Why is this important and how can this be implemented?
The modern business landscape is characterized by fast-changing trends, an expanding weight from the competition, and risks emerging from new trends. This is why a good corporate governance system is what can help companies achieve high business performance despite uncertainties. Having a control mechanism will help managers carry out business activities that can maximize profits for shareholders. Board members represent an important internal control mechanism.
The BSC, designed by Robert Kaplan and David Norton, is primarily made of financial and non-financial benchmarks. The BSC model starts from a defined mission, vision, goals, and strategy of the company and identifies specific goals, tasks, benchmarks, and initiatives from four basic causal relationships: financial perspective, stakeholder perspective, internal business process perspective, and learning-growth perspective.
The BSC Component in the Context of a Board’s Performance
In 1996, Kaplan & Norton suggested that the vision and strategy of a company be more specifically defined from four basic, interconnected perspectives:
Financial Perspective – how to implement a strategy that will maximize profits for equity owners.
Customer Perspective – how to achieve customer satisfaction and loyalty.
Internal business process – how to achieve an effective and efficient business process.
Learning and Growth Perspective – how to gain human capital competitive advantage.
Later, in 2004, Kaplan & Michael E. Nagel proposed a three-part BSC program:
Enterprise Scorecard – synchronized list of results at company level
Board Scorecard – synchronized list of Board results
Executive Scorecard – synchronized list of executors’ scores
Synchronized lists at the company level ensure that top managers, starting from a well-defined company strategy, goals, tasks, benchmarks and initiatives through the four outlined perspectives. This process converts the company’s strategy into operational terms.
It is necessary to build a synchronized list at the board level. That is, the board of directors should evaluate and approve the corporate strategy map and the corporate level’s harmonized list. According to Kaplan and Nagel, a synchronized list at the board level also has four perspectives:
Financial Perspective – Similar to the company level, the goal is to maximize value for equity owners.
Stakeholder perspective – This is a broader perspective than at the company level because it is now important to respect the interests of all stakeholders.
Perspective on internal business processes – This explains how the board contributes to achieving shareholder goals and relates to performance monitoring, reward systems, etc.
Learning and Growth Perspective – This captures human capital as a source of competitive advantage, related to the specific skills and the knowledge and capabilities of board members.
Application of the BSC to a Board’s Performance Evaluation
According to research published in the Managerial Auditing Journal, studies that have suggested the possibility of using the BSC in evaluating the board performance recognize the financial dimension, the stakeholders’ dimension, the internal processes dimension, and the learning and growth dimension in the BSC.
The framework of the board’s BSC is based on identifying four basic elements in each dimension: the objectives, the performance drivers, the measures, and the targets:
The objectives reflect the board responsibilities;
The performance drivers are actions taken by the board to achieve the objectives. Each performance driver should be linked to specific measures and targets;
The performance measures are used to control the performance drivers and assess whether the board has achieved the goals;
The targets reflect the best practices of the industry.
Using the BSC in a board’s performance evaluation can help define strategic contributions of the board; provide a tool to manage the composition and the performance of the board and its committees; clarify the strategic information required by the board, and help monitor the structure and performance of the board and its committees.
The Evaluation Process: Agents and Contents
According to the study “Evaluating Boards and Directors”, evaluating board performance may be done by an internal party represented by the chairman of the board. In some cases, it may be appropriate to delegate the evaluation process to a non-executive member, a lead director, or a committee of the board. Also, the evaluation process may be carried out by an external party who has experience in corporate governance and performance evaluation.
The self-evaluation method is a common way to evaluate board performance. Even though this method is characterized by confidentiality, biases can still occur. The close work relationship between chairman or the non-executive member and the board members can affect the objectivity of their point-of-view. The lack of skills and time in conducting performance evaluation can be a major influence on the evaluation results.
Through a nominating committee or an audit committee, a higher degree of objectivity and independence can be achieved; however, the bias risk will remain.
