Sunday, January 1, 2012

Frameworks' Deluge: Demystifying Business Frameworks for Performance Management and Business Excellence

A very happy new year to the readers. It has been my constant endeavor to provide different prespectives on issues which concern business and society.

Approach to business and management has become more structured in modern times. Numerous tools in form of models and frameworks are available to business mangers to perform effectively in the complex business world. However, from my experience, managers  often feel overwhelmed and lost in deluge of these models and frameworks. This happens when managers lose touch with the original thinking and intent behind frameworks and models.

In my following post, the first in 2012, I have tried to clarify, with graphical illustrations, a selection of business models and frameworks which often confound business managers.


Introduction
Today one often hears the names of business frameworks like Balanced Scorecard, Lean Policy Deployment, EFQM Model, Malcolm Baldrige Model, Business Performance Improvement Resource (BPIR) model, Singapore Quality Award (SQA) framework and others. Many organizations also create their own hybrids which only adds to the list. Also these frameworks have led to a cottage industry of consultants who help with their implementation.

Before jumping on the bandwagon and adopting a framework, an organization needs to know the purpose behind each framework and select judiciously. Otherwise the framework may end up just being the flavor of the week. To evaluate and differentiate frameworks, one needs to understand first their Core Intent, Inspiration and Geography focus. Of these, Core Intent is the most apt criteria to categorize the frameworks. Following are the two categories of ‘Business Excellence Frameworks’ and ‘Strategy Performance Management’ Frameworks explained. 

Business Excellence Frameworks
As evident form the table above, all models have their roots in Total Quality Management movement. TQM essentially says that quality is all-pervasive; it is responsibility of everyone and applies to all activities in an organization. The TQM concept was further structured and enhanced with a performance measurement system into the 'Business Excellence' models known today. Quality bodies in different regions took independent initiatives to come up with their own implementable frameworks and hence the reason we have several models similar to each other.

Selection Criteria: Choice of a business excellence model hence would primarily be governed by the geographical region in which company is operating. A US company could go for Malcolm Baldrige and an European company could go for EFQM. A company can also in turn look at its customer base to decide which model to go for to enhance its image. Other factor that could influence the choice would be availability of consultancy support for implementation.

Strategy Performance Management Frameworks
As evident from table above, Balanced Scorecard and Lean Policy Deployment Matrix essentially serve the same purpose, i.e. implementing business strategy. It involves percolating strategy to operational activities and managing performance. It’s worth mentioning that companies have been implementing strategy before these models arrived. These models are derivatives of in-house systems of various organizations.

Selection Criteria: Both the models have global appeal. The choice is fairly simple here. Companies need to select the one which gels well with their internal systems. For instance, companies with strong 'Lean' focus would prefer to go for Lean Policy Deployment Matrix.

Points of Divergence
Now we come to the contentious issue. What is the difference between the two categories? Are they mutually exclusive or overlap. One can easily argue that both
• Spell out operational level performance measures and targets
• Both measure performance and provide feedback
• Both talk about improvement
So do we really need both? Yes, because both serve different objectives. Let’s examine them further to clarify.

Strategy Performance Management frameworks
In these frameworks, Business Strategy is the input which drives the selection of performance measure at various levels. It is focused towards achieving strategic goals by aligning local actions in the organization.

Refer the figure below. The business strategy is defined in terms of strategic objectives and strategic initiatives are launched to meet them. Targets are cascaded to every level which ensures overall achievement of strategy objectives. 



Business Excellence frameworks
Under this category, Internal assessment and Benchmarking drives the selection of performance measures and targets. The focus is on continuous improvement of organizational processes with an aim to be the best-in-class in the industry.

Refer the figure below. The internal assessment and benchmarking throws up the performance gaps. The process improvement programs are launched to close the gaps. These are on-going programs which cover both governing and operational processes. For instance, strategy formulation and implementation processes (which is a governing process) itself needs improvement on on-going basis. An improvement program can also be about improving the balanced scorecard process itself.


The differences are quite evident by now. They are summarized below. As evident, both have different intent and differ in their approach.

Points of Intersection
However, there are points of intersection between the two frameworks.
  1. Both categories’ frameworks drill down to local actions and targets. This essentially means that quarterly performance targets of employees will have measures coming from both.

  2. The initiatives under the two categories can potentially overlap. This is evident from the figure below. A strategic initiative to reduce product development time (essentially to increase speed to market) will closely match with process improvement efforts for product development. Similarly, strategic initiative of multiskilling will have bearing on employees’ incentives and rewards process.


  
Conclusion
It’s clear by now that both the framework types are required for competitive success. One cannot replace the other. For instance, processes like Strategy formulation and implementation need improvement even though no strategic initiative will directly address them.

Combining them would be a mistake as it will dilute the original intent behind the frameworks. However, given the areas of intersection and limited organizational resources, it is imperative to avoid conflict and align both frameworks within an organization. A common steering committee which is responsible for both frameworks (Strategy Performance Management and Business Excellence) can ensure the alignment in both planning and end results.

3 comments:

  1. I really appreciate your post.Thanks for implementing this business strategy very interesting.

    business process improvement best practices

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  2. The Adaptive Business Excellence Program enables organizations to model and manage their Key Performance Indicators (KPIs) in a much more effective manner.  This includes understanding the cause and effect of KPIs as well as the hierarchy structure of KPIs.

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  3. Thanks for sharing. Business performance management is the set of analysis and management processes designed to achieve and maintain high performance business operations. These processes should enable organizations to quickly identify the operational impacts of changes in business strategy or to adjust operational structures for the realities of a rapidly changing market.

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