Literature Review Of Definitions Of Performance
In a simple way performance means â€œdoing something successfullyâ€? mainly by using the available resources. Performance can be elusive concept. It deals with the outcomes, results, and accomplishments achieved by a person, group or Organisation. (William J. Rothwel, Carolyn K.Hohne & Stephen B. King: 2007).In many cases people do define performance based on financial aspects of the business. Focusing only on financial matters does not tell us what should we do and how to do in order to be successful. â€œPerformance is the definition and progressive achievement of tangible, specific, measurable, worthwhile and personally meaningful goals.â€? (Darryl D. Enos 2007).We get a clear point in this definition that organisation should have well defined, specific and measurable goals. This serves as the first requisite in assessing the organisationâ€™s performance. Having vague and general goals without proper measurement, pose a problem in evaluating corporate performance and proposing techniques for improving the performance. Michael Milgate 2004 said that,â€?by monitoring performance for each measure and taking appropriate remedial action, improve revenues, business growth, reduced expenses and compliance with sector regulations have resulted.â€?
2.1 PERFORMANCE IMPROVEMENT
There is a clear relationship between performance improvement and change management (discussed in Section 2.5 of this chapter).Many studies concluded that most organisations either fail or achieve very limited success in their efforts to improve performance. â€œSuccess or failure in performance improvement efforts begins with the reasons why organisational decision makers decide to get involved in the first place.â€? Darryl D.Enos 2007).Personally, I feel that there should be a motivation factor to stir up the process of improving performance. In addition to this Darryl Enos 2007 added that commitment and involvement of leadership is the most critical element for the performance efforts to be successful. Rephrasing Enos unless a leader is motivated by authentic interest and be committed in the process then efforts of performance improvement have little chance to work.
Every organisation has problems. A good start is to admit the problem and find what is to be accomplished to solve the problem. â€œSometimes performance improvement starts with a targeted program for dealing with a problem that is limiting achievement of a worthwhile goal.â€?(Darryl Enos 2007).As a suggestion, before approaching any technique to boost performance or implementing the efforts, management should identify areas which need improvements. The problem of poor performance or constant/stagnant performance may be caused by the top management itself.( Refer Enronâ€™s Scandal 2001).Thus, the areas for performance improvement must be clearly identified and evaluated to avoid investing efforts in areas which are not critical to performance improvement.
In trying to adopt efforts and strategies to achieve corporate performance, Organisations face challenges and end up failing. In one of their research Kaplan and Norton found that 9 out of 10 companies fail to implement their strategies. (Bob Paladino 2007). Paladino explains four barriers that contribute to Organisationâ€™s failure to achieve expected results from their efforts and strategies put in process. There barriers are: Vision barrier (where research shows that only 5 % of companyâ€™s employees fully understand their companyâ€™s strategy); Management barrier (where 85 % of executive teams spend far less time discussing strategies and strategic issues than traditional operating results); Resource barrier (where most companies do not link their budgets to strategy): and the fourth barrier being People barrier (where research shows that only 25 % of managers have incentives linked to strategy).
2.2 PERFORMANCE MANAGEMENT SYSTEM (PMS1)
Performance management system (PMS1) is not an end by itself, but its improvement enables an Organisation to perform better. Improving its efficiency ensures the data generated will tell where the Organisation is, how it is performing and where it is going. â€œEffective management depends on the effective measurement of performance and resultsâ€? (Gobal. K. Kanji, 2002). Mohan Nair (2004) argued that Corporations sometimes measure too much of something and too little of others. Contributing to this it is even possible that Organisations unknowingly does not measure some of the business aspects. Moreover many organisations fail to link what they measure with corporate strategy. Nair added that many of these measurements are un-integrated and serve the wrong goals. â€œMany corporations lack an overarching model for monitoring, measuring and managing the business. Balanced Scorecard offers a broad and overarching skin to the structural architecture of the business.â€? (Nair 2004)
Gobal K. Kanji (2002) explains the role of PMS1 and how an organisation may achieve business excellence by identifying areas to improve and how it can use its limited resources to reflect the improvement of the system. The design and implementation of a new PMS1 may in one way or another bring questions and tensions to employees. Kanji (2002) stated that, â€œIt is important to build a measurement system where measures are used as a management and motivational toolâ€?. I personally back this idea as will help in gaining management and employees support during designing and implementing the new system. In this regard, the PMS1 should be clear to employees explaining how each will contribute to the overall strategy. The efficient PMS1 also serves as the communication and rewarding tool.