Hiring an external advisor is applicable for the non-availability of the necessary skills for the evaluation process and achieving greater transparency and objectivity. The external counselor may be a professional advisor. Several enterprises use a trusted adviser as the board prefers to deal with people whom they know and trust, but it is better to use a professional advisor that has a proven technical skill in their past experiences and a high degree of independence.
The responsibilities element aims to evaluate the fulfillment of the board’s responsibilities.
The operations element aims to assess the board’s relationship with the management.
The structure element aims to assess the board’s composition.
The board membership element aims to assess the overall board’s skills and knowledge, experience, competence, ethics, diligence, and independence.
Figure 1. Strategic Objectives and KPIs | Source: The KPI Institute
The BSC is an advanced performance management tool that supports organizations to transform vision and strategy into short-term and long-term targets and specific measuring rules. The application of a balanced scorecard in evaluating a board’s performance has been proven through many studies as an effective performance management tool. It also helps a board’s direction to be more aligned at the company and operational level.
Using a BSC in a board’s performance evaluation requires skillful and independent evaluation agents to maximize its potential. To gain the right skills and learn how to implement a balanced scorecard management system in your organization, sign up for The KPI Institute’s Certified Balanced Scorecard Management System Professional course.
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Editor’s Note: This article has been updated as of September 17, 2024.
Benchmarking, commonly known as learning from best practices, is an effective organizational performance tool that can boost a company’s performance, by enabling a learning experience that relies upon understanding best-in-class practices and implementing them within one’s own organizational structure.
This assessment process is conducted for the sake of improving your firm’s performance with the goal of filling the performance gaps between you and your best-in-class competitors or even exceeding their performance level in the long run.
However, as effective as it may seem, it is a time-consuming and resource-intensive activity that requires a well-defined methodology, action planning to identify best-in-class competitors, and an implementation strategy. Without these components, the positive effects of a benchmarking study on performance might be reduced.
The What, Why, and Who of Benchmarking
Benchmarking allows companies to focus on their strengths and weaknesses, by comparing them to those of their main competitors within their respective industry, or from another industry, which will allow them to strengthen their position on the market.
When searching for competitors, we focus on better understanding their best practices. Best practices refer to conducting a comparison of performance data, data that is obtained by analyzing our competitors’ similar processes and internal activities and by identifying those practices that led to superior performance. Once identified, those practices must be adapted and implemented within the boundaries of your own organization.
Hence, when conducted correctly, the benefits associated with benchmarking can include:
Measuring and comparing your organizational processes against those of another competitor or industry;
Discovering performance gaps;
Incorporating leading firms’ processes into your own process flow to increase performance and reduce gaps;
Future-oriented goal setting and improved resource prioritization;
Accelerating continuous process improvements – CPI;
Identifying better opportunities for growth;
Learning from industry standards.
To show that benchmarking is more than just comparing numbers, let’s consider the following example: in the electric utility sector, an electricity distributor has an average interruption time for residential customers of 105 minutes. Is this value good, acceptable, or bad? It is not easy to find an appropriate answer, unless the 105 minutes are compared to an objective standard, such as the industry standard of interruption time for the competitors in the sector.
However, it also depends on the company’s strategy. 105 minutes may be considered a satisfactory value for them, while someone else can view it as an alarming call for improvement.
The example above relies on the idea that performance represented through the usage of mere numbers can’t provide any meaning when analyzed without having a reference, or a benchmark value for the sector, as a comparison point.
When conducting a benchmarking analysis, no matter the industry of interest, there are usually three questions that must be answered before initiating the study:
What is to be benchmarked? (e.g. processes, strategies)
Against what or who will your organization be benchmarked? (e.g. KPI, competitors)
What will benchmarking do to my organization? (e.g. improve performance, analyze performance)
In general, nowadays, performance measurement has become a standard practice for any organization that uses KPIs.
