Towards a Holistic Approach to Measuring Organizational

Performance: Business-wide Implementation

Gerald Ogoko (MSc., MBA, BSc.)
Email: gerald.ogoko@gmail.com

Abstract
This paper focuses on measuring organizational performance. Although this issue is discussed
through the private sector lens, there are occasions where reference is made to not-for-profit
organizations. Different performance measurement models have been developed over the years as a
guide to measuring performance. Four of these models are examined with a view to developing a
holistic framework for measuring organizational or program performance. The models discussed are:
balanced scorecard (BSC); performance pyramid or SMART; performance prism (PP); and the
action-profit linkage model (APL).

The BSC, SMART, PP and APL share certain similarities. Prominent among this is that financial
performance or program performance is dependent on satisfying the needs and expectations of
customers or critical stakeholders. What goes on in the organization forms the link between customer
satisfaction and organizational performance. Although one of the criticisms against these
performance measurement models is the failure to clearly link operational measures to strategic
objectives, organizations can address this challenge by looking at the nomenclature of their various
processes and identifying performance indicators that uniquely communicate their efficiency and
effectiveness. Almost every process can be measured.

Introduction identified in this paper and used to develop

The idea of managing and measuring
performance is critical to organizational
survival. Without it, it is difficult for
managers to determine if they are making
progress or not. Even when it may appear
that the company is making progress,
performance measurement helps in
determining the degree or sufficiency of
any progress identified with respect to its
strategic plan, i.e. comparing actual
outputs with intended outputs.
In recent times, performance measurement
has emerged as a critical concern for the
board and management of organizations
given its usefulness in aligning business
activities to expected strategic outcomes.
Performance measurement applies to both
public and private sector organizations. In
this paper, it is considered from the private
sector perspective however, there are
occasions where reference is made to not-
for-profits.
There are critical considerations for
designing and applying performance
measurement (PM) systems. These are
a practical toolkit for measuring business-
wide performance. In developing this
toolkit or framework, particular attention
is devoted to identifying common strands
and facets of performance in some existing
PM systems with a view to encouraging
flexibility in application. There is no one-
size-fits-all approach to measuring
performance especially considering
variations in organizational size, scope,
structure, mission etc. These factors
differentiate one company from another
and as such reinforces the view that,
“performance cannot be measured in
absolute terms”. This assertion reinforces
the need for the design and application of
performance management systems to be
done in accordance with a firm’s unique
circumstances. The focus here is on the
internal environment of the firm however,
isolating internal performance from
external performance increases the risk of
stagnation in organizational growth.
Performance benchmarking adds some
dynamism to PM given its consideration
for the external operating environment of
the firm.

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1. Measuring Performance
Organizational survival hinges on setting
strategic goals, implementing processes
designed to achieve set goals or targets,
and monitoring behaviour and results with
respect to established strategic goals.
Given that strategic plans usually take a
long term view of the future, performance
measurements can still be used to account
for immediate or short term monitoring of
organizational effectiveness and progress.
Here, the annual operational plan –which
represents incremental steps in the
implementation of the strategic plan-
provides a useful benchmark for tracking
corporate performance. Essentially,
performance measurement helps managers
to periodically set business targets and
offer feedback to them on progress
towards the realization of set targets. In
effect, performance measurements can be
likened to a monitoring mechanism for
tracking evolutionary change or growth.
According to the US Department of Health
& Human Services (2011), “performance
measurement is a process by which a
company monitors critical aspects of its
programs, procedures, and processes”.
Central to this definition is established
operational systems for collecting,
analysing, and reporting performance.
Simmons (2000) notes that the tools and
mechanisms for measuring organizational
performance represent the formal and
information-based mechanisms that are
used to maintain, track or change patterns
of organizational activities. The process of
measuring performance is a critical
component of the performance
management process. Kellen (2003)
defines performance measurement as a
process by which a company monitors
critical aspects of its programs, systems,
and operational processes. The Chartered
Institute of Management Accountants
(CIMA) (2005) views performance
measurement as, “a process of assessing
the proficiency with which a reporting
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entity succeeds, by the economic
acquisition of assets and their efficient and
effective deployment, in realizing its
goals”. Measuring performance can be
achieved by using financial or quantitative
as well as non-financial or qualitative data.
Effective performance measurement is
dependent on the processes used.