Furthermore, Kanji (2002) explains the past and present performance measurements and their implication on todayâ€™s business era. â€œTraditionally, performance measurement focuses on financial measures ................. that do not match entirely with competencies & skills companies require to face todayâ€™s business environment.â€? In insisting that financial measures of performance are under criticism in todayâ€™s world, Paul Niven (2003) said that â€œthey lack predictive power, reinforce functional silos, may sacrifices long term thinking and are not relevant to many levels of the Organisation.â€?. Kanji then supports the significant contribution by Kaplan & Norton (1992) to overcome the shortcomings of traditional PMS1 that employs only financial measures.
2.3 THE BALANCED SCORECARD (BSC)
Robert S. Kaplan and David P. Norton (2005) invented BSC in 1992 due to the fact that traditional accounting measures like Return on Investment and Earning per Share give misleading picture while in todayâ€™s business environment continuous improvement and innovation is very important. The authors realised that many managers do not depend on single set of measures in isolation of the other. This implied the need of balanced presentation of both financial and non financial measure. Kaplan & Norton complemented financial measures by operational measures calling it Balanced Scorecard (BSC).
Kaplan and Norton define BSC as, â€œa set of measures that gives top management a fast but comprehensive view of the business. The BSC includes financial measures that tell the results of actions already taken. And it complements the financial measures on customer satisfaction, internal processes, and Organisation innovation and improvement.â€? These (including financial measures) are the four perspectives of BSC as mentioned by the authors. They suggested that for each of the perspective, managers should translate their visions and missions to strategic goals and objectives and these goals should be translated into specific measures.
The word â€˜Balanceâ€™ in the Balanced Scorecard represents the balance between financial and non financial performance indicators; internal and external elements & stakeholders of the Organisation; and lag & lead indicators (Paul Niven 2003). Michael Milgate (2004) defines scorecard as a â€œbalanced management system in which shared vision and strategy are reference points for the management process; achieving this balance enables synergy and a practical fit with other frameworksâ€?. BSC serves as a powerful tool as it focuses on achieving breakthrough performance considering all measures without isolating non financial performance measures (Kanji 2002).Since its creation in 1992 by Drs. Norton & Kaplan of Harvard Business School the Balanced Scorecard has been implemented by different business units in the Public as well as in the Private sectors-worldwide.( Michael E. Nagel- Vice President, BSC Collaborative)
Henri .JF (2006) applied the BSC framework in his survey on how top management in a manufacturing company could use PMS to improve the strategic management and Organisational performance. â€œGiven its depth as a strategic management system, the BSC principle will continue to be widely adopted and further refined in user Organisation as experiences in its implementation emergeâ€? ( Michael A.Milgate 2004). This shows how widely BSC is used to improve the PMS if the Organisation chooses to adopt and implement it. Henri .JF (2006) poses a question that top managers should ask themselves; â€˜How can we improve our system?â€™ .However, the author suggested that the improvement of the PMS is a continuous process that involves changing measures to reflect the new ideas and insights brought to the Organisation through creativity and other development activities.
BSC can be successfully implemented in any organisation where the management is committed and devote time to formulate strategy and ready to accept changes. BSC has been implemented many organisations including services business , military units, schools, government institutions and also for profit organisations ( Wikipedia). An important point to note here is that an organisation should design its own BSC as management is knowledgeable of its responsibilities & organisations operations rather than adapting another Organisationâ€™s BSC.
David P. Tarantino (2003) complements the work of Kaplan and Norton. He defined BSC, â€œas a performance management tool that is used to provide an integrate perspective of an organisation.â€?He also pointed out the four perspectives of the BSc as, external (how customers views the Organisation; Internal (Look at where the organisation must succeed and improve); Growth & learning (examine how organisation grows and learns) and Financial (study financial performance of the organisation).These perspectives depend and influence one another. Tarantino (2003) said, â€œTo concentrate on only one, such as financial performance fails to recognise the contribution and balance of the other three perspectives.â€? Of interest from the author is the explanation on how to develop the BSC. The first step he suggested is for the organisation to decide which goals are to be measured that should be included in the four perspectives. Then the organisation should figure out the measures for each of the four BSC perspectives and determine the weight of each for ultimate evaluation of overall performance.