However, the next step that needs to be taken to improve performance is the implementation of a benchmarking study, where your company can compare its own performance with the sector’s point of reference (a benchmark), or simply assess the compliance with respect to industry standards, understanding how you can learn from their best practices and apply them within your own organization.
Types of Benchmarking
A first step in conducting a benchmarking study involves the type of benchmarking that is to be constructed. This first step is necessary because any process, product, and function in a business are eligible for benchmarking.
The decision depends on the nature of the company, the sectors of interest, and above all else, it depends on what are the main goals the company has planned after its implementation of the best practices learned through this study.
There are three main typologies:
Performance Benchmarking: focuses primarily on the characteristics of products and services. For instance, analyzing # Average waiting call time in the customer care department
Process Benchmarking: compares similar activities to identify the most effective operating practices, for instance, % Delivered products on time
Strategic Benchmarking:focuses on identifying best practices in strategic processes to improve competitiveness within and beyond one’s own industry and assess what could be a long-term competitive advantage.
By contextualizing, benchmarking can provide the above-mentioned benefits to the company conducting the study, if it supports a strategic plan and if the plan is conducted on existing processes that are defined and in use.
The Bottom Line
Is benchmarking worth a company’s investment and time? Yes, it is a potentially powerful tool to promote continuous improvement in performance and performance comparison among industry players.
Nevertheless, you have to remember that quite a lot of attention and time must be dedicated to defining the initiatives that must be taken and to the methodology that is used, otherwise, the results may be ambiguous.
Given the complexity of designing a Benchmarking study and all the related challenges associated with it, The KPI Institute’s training program, Certified Benchmarking Professional, is designed to fill the gaps you might have or to provide complete new knowledge about aspects on how to conduct a benchmarking study.
For further knowledge, feel free to download any of our webinars that are focused on the idea of Benchmarking or take a look at our solutions, which span from audit services to framework optimization.
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Editor’s Note: This article has been updated as of September 17, 2024
Experts define high-performance culture as a set of shared beliefs and values set up by leaders. These shared beliefs and values are then embedded and communicated through different strategies that eventually form employee perceptions, behaviors, and understanding.
All companies want their employees to arrive each day motivated, prepared, and energetic to do what it takes to make the work done. However, it’s more of an idealism than a reality. A State of the Global Workplace report from Gallup shows that only 15 percent of employees are engaged at work. Meanwhile, new research from Zenefits revealed that 63.3% of companies consider employee retention more challenging than hiring.
The Pillars of a High-Performance Culture
Several reports and case studies emphasize the impact of motivation on employee performance. While there are means to address waning motivation, a “well-performing” company isn’t good enough. With the capacity to trade globally, and markets immersed with companies scrambling for market share, it is more critical than ever to have a distinctive, high-performance culture.
There are many frameworks to analyze high-performance culture in an organization. One example of a well-developed and data-driven framework for assessing a high-performance culture can be seen in the Organizational Health Index.
Developed by McKinsey in 2017, the Organizational Health Index (OHI) survey measures 37 individual management practices and nine outcomes against a global database of more than 1.5 million individual responses.
The Role of OKRs in Building a High-Performance Culture
Objectives and key results (OKR) is a goal-setting tool used for measuring organizational/departmental/individual objectives through challenging and ambitious key results. Extracted from the organization’s visions and missions and aligned with the department’s goals, OKR involves activities such as planning, activating, managing, and adjusting.
With OKRs, teams can cascade and align goals to the different levels of an organization, defining outcome-based key results that help verify the success of the objective. OKRs act as a guide for daily work and connect all employees to a larger purpose, which is what the organization intends to achieve.
If OKRs are perceived as more than just a goal-setting tool and instead as a communication one, it shows why the OKRs are brilliant at building a high-performance culture. The effort of achieving daily goals at the individual and team levels eventually leads to the achievement of the overall objectives at the organization level in the long run.