Successful performance measurement
depends of the design and implementation
phases. Before considering the underlying
mechanisms of performance measurement,
there is a need to highlight some reasons
or justification for its adoption and
implementation in management practice.
1.1 Why Measure Performance
The notion of organizational performance
is reliant on the view that a company is the
voluntary connection of productive assets,
including human, physical, and capital
resources, for the purpose of realizing a
common purpose (Barney, 2001; Simon,
1976). Those who contribute assets –
mainly shareholders- will only commit
them to the firm so long as they are
satisfied with the value they receive in
exchange relative to alternative uses of the
assets. Consequently, the essence of
performance management is the creation
of value. Alternatively, the manner in
which the value is created is at the core of
performance management.
There are several reasons for measuring
corporate or organizational performance.
Some of these reasons are as follows: PM
provides a means of measuring the value
that an organization creates; PM supports
effective and efficient resource allocation;
PM enables firms to measure process
efficiency; it provides organizations with a
means of conducting peer-to-peer reviews
(i.e. benchmarking) (Kapan & Norton,
1992); it supports effective and informed
decision-making; it is visibility to
accountability; and the information
generated from measuring performance
can be used to enhance competitive
advantage.
The aforementioned benefits of measuring
performance highlight the importance of
tracking progress, whether in business or
in managing projects or programs. With
respect to projects and programs,
monitoring & evaluation (M&E) serves as
a performance measurement system for
tracking implementation progress. Given
that most performance measurement
systems are short-term in nature, major
emphasis tends to be on validating actual
outputs against intended outputs or
baselines. The intended outputs or
baselines provide a point of reference to
compare actual results. Irrespective of its
short-term utility, performance
measurement is the foundation of
achieving outputs and outcomes
highlighted in a company’s strategic plan.
2. The Process of Measuring
Performance
Since accountability for performance has
become critical in assessing organizational
effectiveness, there is need for the
organization to understand the main
drivers behind its performance and
demonstrate the results achieved from its
activities. Without performance measures,
measuring performance is impossible.
Data is central to applying performance
measures. The data used for measuring
performance enables organizations to
ascertain how effective and efficient their
processes are. It also enables a company to
track the effect of any changes made.
Performance measurement is a critical
instrument for strategic analysis. With it,
stakeholders obtain a clear indication of a
company’s strategy from observing what it
measures and does than from its declared
goals. The key to measuring performance
is identifying performance measures that
reflect the company’s unique
circumstance. Probst (2009) notes that the
performance measures which are geared
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towards measuring internal organizational
processes are usually derived from what
they organization does and conditions in
its external environment.
In looking at what a company does as the
basis for measuring performance,
managers can fall into the trap of
measuring the wrong things. Measuring
the right things is required to successfully
measure and manage performance. Here,
managers and organizational leaders need
to establish criteria to determine critical
business processes and develop
appropriate performance measures or
indicators for this. It is not enough to just
measure the right things, there is need for
the performance measurement framework
adopted to be adaptable to the evolving
needs of stakeholders. With respect to
measuring the right things, the observation
of British Scientist-Lord Kelvin- is apt:
“I often say that when you can measure
what you are speaking about, and
express it in numbers, you know
something about it; but when you
cannot measure it, when you cannot
express it in numbers, your knowledge
is of a meagre and unsatisfactory
type…Essentially, if you cannot
measure it, you cannot improve it”.
Furthermore, effective performance
measurement hinges on adopting a
collaborative approach as opposed a silo
approach. Although the top-down
approach is best suited to identifying
performance criteria, performance
measurement should involve all parts or
departments within the organization
(Frigo, 2002; Kaplan & Norton, 2001).
Within an organization, different
departments have their peculiar processes
and as such, will have unique performance
measures. The critical consideration is that
departmental performance measures
should align to overriding strategic
objectives. Essentially, senior leadership
identify strategic measurements for
delivery of the strategic plan, right down
to the departmental level. Kaplan &
Norton (2001) assert that performance
measurement must be a clear strategy
statement or it risks being meaningless
activity.
In addition to measuring the right things,
Meyer (2002) suggests simplifying
performance measures. Companies that
successfully measure their performance
achieve superior results. On the other
hand, companies that make their
performance measures complicated are
less likely to get a near accurate picture of
their progress. Basically, the utility
function of performance indicators is
important when establishing performance
measurement criteria. There should be a
guarantee of information availability when
selecting performance measures. Probst
(2009) notes that measuring everything is
not the approach that should be taken to
measure performance rather, the focus
should be on the essentials bearing in mind
that performance measures should be
identified for each level of performance
accountability.