Harvard Management-Update (2000), â€œNo need to wait for a companywide initiative-the key principles of this strategic-management system can be put to work in your unit right away.â€?The author of the article tries to convince management to apply BSC reporting system. He is of the views that even if companies take years and spend millions to implement the scorecard across their operations the effects can be dramatic when the system takes root. He said that managers today donâ€™t have to wait for a scorecard- inspired corporate transformation before learning- and implementing some of the methods centred ideas. He explained the four lessons from BSC that can be applied right away in virtually any business unit or department.
Watch a variety of metrics
Connect your metrics to strategy
Develop a strategic budget
Get everyone involved in tracking metrics
The author still insists that BSC is a method that helps managers to develop a well â€“rounded strategy and then get everyone in the company involved in implementing it.
Mohan Nair 2004, arguing in favour of BSC, the changes in the character of business assets has exaggerated the challenges faced by business. â€œIn the past company assets would be reflected in the balance Sheet but now 85% of the assets are intangibles.â€?Having the same arguments as previous authors about the inefficiencies of the financial measures, Nair also added that those financial measures are applied only to tangibles, when the intangibles are what fuels the future.
According to an online source, www.balancescorecard.org/BSCresources the benefits of BSC are: improve organisation alignment, improve communication, more emphasis on strategy and organisational results, linked strategy and operations, and integrated strategic planning and management.
2.3.1 BSC development
Kaplan and Norton explained four steps which many organisations have used to develop their balanced scorecard. The process includes:
Define the measurement architecture â€“ To a beginner, it is recommended to start with a business unit applying the metrics as designed in the BSC rather than to the corporate level.
Specify strategic objectives â€“ This step includes deriving strategic objectives for each of the four perspective from corporate goals.
Choose strategic measures â€“ The third step is to choose related measures for the strategic goals to evaluate the performance so as to achieve the strategic objectives.
Develop the implementation plan â€“ After selecting measures for each of the perspective, remains implementation process.â€œTarget values are assigned to the measuresâ€?. A link is then established from various metrics from the top to bottom of the BSC. The established scorecard is then incorporated in the organisationâ€™s management system..
The online source www.balancescorecard.org/BSCresources also recommended nine steps to success develop and deploy BSC framework- In a sequential order these are; Organisation assessment, strategy development, strategic objectives, strategic mapping, performance measures and targets, strategic initiatives, automation, cascading the BSC throughout the organisation and last evaluation. Overall the BSC involves the following steps:
Clarify the vision
Communicate to middle manager and develop business unit scorecards
Eliminate Non-strategic investments and launch corporate change programs
Review business unit scorecard
Refine the vision
Communicate the BSC to the entire company and establish individual performance objectives
Update long-range plan and budget
Conduct monthly and quarterly reviews
Conduct annual strategy review
Link everyone â€˜s performance to the BSC
2.3.2 BSC criticisms
The use of the balanced scorecard system may not result to what managers expect. Some professionals spoke some problems that make the BSC under criticisms. It has been noted by professionals that the BSC concept does not guide how the approach can be deployed within an organisation. It is just been viewed as an approach that attracts managers to install and implement without a real sense on how it works, and what should be expected. (Stephen Smith 2006).From his article â€˜problem with a balanced scorecardâ€™, Smith pointed out some of the key issues that can cause BSC initiatives to fail. These are:
Poorly defined metrics-These should be relevant ,clear and easily understood
Lack of efficient data collection and reporting-Smith is concerned with the investments made in collecting metrics data, whether consuming too much time and energy. He then suggests the importance of prioritising key performance indicators to get most relevant information.
Lack of formal review structure- This is necessary to accommodate any change in metric value. Reviewing is a cross functional activity.
No press improvement methodology- Many organisation lack basic and standard toolkits and approaches for tracking problems. It therefore consumes a lot of time an efforts to address a problem that is caused by the performance gap.
Too much internal focus- Smith ranks this as one of the major criticism of BSC. He suggests that Organisation should always start with an external focus through analysing organisationâ€™s markets, shareholders, competitors, employees and other stakeholders.
