Strategic Management
Accounting
Session 2 – Measuring Strategic Performance
Session Objectives
• A performance measurement system that enables a company to meet these demands successfully is
essential. It helps ensure better informed and more effective decision making at both strategic and
operational levels.
• Performance measurement has evolved from purely financial performance measures such as profit, cash
flow or the return on capital employed (ROCE). Today there is greater emphasis on non-financial and multi-
dimensional performance measures to understand and manage the performance of the organisation to
achieve its goals.
• Deficiencies in traditional (financial) performance measurement have led to frameworks and techniques
being developed in recent years.
(CIMA, 2008)
Slide 11.5
Evaluating strategies
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Slide 11.6
Performance measures
Performance measures
Performance comparisons
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20.9
40
Time
Gap analysis
Johnson, Whittington, Scholes, Angwin and Regnér, Exploring Strategy Powerpoints on the Web, 10th edition ©Pearson Education Limited 2014
Slide 11.11
Gap analysis
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Slide 11.12
Complexities of performance
analysis
• Performance measures can be
contradictory, e.g. sales growth can be
achieved by cutting profit margins.
• Organisations can manipulate outcomes in
order to meet key performance criteria.
• Organisations can legitimately manage
performance perceptions and expectations.
• The importance of particular measures can
change over time.
Johnson, Whittington, Scholes, Angwin and Regnér, Exploring Strategy Powerpoints on the Web, 10th edition ©Pearson Education Limited 2014
Slide 11.13
Johnson, Whittington, Scholes, Angwin and Regnér, Exploring Strategy Powerpoints on the Web, 10th edition ©Pearson Education Limited 2014
20.16
Composite
Customer
performance Agility Resilience
satisfaction
measures
Generic operations
performance Quality Dependability Speed Flexibility Cost
measures
Defects per Mean time Customer Time to Transaction
Some detailed unit between query time market costs
performance Level of failures Order lead time Product Labour
customer Lateness Throughput range productivity
measures complaints complaints Machine
time
Scrap level efficiency
High strategic
Broad strategic relevance and
measures aggregation
Functional strategic
measures
Composite performance
measures
Generic operations
performance measures
High diagnostic
Detailed performance power and
measures frequency of
measurement
Source: Adapted from R.E. Freeman, Strategic Management: A Stakeholder Approach, Pitman, 1984. Copyright 1984 by R. Edward Freeman.
The Performance Prism
(Neely et al, 2001 )
Slide 3.22
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The Performance Prism
The performance prism uses as its starting point all of an organisation’s stakeholders, including investors, customers and
intermediaries, employees, suppliers, regulators and communities, rather than strategy, based on the premise that strategy should
follow from stakeholder analysis.
The PP framework also focuses on the reciprocal relationship between the organisation and its stakeholders, as opposed to just
stakeholder needs. There are five ‘facets’ to the Performance Prism which lead to key questions for strategy formulation and
measurement design:
1. Stakeholder satisfaction: Who are our stakeholders and what do they want and need?
2. Strategies: What strategies do we need to satisfy these wants and needs?
3. Processes: What processes do we need to execute these strategies?
4. Capabilities: What capabilities do we need to operate our processes more effectively and efficiently?
5. Stakeholder contribution: What do we want and need from our stakeholders if we are to develop and maintain these capabilities?
The Performance Prism reflects the complexities of organisations and the multiplicity and reciprocity of stakeholder relationships.
For further information, see: http://kfknowledgebank.kaplan.co.uk/KFKB/Wiki%20Pages/The%20Performance%20Prism.aspx
Building Block Model
(Fitzgerald and Moon, 1996)
Building Block Model
(Fitzgerald and Moon, 1996)
Fitzgerald and Moon’s Model identifies three main areas to focus for performance measurement in service industries. These are:
Balanced scorecards
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The Balanced Scorecard
Kaplan and Norton (1992:22) established a four-part framework, containing questions which
should be addressed by senior management:
The questions should then lead onto a set of performance measures (e.g. customer satisfaction
index measure for the customer perspective)
20.30
Financial performance
measures
To achieve strategic
impact, how should we be
viewed by shareholders?
Strategy maps
Johnson, Whittington, Scholes, Angwin and Regnér, Exploring Strategy Powerpoints on the Web, 10th edition ©Pearson Education Limited 2014
Slide 11.36
A strategy map
Source: Adapted from M. Goold and A. Campbell, Strategies and Styles, Blackwell, 1989, Figure 3.1, p. 39.
Johnson, Whittington, Scholes, Angwin and Regnér, Exploring Strategy Powerpoints on the Web, 10th edition ©Pearson Education Limited 2014
Slide 11.37
People People
results
Key
Leadership Policy and Processes Customer performance
strategy results results
Partnerships Society
and resources results
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Slide 11.38
Further Resources
• http://www.efqm.org/the-efqm-excellence-model
Johnson, Whittington, Scholes, Angwin and Regnér, Exploring Strategy Powerpoints on the Web, 10th edition ©Pearson Education Limited 2014
Steps in the development of an effective
performance measurement system
• The performance measurement system must be integrated with the overall strategy of the business.
• There must be a system of regular feedback and review of actual results against the original plan and the
performance measures themselves.
• The performance measurement system must be comprehensive. It needs to include the range of factors that
contribute to the organisation's success such as competitive performance, quality of service and innovation.
This requires a range of financial and non-financial indicators.
• The system must be owned and supported throughout the organisation. The implementation must be top-
down so that individuals setting strategy can determine the objectives and develop appropriate top-level
measures. These should filter down to the rest of the organisation. Other levels throughout the organisation
should set their own measures in consultation with the level above and these must be consistent with the
top-level measures.
• Measures need to be fair and achievable. Where performance measures are used to reward managers’
performance, the evaluation should include only the elements they have direct control over.
• The system and results reporting need to be simple, clear and understandable, particularly to non-finance
professionals. There is a need to prioritise and focus so that only the key performance indicators for the
business in strategic terms are measured.
(CIMA, 2008)
Activity
• Working in small groups, read the given case and create a balanced
scorecard for the given case organisation (Shaldon Zoo). You must
clearly state your chosen perspectives, objectives and key
performance measures.