Furthermore, when defining performance
measures for an organization, levels of
responsibility should be equally identified.
Responsibility for performance measures
should be traced to specific departments
and individuals. This is required to support
necessary business improvements
following results from applying
established performance measures.
During the design phase of performance
measurement, established strategic
performance measures should be
communicated to all departments so that
they are conscious of what is expected to
achieve set goals in the annual operational
and strategic plans. Based on discussions
done in this section, the following
principles should guide effective
performance measurement:
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 Outcomes and results must be
clearly identified.
 The system developed should be
simple, valid, reliable, and cost-
effective.
 Performance indicators should be
reviewed and improved on a
continuous basis.
 A collaborative rather than a silo
approach should be used to identify
and implement performance
management systems.
Building on these principles, the following
steps should guide the process of
measuring performance (Canadian
Transportation Agency, 2010):
 Create a basic results chain: the
results chain enables managers to
properly connect resources,
activities, and outputs to strategic
outcomes.
 Identify and choose performance
indicators: here, both quantitative
and qualitative indicators (e.g.
perception indicators) can be used.
When choosing performance
measures, the principles of validity,
relevance, reliability, simplicity,
and affordability should be taken
into consideration.
 Establish performance targets:
baselines or targets should serve as
a point of reference for measuring
progress.
 Capture & analyse the performance
information: here, systems should
be put in place to record and
analyse information on an ongoing
basis. The method for capturing
and analysing information should
be clearly indicated in the
performance measurement plan.
 Report the results from analysis:
results from the analysis of data
captured should be used to
determine if objectives have been
achieved. Where results for
performance measures are below
 the set targets, action plans should
be developed for to address them.
Making sense of the results from
performance measures is the
hallmark of continuous
improvement.
3. Types of Performance Measures
As a background to understanding the
common strands that connect some
performance measurement methodologies,
it is important to also understand some
types of performance measures. The
categories listed in this section should
equally serve as a useful guide during the
performance measurement design phase.
Performance measures for business or
private sector organizations are likely to
differ from those of public sector or non-
profit organizations. For private sector
organizations, the following appropriate
measures are useful: financial i.e. profit or
sales; productivity, i.e. output/input;
customer satisfaction, i.e. quality;
innovation and capacity to adapt to
change; and staff productivity. Again,
within the operational domain, the
following performance measures apply:
productivity measures; quality measures;
inventory measures; lead-time measures;
utilization capacity; performance to
schedule etc.
When applying the business performance
measures, it is important to consider the
unique circumstance of the firm given
differences in internal processes and focus.
For instance, the performance measures for
a product-oriented firm are likely to differ
from those of a service-based firm.
4. Challenges of Measuring
Performance
Discussions so far suggest that measuring
performance is unavoidable for both
private and public sector organizations.
The underlying challenge lies in the
absence of a structured and business or
enterprise-wide approach that enables the
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company as a whole to synthesize
aggregate efforts or contributions towards
the fulfilment of set goals. While
performance management is not the
absolute cure to business challenges, it is a
valuable instrument for ascertaining how
well a company is doing and can be used
to design a roadmap for addressing
operational gaps.
Measuring and managing performance
provides answers to the following
questions: how well is the organization
doing? Is value being generated for
shareholders? Is the company growing?
Are employees performing to
expectations? How is the company faring
in relation to its main rivals? (i.e. this
particular question borders on the realm of
performance benchmarking). Although
this paper mainly focuses on the internal
environment of the firm, it is necessary to
note that comprehensive performance
management systems evaluate both the
internal and external environment of the
firm.
Organizational fears and resistance are a
fundamental impediment to successfully
implementing performance measurement
systems in organizations. This resistance is
akin to staff resistance to change
initiatives. Mucha (2011) asserts that
departments within an organization are
likely to be apprehensive about
performance measurement initiatives given
perceived impacts on their jobs. The
solution here is ‘communication’. Frigo
(2002) suggests that when developing a
performance measurement system, the
company must communicate the objective
of the system. This is why a collaborative
approach should be adopted during its
design phase given unique departmental
processes.