However Smith assured that all is well with the introduction and the concept of balanced scorecard. This means that the BSC approach is a useful tool and can bring desired results if management knows how to structure it and take the above points in considerations to avoid its initiatives from failing.
It has also been learnt that BSC is being criticised by academic society on its practical nature, applicability and functionality. (Wikipedia).They also noted that some of the criticisms focus on technical flaws in the method and design of the original BSC proposed by Kaplan & Norton. Supporting the main problem as seen by Smith 2006 other academicians have focused on the lack of citation support. â€œAnother criticism is that the BSC does not provide a bottom line score or a unified view with clear recommendations; it is simply a list of metrics.â€? (Wikipedia).Regardless of these criticisms the studies done so far indicated that BSC is a useful tool in strategic performance management in an Organisation. An online source www.netmba.com added to the BSC pitfalls that during implementation managers should avoid the use of generic measures, which are being adopted by successful firms.
Management should not take BSC as a guarantee of success in companyâ€™s operations. It should think clearly the companyâ€™s strategy and implement the scorecard for improving performance in operational level that derives improved financial performance. Kaplan and Norton said, â€œEven an excellent set of BSC measures does not guarantee a winning strategy. The BSC can only translate a company strategy into specific measurable objectives.â€? They also advised that by combining the four perspectives, the BSC helps managers understand implicitly many interrelationships.
The four perspectives relate to each other and the effect on either of the perspective will impact the other. â€œA well designed BSC should describe your strategy through objectives and measures you have chosen. These measures should link together in a chain of cause and effect relationshipsâ€? (Paul Niven 2003). Thus, it is suggested that all have equal importance and neither should be taken in isolation of others.
2.4 COMPARISON BSC AND OTHER PERFORMANCE IMPROVEMENT TECHNIQUES
When we talk of performance improvement in an organisation apart from BSC, Six sigma and Total Quality Management (TQM) come under discussion. Both tools when applied properly work to achieve what management really expects. These tools are contrasted with BSC in the subsequent sections.
2.4.1 Balanced Scorecard (BSC) Vs Six Sigma
It has been learnt that BSC and Six Sigma work independently from each other. BSC translates corporate strategy into actions that help to achieve the strategy. Six Sigma aims to solve the problem of poor performance by closely looking at the root cause of performance problem. In this case Six Sigma tries to minimise the errors and reduce other causes of defects in business processes. However, â€œthese frameworks are complementary and if used together they offer huge potential value.â€? (Michael E. Nagel). BSC and Six Sigma when used together can deliver great and unexpected business performance (Alastair Horn 2006) . Nagel justifies his idea by clarifying that â€œBSC and Six Sigma are complementary because the former provides the strategic context for targeted improvement initiatives and the latter is a business improvement approach that solve a myriad of performance issues.â€? To make the difference more clearly, Nagel stated that, unlike Six Sigma, BSC is not a solution for closing specific strategic performance shortfalls. He then concluded that BSC describes the strategy for creating value and aligns resources to ensure the strategy is successfully executed. Six Sigma executes the strategy by using data and process improvement tools.
It has been learnt that both BSC and Six Sigma strive for good performance through fixing up the performance gaps. In a clear manner a corporation may choose to implement any of the frameworks but the use of both the approaches would result to high performance according to the way each of them works. Rephrasing Horn, Six Sigma focuses on the best processes that organisation may adopt to improve its performance of products and processes on a continuous basis. while BSC focuses on performance management that translates strategy into executions.
In explaining how both BSC and Six Sigma can work together, Henry Killackey (2008) speaks his idea that it is a very common practice to label organisation performance matrix in the BSC with red ( poor performance), yellow ( mixed results),and green ( excellent). If the organisation implements Six Sigma approach then the red ratings alert Six Sigma practitioners the areas which need immediate attention so that they can figure out ways of reversing the poor situation. In simple words, we may say that BSC serves as a communication tool for Six Sigma professionals. It has been learnt that BSC prompts weak and bad performing areas for Six Sigma professionals to act upon.