As a result, when implemented correctly, OKRs can help a company enable a high-performance culture and achieve far more than their team thought possible. OKRs help the organization adopts performance culture in the following ways:
OKRs provide organizations with a clear direction, coordination, control, and orientation. Direction, coordination, control, and external collaboration play a vital role in helping organizations jump from their current state to the state they want to achieve. To guide the organization in achieving what they desire, it’s important that the organization ensures that its vision and strategic clarity are understood by the stakeholders in every layer, and while doing so, the organization must also facilitate the involvement of its employees.
OKR helps organizations align priorities and make sure everyone at every level in the organization moves towards the same goals. Employees must be given the opportunity to provide their insights when the organization decides in the next 12 months. It is recommended to start with an OKR workshop where all key stakeholders responsible for company strategy ask for and gather input from employees on what they think the top priorities should be.
Those inputs can then be aligned with the existing company strategy and broken down into three to five OKRs. The process can be done using collaborative notes and documents or even a whiteboard to ensure that collaboration and ideas are well-captured. The goal of the process is to reach an agreement on what priorities should be achieved in the following year.
The process is then followed by aligning the company OKRs with team and individual OKRs. OKRs provide teams and individuals with a clear set of directions and achievements. OKRs are also a reason to remove things that are unrelated to the scope of the objective they wanted to achieve, keeping their focus and avoiding unnecessary activities or resources.
If every team gets the opportunity to create their own OKRs that they will be working on in a particular quarter, for example, it can assure a successful OKR program while helping the organization realize its strategy and maintain its focus.
OKRs increase employees’ motivation, innovation, capabilities, and accountability. OKRs can be used to develop a set of productive behaviors that establish an essential motivating culture. Through the process of building OKRs, employees set the outcomes they’ll achieve. These outcomes are in line with the organization’s setup that supports autonomy and motivation.
In addition, OKRs focus on outcomes over outputs. It is a way to resolve organizational problems and gives employees the flexibility to experiment, innovate, and think outside the box. It also allows a humanistic approach, rather than a systemic approach. OKRs promote positive behavior by providing continuous reflection and iteration about the organization’s goals, sharing progress updates, and keeping goals collaborative, all while observing freedom and trust.
OKRs are more than just a goal-setting framework. They enable stronger and healthier relationships within companies and support powerful dynamics in an organization that will significantly increase performance levels.
To start doing the OKRs right, companies can hire an OKR expert to start partnering with their organization or provide their managers with training. The KPI Institute’s Certified OKR Program can equip them with the right tools, knowledge, and guidance in deploying OKRs in their organizations.
Click here for more articles on OKRs and organizational performance.
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Editor’s Note: This article has been updated as of September 17, 2024.
The case below explores the implementation of a standardized Operational Deployment System (ODS) at Corewell Health West, a healthcare system in West Michigan. The goal of the system was to align operational processes and improve efficiency across physician and non-physician stakeholders. By implementing ODS, the organization aimed to enhance quality, increase patient satisfaction, optimize operational efficiency, and reduce costs while ensuring staff and physician satisfaction.
Background
Corewell Health West is a complex large healthcare system in West Michigan with 31,000 employees (4600 providers). Due to its large footprint in West Michigan, it aims for transformation to improve quality, increase patient satisfaction, deliver operational efficiency, and reduce costs. Foundational to all this work is staff and physician satisfaction. There was a need for shared language to communicate critical goals in a way that allowed us to be efficient while creating a standard approach to work. To move such a large team in one coordinated direction, Corewell Health needed to engage in focused efforts in a way that was respectful to its teams and leaders.
The ODS was designed to help leaders clarify what is most important and align the right resources to meet the goals set. This system, composed of best practices from individual project management and process improvement methodologies, was implemented to provide clarity, cascade goals appropriately, and help prevent employee burnout by creating a system of intentional alignment.