Poorly chosen performance measures
represent another challenge to
implementing effective and sustainable
performance measurement systems. The
design phase of performance measurement
is critical to obtaining a clear picture of a
company’s position. For process-based
measures, accurately mapping and
understanding vital components of a
company’s operational processes is
required to identify useful performance
measures. Some of these will be
quantitative and others qualitative in
nature. This approach can be extended by
paying closer attention to those processes
that support or ultimately contribute to
service delivery.
Unavailability of data and unclear
selection of data points represent another
challenge to effective performance
measurement. When choosing
performance measures, it is important to
determine if the data is readily available.
In addition to data availability, there is
need to determine appropriate frequency
for collecting data. Data that are not being
used for making decisions lose their value
to the organization. Richard (2009) notes
that companies need to develop policies on
how performance results will be used for
operational and fiscal decision-making.
Data collection should be embedded at the
core of the processes of different
departments.
5. Organizational Assessment
Understanding performance measurement
will benefit from discussions about
organizational assessment. Organizational
assessment is a usual practice in high
performance organizations. In order to
achieve and sustain high performance,
companies are increasingly moving
beyond traditional performance measures.
Khademfar & Amiri (2013) suggest a
model of high performance organizations
consisting of the following: strategic
(concerned with the maturity and growth
of the organization); customer orientation
(i.e. customer satisfaction and loyalty),
leadership (i.e. capacity to provide
intellectual guidance to employees),
processes and structure (i.e. implementing
seamless business processes that support
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efficiency and effectiveness); and values
and beliefs (synergy between
organizational philosophy and beliefs).
There are different methodologies for
measuring performance however, profit-
oriented organizations tend to focus on the
parameters of efficiency and effectiveness.
Efficiency is centred on inputs and
processes. It measures the association
between inputs and outputs or level of
success in changing inputs into outputs
(Low, 2000).
There is a difference between business
efficiency and organizational efficiency.
Business efficiency shows the performance
on the basis of input and output ratio,
while organizational efficiency deals with
variables such as internal organizational
processes, organizational structure, and
organizational culture. Organizational
performance is broader in scope than
business performance. Pinprayong &
Siengthai (2012) identified the following
dimensions for measuring organizational
performance: corporate structure;
corporate structure design; management
and business system development;
organizational culture; and staff
productivity.
Effectiveness measures of organizational
assessment usually border on the following
variables: output, sales, quality, value
creation, innovation, and cost reduction.
Zheng et al., (2010) suggests that
effectiveness assesses the extent to which a
company achieves its objectives and also
the manner that outputs interface with the
external environment of the firm. It also
deals with level of progress towards
mission fulfilment and goal achievement
(Heilman & Kennedy-Philips, 2011).
Organizational effectiveness can be
improved by addressing the following
areas: leadership; communication,
adaptability; and environment, i.e. internal
and external.
Although effectiveness and efficiency are
mutually exclusive, they impact each
other. For instance, a firm that is effective
but inefficient may survive however, it
will struggle with high operational costs.
In summary; although organizational
assessment entails efficiency and
effectiveness considerations, both factors
should be considered alongside conditions
in the external environment (i.e. social and
economic), organizational capacity (i.e.
inter-organizational linkages, strategic
leadership etc), and organizational
motivation (i.e. mission, culture).
Organizational assessment is vital to
sustainable positioning. Based on
discussions in this section, it can be
conceptualized as follows:
 Measuring the performance of
different facets of the organization
to track progress: effectiveness
versus efficiency.
 Assessing and understanding the
external environment of the firm:
benchmarking, competitive
analysis, political risk analysis etc.
 Examining organizational
motivation:
 Evaluating organizational capacity:
analysing the capacity of an
organization to utilize its assets to
fulfil its mandate. This involves
considerations such as process
management, program
management, strategic leadership
etc.
6. Performance Measurement Models
One of the main objectives of this paper is
to examine some popular performance
measurement models and extract the
underlying similarities between them in
terms of their focus and what they seek to
measure. This will help in suggesting a
practical and meaningful approach to
designing and implementing performance
measurement systems.
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When applying performance measurement
systems, some deal of flexibility is
required especially considering sectoral,
cultural, and structural differences. For
instance, PM systems for a service-based
firm will differ from that of a product-
based firm; however, the ultimate purpose
–in whatever scenario- is to track
organizational progress.