As previously explained, the ultimate aim of both BSC and Six Sigma is to improve the performance of the organisation. In this regard the organisation can simultaneously implement both the approaches. They both rely on accurate data from customers and external stakeholders. Moreover the output indicators in Six Sigma may be used as measures in the BSC framework where by both the BSC and Six Sigma professionals will concentrate on the same goals. (Henry Killackey 2008)
However Paul Grizzell (2004) in his article admitted that many authors see Six Sigma as the most effective performance management control system ever. But he cautioned readers that it is important to first consider the assumptions that were used to generate the opinions. Grizzell put forward his opinion that all performance management tools (in his case, Six Sigma, lean, BSC, Baldrige) when used as an integrated approach to maximise performance will lead to breakthrough and not just incremental improvement.
2.4.2 Balanced Scorecard (BSC) Vs. Total Quality Management (TQM)
It is argued that the best approach for an organisation between BSC and TQM depends on the organisation itself. When developing a business strategy an organisation must consider multiple factors including leadership, customers ,business processes, financial goals and the structure, culture and the size of the corporation.( Schwartz Jay 2005). Jay continues that TQM and BSC share a common theme of improving communication in an organisation. He also added another shared goal of the BSC and TQM as the reduction of costs and improvement of services of an organisation. Moreover both TQM and BSC need management support to ensure that all employees support the new initiatives.
However BSC and TQM differ in other aspects. â€œThe difference between TQM and BSC is in the number of people involved in the process; TQM requires full participation, compared with limited involvement for the BSCâ€?(Schwartz Jay 2005).With my little knowledge on the BSC, I think it also requires full participation. This is very important to prevent any possible resistance. Another difference named it â€œmajor differenceâ€? by Schwartz is that BSC places more emphasis on finance i.e. using traditional financial objects; TQM while not diminishing the importance of financial solvency, it focuses more on the systems of the organisation, the concept of empowering people and employees involvement. I also raise my concern to Schwartzâ€™s views on where the focus is in BSC .i.e. finance!!.Looking at the four perspectives of the BSC ( financial, customer, internal process and learning & growth) it is clear that BSC involves both financial and non financial aspects. BSC was established to compliment the financial measures, so it does not put much emphasis on financial matters only but includes also non financial measures. The BNET business dictionary defines BSC as â€œ a system that measures and manages an organisationâ€™s progress towards strategic objectives. Introduced by Kaplan & Norton (1992) ,the BSC incorporates not only financial indicators but also other perspectives......â€? .
To conclude this Schwartz (2005) suggests that before managers decide whether TQM or BSC which fits the organisation they must ask themselves the following questions: What is the organisation structure?, What is the corporate structure? What is the size of the organisation?. He then recommends that for a large and bureaucratic organisation BSC fits best and TQM fits best with small & service related organisation. However Schwartz didnâ€™t make it clear how to define a â€œlarge organisationâ€? either in terms of capital, employees ,etc. I would rather say that whether using BSC or TQM the most important aspect to consider is whether the organisation is real committed and has a leader to initiate the change including involving all the employees. I would personally recommends the use of BSC as its structure is clear and helps the organisation to put the strategy into measurable goals.
2.5 MANAGEMENT CHANGE
Management change involves the process of reducing the chances for resistance done by top management personnel and executives. In many organisations the tendency of management to resist changes, especially in adopting a new system keeps on growing day by day. Thus for the organisation to manage the changes there should be a systematic process, planned properly and which involves the shareholders and other key stakeholders. In this respect a change may be defined as any addition to an existing or modification to an old system or any deletion of an aspect of an old system. Some of the reasons for making changes could be solving problems, growth motives/purposes, improving performance, accommodating technology change, etc.
In any organisation for a change to be successful, management should commit itself to make the change operational within a reasonable time. In many organisations this has not been the case as it has been relative difficult to implement changes especially adding a new thing to an existing system. It may be said that the systematic approach to implement changes reduces the negative impact of changes and the possible failure.
The researcher will evaluate the performance of the Local Authorities Pensions Fund ( LAPF) using the metrics as structured in the proposed Balances Scorecard (Table 1) which is relevant to the Fundâ€™s operations. Some metrics may be in use while others may not. In this case LAPF may wish to fully adopt the performance metrics as shown in the proposed BSC. Thus all issues relating to change management should be considered before trying to implement BSC approach to measure and improve the overall performance. This is the essence of analysing how change process may be done, possible challenges and change failure together with suggesting how to maximise chances for successful change process. Improving the performance is a continuous process, that necessitates new measures and approaches to be adopted. This also justifies why changes cannot be avoided by an organisation if it wants to occupy large market share, beat competition and improve the overall performance.( Henry J.F, 2006).