ODS Implementation Process
Implementing the Operational Deployment System begins with an annual goal-setting process led by the executive team and subject matter experts in the areas of cost, quality, people, and value. There is then a multi-week process of cascading these goals from the executive team through various levels of physician and operational leadership to front-line staff. Subsequent conversations called “catch-ball” follow in which each level of leadership discusses and eventually finalizes goals in each of the four categories. This process culminates with executive sign-off, confirming the roll-up of goals at each level to ultimately achieve the system goals. These goals are captured in a document called an Operational A3 (see sample). Each level of leadership, starting at the director level, has an OA3 that outlines the annual goal in each category and provides space for monthly data updates and explanations.
The manager level of leadership does not have an OA3 but instead utilizes a reporting tool called a gate chart (see sample). Each goal has a separate gate chart featuring a leading metric (the metric that aligns with the director OA3), a lagging metric, and specific tactics and timelines for impacting performance.
Following this goal-setting process and after populating the OA3 and gate charts, weekly report-outs begin each week focused on one of the four priority areas. Report-outs take place in a virtual meeting with managers reviewing the gate chart performance with front-line staff. This is followed by managers reporting their gate chart update to directors, who then provide a similar report to Physician and Operations Vice Presidents (VPs), and so on. Each of these report-outs follows the TAPE methodology, which stands for Target (what was the goal), Actual (what is the actual performance metric), and Please Explain (what were the actions or factors that contributed to that month’s performance).
Change Management
The ODS process inherently supports change management surrounding efforts to meet annual goals by engaging the front-line staff and every level of physician and operational leadership in goal setting, action plan development, and performance tracking. A key component of successful implementation is training leaders and teams in the ODS process. Training sessions for all levels of leaders included a review of the principles of ODS, the OA3 and gate chart templates, and the TAPE reporting format, and included time for discussion and questions. Implementing operational goals, management for daily improvement and cascade reporting, and communication were key areas of discussion during these training sessions.
Stakeholder Experience
To gauge the stakeholder experience, VPs and Director-level physician and operational leaders were surveyed about their experience with ODS. Among the 54 respondents, 61% agreed or strongly agreed that ODS has allowed them and their upline to focus on key areas for operational success. Moreover, 69% agreed or strongly agreed that ODS effectively aligns operational tactics with system strategy.
Lessons Learned and Next Steps
The ODS at Corewell Health initially faced challenges as leaders at all levels adjusted to this new form of tracking and presenting metrics. As the process matured, these perceived notions morphed into support, engagement, and eagerness to introduce new ideas.
Survey results indicate that the leaders perceive improved focus in key operational areas due to ODS. The system has been adopted outside of service lines as well. Hospital medical staff leadership embraces value in aligned goals and now reports on the executive dashboard. Independent physicians are looking at ways to use ODS to improve their private practice structure and function.
Implementing an Operational Deployment System at Corewell Health has been thought-provoking, enlightening, and rewarding. Previously top-down leadership in this space has moved to shared decision-making. As ODS progresses through year three, physician and operations leaders will build on lessons learned and broaden skills to make ODS an even richer process and a model for other organizations to follow.
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Editor’s Note: The authors are Aiesha Ahmed MD, MBA (VP, Population Health, and Chief of Neuroscience); Rashelle Ludolph (Operations Director, Medical Specialty Services); Cheryl Wolfe MD, MBA (VP, Chief of Women’s Health), and Sonja Beute (Director of Strategic & Operational Deployment).
This article has been updated as of September 17, 2024.
To be competitive in today’s fast-changing business environment, companies must continually increase efficiency. Reengineering workflows and business processes may help accomplish this. Business process reengineering is a company management technique that analyzes and redesigns workflows and processes. It completely restructures company operations to increase quality and improve costs, service, and speed. In the early 1990s, BPR was introduced to identify, evaluate, and restructure an organization’s essential business processes to eliminate redundancies, reduce mistakes, and boost efficiency. It rigorously analyzes, rethinks, and redesigns mission-delivery processes. Business process improvement (BPI) differs from BPR. The latter rejects rules and revamps processes from a high-level viewpoint, unlike BPI, which only makes incremental adjustments.