For the purpose of this paper, four models
of performance measurement are analysed:
the Balanced Scorecard; Performance
Prism; Action-Profit Linkage (APL); and
the Strategic Measurement Analysis &
Reporting Technique (SMART).
6.1 Balanced Scorecard
The origins of the balanced scorecard
(BSC) methodology can be traced to the
results of a research project conducted by
the corporate staff group of General
Electric (GE) to create performance
measures or indicators for decentralized
business units. The results suggested that
performance should be measured by one
financial metric and seven non-financial
metrics: (1) profitability (i.e. residual
income); (2) market share; (3)
productivity; (4) product leadership; (5)
personnel development; (6) staff attitudes;
(7) balance between short and long-range
goals; and (8) public responsibility (i.e.
legal behaviour, ethical behaviour, and
sense of responsibility to stakeholders)
(Lewis, 1955).
The BSC can be seen in GE’s performance
measurement methodology. BS measures
organizational performance using 4 key
metrics namely: financial; customer;
internal business processes; and learning
and growth (Kaplan & Norton, 1992). The
vision and strategy of a company are
encapsulated by these four measures. The
four measures highlight one of the main
advantages of the BS methodology: it
considers both tangible and intangible
components of an organization. Within
each of the BSC performance metrics,
managers must establish the following:
strategic objectives (i.e. what strategy is in
place to achieve set financial targets);
measures (i.e. how will progress for this
particular metric be measured); targets (i.e.
what is target value or baseline for each
measure); and initiatives (i.e. what
activities are in place to achieve set
targets) (Kaplan & Norton, 1992).
The financial perspective deals with how
shareholders perceive the company
(Kaplan & Norton, 1992). The
shareholders are more concerned with
financial position of the company, i.e. are
financial goals being achieved? Is the
company generating value for
shareholders? Growth (e.g. return on
equity, return on investment), profitability
(e.g. revenue, gross and net profit
margins), and cost leadership (i.e.
input/output ratio, level of operational
costs) are cardinal points for evaluating
financial performance (Kaplan & Norton,
1992).
Financial ratio analysis is very effective in
measuring financial performance. It can be
used internally and also to support
performance benchmarking. The
usefulness of financial ratio analysis can
be extended by understanding the
underlying reasons for results obtained.
This is needed to support improvement
and address performance gaps.
The customer perspective deals with how
customers view the firm (Kaplan &
Norton, 1992). The main question here
concerns whether the company is meeting
the expectations of customers. Here,
customers are more concerned with the
time, quality, cost, and performance of the
product or service delivered. Some useful
objectives and measures that can be used
to measure customer performance include:
new products or services (e.g. % of sales
from new products or services); existing
products (e.g. sales, market share);
responsive supply (e.g. on-time delivery);
customer loyalty (e.g. customer retention
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rates, repeat purchases); and customer
partnerships (e.g. number of cooperative
efforts).
The internal business process
perspective deals with identifying and
examining which processes are most
critical for satisfying customers and
shareholders (Kaplan & Norton, 1992).
Looking at it from the 80/20 rule, these
critical processes represent the 20% of
activities that generate 80% of results. The
20% business activities are where the firm
must focus its efforts in order to exceed
expectations. Some useful objectives and
measures that can be used to measure the
performance of internal business processes
include: production or service excellence
(e.g. cycle time, yield); customer
satisfaction (e.g. time taken to process
orders); design productivity (e.g.
engineering efficiency); product or service
launch days (i.e. actual vs. planned).
The learning and growth perspective
deals with the degree to which a firm
learns, improves, and innovates to achieve
its set goals. The focus here is on
employees, i.e. staff development,
employee commitment, employee
productivity etc. Some useful objectives
and measures that can be used to measure
learning and growth performance include:
production or service learning (e.g. amount
of time taken to process new maturity);
product or service focus (e.g. % number of
products representing 80% of sales); and
amount of time taken to introduce new
products or services into the market (i.e.
this benchmarked against data from
rivals).
Despite its popularity, the balanced
scorecard methodology is not without its
weaknesses. One of the weaknesses of the
BSC is that the perceived causality
relationships between its performance
metrics are one-sided and simplistic.
Norreklit (2003) indicates that the BSC
fails in explaining the role of ‘time’ in its
cause-and-effect relationships. Another
limitation is the lack of integration
between strategic-level measures and
operational measures. Establishing a
connection between strategy and
operations is critical to fulfilling corporate
objectives. Essentially, operational
capabilities are central to implementing
corporate strategy.