â€œChange management means to plan, initiate, realise, control and finally stabilise change process on both corporate and personnel level. In some situation change brings problems for instance disturbing system , staff programs and other development programs that are in progress. ( Oliver Recklies 2001).The author shows much concerns on those management and staff who have negative thoughts and perception on what is change and why change.. Management always fears to be questionable for failure while employees have fears of losing their jobs. Majority of employees tend to put forward resistance to change without considering that change facilitates improvements (Oliver Recklies 2001). The effects of change may be unclear to employees and thus fear something bad may happen that affects their tasks, responsibilities and worse enough even their lives. Management should consider possible aspects that may have negative impact on the change initiative so as to achieve the desired results. The success of change projects depends on the Organisationâ€™s ability to make all their employees participate in the change process in one way or the other.â€? ( Oliver Recklies 2001).
Lawler (1986), viewed from Rob Paton & James Mc Calman (2008),said that overall change is not impossible but it is often difficult. â€œThe difficult is that most organisations view the concept of change as a highly programmed process which takes as its starting point the problem that needs to be rectified, breaks it down to constituent parts, analyses possible alternatives, select the preferred solution and applies this relentlessly- problem recognition, diagnosis and resolutionâ€?
Recklies (2001) made a significant contribution on how to minimise the negative effects of change to arrive at successful change process. He therefore divided the change process into seven stages it is relative better for management to understand in which stage they should expect what kind of problems. The stages are : shock and surprise, denial and refusal, rational understanding, emotional acceptance, exercising and learning, realisation and last being integration.( diagrammatically presented in figure 2.1)
Shock & surprise- This involves confrontation with unexpected situations
Denial & refusal-No need for change, i.e. Change is not necessary
Rational understanding- people realised the need for change but unwilling to change own pattern of behaviour
Emotional acceptance-This is the most important stage characterised by slow pace. Management should succeed in creating willingness for change for the organisation to exploit its real potentials that lie in different aspects.
Exercising & learning-This is the learning stage that will be influenced by peopleâ€™s willingness. It is a trial for a new system and process. The stage is characterised by failure and success. This leads to the increased perceiveness of people own competence.
Realisation-This stage highly depends on stage 5 above, as people get more information through learning and allows mind to receive new challenges and experiences, The stage is characterised by flexibility and thus perceived competency increased.
Integration-At this stage people have acquired new skills and patterns of thinking The introduced change becomes familiar and a routing process.
Figure 2.1 .Change process ( adapted from Oliver Recklies 2001)
The seven stages simplify the implementation of the new process or change. Those who are responsible to accommodate the changes into the business should understand these stages so as to apply them systematically.
John P. Kotter (1996) in his book â€˜Leading changeâ€™ explained clearly the most common mistakes done by organisations when adopting change and also he came up with their solutions. As Recklies 2001 (above) Kotter 1996 also explained eight stages for change process. Letâ€™s now examine the change mistakes done by management ( by Kotter ) and later we will explain the change stages and contrast them with Reckliesâ€™ change stages.
Allowing too much complacency-This is one of the biggest mistake as ranked by Kotter. The over confidence attitude of an executive wishing to process change may cause change failure. Having been successful in the past drives the executive to proceed with change plan without establishing and understanding the urgency of change as perceived by management and employees. Kotter said, â€œIf complacency were low in most organisations today, this problem would have limited importance.â€? To successful accommodate changes people need to devote their time and efforts to make it done.
Failing to create a sufficiently powerful guiding coalition- Organisations need to have powerful guiding coalition. An active Chief executive is not sufficient to process the change. The head need a committed team that is expected to be powerful ,experienced, competent and leadership talented. In other words the head of the organisation should not undervalue the need for such a team. As said before the team should have leadership traits so as to overcome possible sources of resistances.
Underestimating the power of vision- Power of vision complements the urgency and strong team. We have seen many plans fail because they lack clear vision. There should be a clear and appropriate vision to reduce chances for confusion so that the whole project goes into the right direction.