Identifying the Triggers for BPR
Figure 1. BPR Triggers | Source: Adapted from LinkedIn
Businesses may realize the need for BPR when they observe certain signs that indicate inefficiencies or bottlenecks in their current processes. Here are some key indicators that suggest a business might benefit from BPR:
Non-value-added activities: These are tasks or processes that do not add value to the business or its customers.
Too many hand-offs: Processes involving too many hand-offs or transfers between different departments or individuals can lead to delays and miscommunication.
Process bloat: Overly complex or bloated processes can slow down operations and reduce efficiency.
Difficulty in scaling up: This occurs when a business struggles to scale its operations due to inefficient or poorly integrated systems.
Repetitive tasks: These are characterized by employees finding themselves doing the same thing repeatedly, especially tasks that could be automated.
Process mapping: This involves defining the scope, purpose, and goal of the project, and then mapping out the sequence of tasks or steps that are performed to achieve a certain goal or outcome. This can help identify gaps, redundancies, bottlenecks, delays, errors, and rework in the workflow.
Analyzing current processes: This involves reviewing the current workflows and processes to identify inefficiencies and areas for improvement. This includes looking for common inefficiencies such as overproduction, waiting, transportation, overprocessing, and motion.
Identifying redundancies: Redundancies are any processes, procedures, roles, reports, meetings, or other business activities that are duplicative, outdated, or otherwise unnecessary. Once these are identified, they can subsequently be eliminated.
Using workflow analysis tools: Workflow analysis tools can help visualize, analyze, and improve business processes. These tools can identify inefficiencies, streamline operations, and automate manual tasks.
Implementing automation: Workflow automation tools can help streamline routine business processes for optimal efficiency. These tools can reduce busy work and optimize processes, allowing employees to focus on more important tasks.
Benefits of BPR
Improved collaboration: Optimized processes, particularly those that are automated, provide a centralized system for tracking tasks and sharing data. This shared access to information can improve collaboration among departments, reducing the risk of miscommunication and errors.
Enhanced productivity: Process optimization can lead to significant increases in operational efficiency. By streamlining processes and automating routine tasks, employees can work more effectively and deliver quality work in a timely manner.
Empowerment: Reengineered processes often involve redistributing power and authority among functions and levels, empowering individuals to think, interact, use judgment, and make decisions. This fosters innovation and creativity among employees, leading to better solutions to problems and faster problem-solving times.
In 2008, Domino’s stock price hit an all-time low, rendering it nearly bankrupt. The transformation began with a complete overhaul of its ingredients, recipes, and menu, but the real game-changer was its focus on digital transformation.
Domino’s focused on three key areas for its digital transformation: customer experience, data analytics, and technology infrastructure. The company implemented a unified digital platform that integrated online ordering, customer feedback, and delivery tracking.
One of the most significant steps in this transformation was the introduction of the “Pizza Tracker” technology in 2008, which kept customers updated on the progress of their orders. This innovation, along with others, changed the brand perception of Domino’s from a pizza delivery company to a technology-driven company.
By 2018, Domino’s overtook Pizza Hut as the largest pizza delivery company globally, with a market share of 18.6%. The company’s revenue grew from $1.4 billion to $3.5 billion, and its net income increased significantly. The company’s stock price also saw a dramatic increase, from around $3.00 a share in 2008 to $211 in 2018-2019.
In Conclusion
BPR is a critical component of any organization’s quest for maximum efficiency. By identifying and eliminating inefficiencies, streamlining processes, and fostering a culture of continuous improvement, organizations can successfully reengineer workflows, enabling them to stay competitive in today’s rapidly changing business landscape.
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