6.2 Performance Prism
At the core of the ‘Performance Prism’
methodology is the idea that the long
survival of an organization –both for profit
and not for profit- hinges on identifying
and satisfying the needs and wants of
stakeholders together with understanding
what the company wants from these
stakeholders (Neely et al., 2002).
Performance Prism (PP) underscores the
reciprocal relationship between a firm and
its diverse stakeholders, and this lays the
foundation for organizational
sustainability.
This framework helps firms to cope with
the underlying complexities of multiple
relationships. It also measures the
performance of processes and activities
concerned with satisfying stakeholders.
Performance Prism consists of five
dimensions namely:
 Stakeholder satisfaction: this
component deals with identifying
who the stakeholders are and also
determining their wants and needs.
 Stakeholder contribution: this
component deals with what the
organization wants and needs from
its stakeholders.
 Strategies: this component
concerns the strategies that are in
place to satisfy the wants and needs
of stakeholders.
 Processes: this component deals
with the processes that are in place
to execute set strategies. Borrowing
from the value chain framework,
this can involve primary and
support activities.
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 Capabilities: this component deals
with whether the company has the
capability to implement and
enhance processes. Capabilities
include variables such as people,
technology, infrastructure, and
practices.
With PP, the emphasis is on stakeholders
when developing performance measures
(Neely et al., 2001; Neely et al., 2002).
This approach differs from many
traditional approaches where the emphasis
is on strategy when identifying
performance measures. Stakeholder
satisfaction –the core of the PP
framework- is achieved by focusing on
value creation and delivery through the
interplay of strategy, capabilities, and
processes. In applying the PP to
performance measurement, measures can
be identified for the five components that
align to the unique circumstance of the
firm where it is applied.
6.3 Action-Profit Linkage
The Action-Profit Linkage (APL) model
approaches performance management by
starting with the company’s corporate and
business unit strategy and then moves to
four main components namely: company
actions (i.e. primary and support
activities); delivered product/service (i.e.
results or outputs from the primary and
support activities); customer actions (i.e.
perceptions, attitudes, and overt
behaviour); and economic impacts (i.e.
company profitability) (Epstein &
Westbrook, 2001).
Epstein & Westbrook (2001) suggest that
companies can assess the profitability of
any action by examining the links or
relationship between the action,
intervening variables, and the impact on
profits (i.e. revenue less cost of planned
action). The APL chain can be
conceptualized as the processes underlying
the conversion of corporate and business
strategy into profitability.
While a useful performance measurement
framework, one of its weaknesses is that it
fails to clarify how to implement any
performance indicators identified.
Furthermore, with the APL model, the
connection between ‘results’ and ‘drivers’
is not clear.
6.4 The Strategic Measurement Analysis &
Reporting Technique (SMART)
The SMART performance measurement
model, also referred to as the ‘performance
pyramid’, was developed to remove the
disadvantages associated with traditional,
financial-focused systems such as the
Balanced Scorecard (Cross & Lynch,
1992). SMART integrates the strategic
objectives and operational performance
dimensions through a four-level structure
(Figure 1).
Figure 1: SMART model
The right side of the pyramid (Figure 1)
shows internal efficiency measures while
the left side shows external effectiveness
measures. The external effectiveness
measures can be used for performance
benchmarking. Having looked at the four
performance measurement frameworks,
the next section discusses the underlying
similarities of the four models with a view
to suggesting a comprehensive approach to
measuring performance.
The SMART model or performance
pyramid is not without its weaknesses. For
one, it does not offer any framework for
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identifying key performance measures.
Again, it does not clearly highlight the
need for continuous improvement.
Discussion
In addition to discussing critical
considerations for measuring and
managing performance, four performance
measurement models were discussed. This
section looks at these models with a view
to extracting a holistic framework for
measuring performance. The framework
suggested here should guide performance
management practitioners as they seek to
determine if their organization or program
is making progress or not. It also provides
guidelines for integrating continuous
improvement in the process.
When it comes to measuring performance,
there is a need to consider the internal and
external environment of the firm.
Consideration for both environments is
necessary to fulfil corporate-level
objectives. The strength of the
performance pyramid is its consideration
for both the internal and external
environments in measuring performance.