Under-communicating the vision- Communication serves a lot in letting people/employees understand the vision ( change idea). Employees need to know how the change will affect their working either in a positive or negative side. They will not be willing to make sacrifices and give support to change unless they believe that the changes are the betterment for their welfare and the organisation as well. All these should be facilitated by proper communication.
Permitting obstacles to block the new vision-In implementing changes, an organisation may face several obstacles. These may be within the organisation itself or from an external sources. In many cases people do think in their minds of the obstacles and other roadblocks. Kotter poses a challenge on convincing them that no external barrier exist. V. Nilakant & S.Ramnarayan (2006) said that â€œ Change can be brought about most effectively by weakening an organisationâ€™s forces of stability.â€? They argued that to weaken these forces of stability, the organisation needs to first understand the dynamics of these forces of stability. These forces of stability are counted as obstacles that block the way to changes. Having the same idea with Kotter ( 1996) ; Nilakant & Ramnarayan (2006 ) believe that the forces of stability are within the organisation and the solutions to pave way for changes are also within the organisation, cannot be found outside the organisation.
Failing to create short term wins- Referring to this mistake, organisation should divide the long term vision into short term goals ( say 6 to 18 months) whose results may be seen and encourage management and employees to be more productive. Kotter then said, â€œ without short term wins ,too many employees give up or actively join the resistanceâ€?.
Management declaring victory too soon. It is very risk to declare and celebrate victory too soon. Kotter suggested that the new approach adopted is still subjected to regression and possible failures unless the changes are takes as part of the organisation culture which may take 3 to 10 years. A interesting example he cited in his book is of a company which completed a first major part of change and declared victory, paying expensive consultants, with much â€˜thank youâ€™ without considering whether employees accepted the changes or the evidence that the original goals were accomplished. By doing this within few years all the changes introduced slowly disappeared and the subsequent it became even hard to trace any change element.
Neglect to anchor changes firmly in the corporate culture- I personally understand it as accepting what has been changed taking it as part of your life and stick to it, i.e. make it a culture that you are used to. The author is of the view that changes can only stick when it is taken and embrassed as the way of doing things in that operating environment. In anchoring change ,Kotter suggested that there should be a conscious attempt to show that the new approach have helped improve performance; and should not be left to employees as there exist a danger that they may create an inaccurate links-that show no improvement after the change.
Any of the above explained errors/mistakes may cause serious problems. It is not necessary that all errors be committed for a change or transformation to fail. These errors may also associate with budgets reduction, laying off employees, and eventually put great pressure those who remain in the organisation.
Most of organisations want to change mainly to improve performance and to grab opportunities so as to increase their competitive advantage. Moreover technological change, globalisation and international integration necessitate changes and major transformation in the organisation. â€œ Managers face three challenges, One being increased competition for an organisationâ€™s resources, organisations competing in a world that is constantly changing, globalisation, technological change ......â€?( Nilakant & Ramnarayan,2006). The occurrence of these events ,to managers signals the need for change. Through assessing the internal context of change, they get more clear clues whether it is worth to introduce the change. Government legislation and changes in society value system are added as the causes of change ( Rephrased- Robert Paton & James Mc Calman 2008)
It is not unusual to hear a CEO addressing that they want to increase productivity by 20 to 30 percent or improving the quality by 30 to 50 percent. These pose challenges to managers who start thinking how successful they can change or introduce a new approach that can help to realise the targets. Letâ€™s now look at the stages for change process as explained by Kotter (1996).
Kotter (1996) came up with eight stages for changing process. Unlike Recklies (2001) whose change process is associated with what situation and problems managers should expect in the process ,Kotterâ€™s change process is associated with the previously explained mistakes. These stages serve as the solutions for the mistakes advocated by Kotter. The following are the process of creating major change (quoted from page 21 â€“â€˜Leading Changeâ€™).
Stage 1: Establishing a sense of urgency.
Stage 2: Creating the guiding coalition
Stage 3: Developing a vision and strategy
Stage 4: Communicating the change vision.
Stage 5: Empowering broad-based action
Stage 6: Generating short time wins.
Stage 7: Consolidating gains and producing more changes.