Although conditions in the external
environment can either encourage or
inhibit the growth of a firm, it also
provides a channel for the organization to
carry out peer-to-peer performance
reviews. It is not enough to just exceed
internal targets outlined in a company’s
operational and strategic plans, it is also
necessary for performance measures to
show the company’s performance in the
market or sector where it operates.
Focusing on only internal measures of
performance stifles organizational growth.
Consequently, a holistic performance
measurement framework should begin
with considerations for both internal and
external performance measures. Internal
performance measures act as a stepping
stone for external performance measures.
External performance measures belong to
the realm of ‘performance benchmarking’
however it can be used internally; for
instance, making comparisons with
historical data.
Internal performance measures should be
ultimately geared towards satisfying
customers or in the case of non-profits,
beneficiaries of project or program
interventions. Accordingly, despite its
weaknesses, the BSC is a useful way for
tracking internal performance. Majority of
the processes underlying the internal
environment should be geared towards
satisfying critical stakeholders.
Performance measures should track these
processes and other internal structural
components with respect to the satisfaction
of the needs of these critical stakeholders.
Here, performance measures should track
the efficiency and effectiveness of these
processes to ascertain whether they are
performing at their optimum. As long as
these processes are linked to customer
satisfaction, optimal performance will
influence level of customer satisfaction.
Externally, performance measures will
look at issues such as, market share. For
the BSC, ‘learning & growth’ and ‘internal
business processes’ are the link between
the customer and financials or economic
impact as is the case with the APL model.
The BSC, PP, and APL share certain
similarities. Chief among this is that
financial performance or program
performance is dependent on satisfying the
needs and expectations of customers or
critical stakeholders. What goes on in the
organization forms the link between
customer satisfaction and performance.
Although one of the criticisms against
these performance measurement models is
the failure to clearly link operational
measures to strategic objectives,
organizations can address this challenge by
looking at the nomenclature of their
various processes and identify practical
performance indicators. Almost every
process can be measured.
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Regarding what goes on in the firm as a
way of measuring internal performance,
particular attention should be devoted to
the following variables: work/tasks;
employees; organizational structure etc. In
looking at these variables, it become
possible to establish a link between
operational processes/measures and
corporate-level objectives. It should be
noted that strategic objectives of a for-
profit are likely to include satisfying
customers, growing customer base etc.
Based on discussions, the following
framework or guide –which applies to both
for-profits and not-for-profits- should
guide the approach to measuring
organizational performance:
 Identify who the critical
stakeholders are and what their
needs are.
 Examine your strategic plan and
ensure that the satisfaction of the
needs of critical stakeholders is
considered.
 Indicate organizational
expectations from satisfying the
needs of critical stakeholders.
 Map critical internal organizational
processes and drivers of these
processes.
 Develop performance measures for
these critical processes and their
drivers, i.e. task performance and
staff performance.
 Identify performance indicators for
measuring external performance.
 Map similar organizations or
programs in your operational
domain.
 Benchmark external performance
results against those of rivals, i.e.
peer-to-peer performance reviews.
Conclusion
Without measuring performance, it is
difficult to manage performance.
Measuring organizational performance
helps managers and the board of
organizations to determine the degree or
sufficiency of any progress identified with
respect to its strategic plan. Performance
measurement serves as a progress tracking
mechanism for organizations and projects.
Effective performance measurement is
dependent on the processes used.
Successful performance measurement
depends on the design (e.g. identifying
appropriate performance measures,
ascertaining responsibilities for data
collection and management) and
implementation phases (i.e. process
mapping, reporting performance data; and
using the results of analysis to guide
decision-making).
The key to measuring performance is
identifying performance measures that
reflect the company’s unique
circumstance. Performance measures
which are geared towards measuring
internal organizational processes are
usually derived from what they
organization does and conditions in its
external environment. Over the years,
several instruments have been developed
to help in measuring performance. In this
paper, four were discussed namely: the
balanced scorecard; the performance
pyramid or SMART; action-profit linkage
model; and performance prism. When it
comes to measuring performance, there is
a need to consider the internal and external
environment of the firm. Consideration for
both environments is necessary to fulfil
corporate-level objectives. The strength of
the performance pyramid is its
consideration for both the internal and
external environments in measuring
performance.
The BSC, PP, and APL share certain
similarities. Chief among this is that
financial performance or program
performance is dependent on satisfying the
needs and expectations of customers or
critical stakeholders. What goes on in the
organization forms the link between client
satisfaction and performance.
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