Stage 8: Anchoring new approaches in the culture.
Kotter (1996) stresses the sequential use of the stages in the change process without skipping any stage to avoid problems. He said, â€œ Although one normally operates in multiple phases at once, skipping even a single step or getting too far ahead without a solid base almost always creates problems.â€? Organisations should also remember the effect of culture and managers who lack leadership traits to change process. â€œ The combination of cultures that resist changes is lethal errors described are almost inevitable under these conditions.â€?.
It should be noted that to take change process, leadership skills are very important as compared with managerial skills. We need a manager who can lead people to change. For the transformation process to be successful management should be competent. In many organisations leading change posses a big challenge It is therefore important for managers to have appropriate leadership skills. To get the best results and change process be successful Oliver Recklies stages are also very important. A manager knows in advance what resistance is expected, so preparing to tackle the problem. Both Recklieâ€™s and Kotterâ€™s stages may be linked together for a successful change process.
2.6 ANSWERS TO THEORETICAL QUESTIONS
What is performance measurement?:It is a process which an organisation defines criteria for determining how effectively and efficiently its operations are. The aim of measuring performance is to determine whether the organisation meets its pre-defined objectives. Performance measurement can also be applied to individuals or particular business unit/department. ( Section 2.1)
How can it be improved?: Performance measurement can be improved by establishing and maintaining an effective performance measurement system ( PMS1).This system should link the organisationâ€™s operations to corporate strategy. The PMS1 identifies areas to be improved, figures out different ways of improving those areas and assign resources for the process. ( Section 2.2)
What is Balanced Scorecard ( BSC)?: Balanced Scorecard is a performance measuring and reporting system that translates the organisationâ€™s strategy and vision into specific measurable and actionable goals.BSC provides a link between organisation long term strategy with short term actions whereby different relevant metrics are applied to measure the organisationâ€™s performance. The measurement includes both financial and non financial measures. BSC serves as the effective means of improving both external and internal communication. ( Section 2.3)
How widely is BSC used?:BSC can be used in business, industry, government and non profit organisation regardless of the size. According to Bain & Company survey 62% of the 708 surveyed companies had adopted the BSC. Most of those adopted have reported a high level of satisfaction of 3.86 against a maximum of 4. (Section 2.3)
What are the benefits of using the BSC?: The benefits depend on how the BSC is implemented. A well defined ,developed and applied BSC brings benefits to the company user.BSC provides a more effective way of monitoring the organisation performance and stir up its improvement initiatives. Moreover BSC serves as a management report whereby it provides operational performance across the perspectives. One of the main strategic benefit of the BSC is the process of articulating the pre-set objectives aligned to the corporate vision ( Section 2.3)
What are the problems or challenges in implementing the BSC?: Implementing a BSC is a long term process. Developing and sustaining the BSC needs management commitment. One of the biggest challenge is having a leader who can lead the BSC development throughout its implementation. Another challenge relates to defining the measurable goals with their metrics which link with the corporate strategy and vision. Other challenges are:
-Underestimating time for BSC implementation
- Maintaining momentum
-Leader not involving all organisation staff; Poor communication may result to resistance.( Section 2.3.2)
How to reduce chances for BSC failure?: All in all management should be ready and committed to change. Communication serves as an effective tool to gain support and reduce resistance that in most cases cause failure. Managers should feel an ownership for BSC. The organisation should also have a strong team working together; this determines peopleâ€™s behaviour and conducts. The objectives and expectations should be clearly and concise communicated to all within the organisation. Another approach is to link the performance of the objectives contained in the BSC to rewards. Management should also align the existing processes within the organisation with the BSC goals.
What are the metrics for measuring performance? :Every organisation has metrics which are relevant to its operating environment. Management should not just adopt the metrics established and implemented in another organisation as may be irrelevant to what they intend to measure. Depending on the corporate vision, strategy, objectives and goals, management has to establish own measures of performance.( Section 2.3.3)
Are there any other tools for improving performance measurement besides the BSC?:Apart from Kaplan and Norton, other professional have also developed some measures which are used to improve performance measuring. Some of these are six Sigma, Total Quality Management ( TQM ), Baldrige, APIC etc. Six Sigma and TQM are explained in sections 2.4.1 and 2.4.2 of this chapter.