In the past, the economy was dominated by tangible assets, financial indicators were adequate to record investments, properties, facilities and equipment on companies' balance sheets, in the same way the income statement also reflected the expenses associated with the use of those assets to produce income and benefits. In today's world where intangible assets are the most important sources of competitive advantage, we require tools that describe assets based on knowledge and value creation strategies. Let us not forget “that what cannot be measured we cannot administer and therefore it is not susceptible of improvement.”It is a fact that since Robert Kaplan and David Norton some years ago introduced their famous Balanced Scorecard (IMC) in the dynamic and changing environment of today's organizations, it is not possible to measure the strategy and consequently create and direct companies in the five principles of an organization focused on it.
Beginning
- Translate strategy into operational terms. Align organization with strategy. Make strategy everyone's daily job. Make strategy a continuous process. Mobilize change through active leadership of strategic level teams.
The starting point of a management measurement system is the strategic direction of the company, its objectives and strategies. The indicators measure the GAP (indices) of how the organization, based on its core competencies, responds to or exceeds the key success factors in the market and in front of its customers. Graphically it can be expressed like this:
Therefore, an integrated management measurement system is a set of "measurable" indicators derived from the strategic plan, which allows us to evaluate, through GAPs, the objectives, actions and results and, therefore, determine the organization's performance against to your strategic direction.
A management measurement model should start with the definition of corporate indices and indicators and then cascade them out to the other levels of the organization, even reaching jobs as observed in the following cascade model:
The model is made up of indicators, indices and parameters, where:
- Indicator: Quantitative or qualitative variables to be measured Index: It is the quantitative relationship between the planned goals, objectives, the standards related to the indicators and the results achieved Parameter: They are the units of measurement of the performance of the variables that make up the model.
They must be established in accordance with the client and must meet the following characteristics:
- The indicators are intended to evaluate the product or service based on the purchase values agreed with the customer. They clearly define the behavior of the product or service. They are a fundamental element in the decision-making process. Generate added value.
It is also essential that the determining elements that make up a management indicator are clearly defined, which must be incorporated into the agreement with the client and remain in force during its execution:
- Denomination: It should only consider the characteristic, event or fact that you want to control and it will be expressed in quantity, rate, proportion, percentage or other. Comparison pattern: Previously the analysis and measurement criteria are established together with the standards against which the measurement is compared.Interpretation: It consists of specifying how the result of what has been measured or expressed quantitatively will be read.Periodicity: It is agreed how many evaluations will be made within the period of service provision and at what moment. In order to perform the calculation, it is necessary to define the source of the information, who generates and who processes the information.
Cause-effect relationship.
A model assumes a systemic vision of the organization, which implies that the indicators are not independent of each other, since there is an interaction and interdependence between them. Therefore, among the indicators there is a “cause-effect” relationship that must be considered when analyzing the model's behavior, given that the dynamic relationship between internal productivity, the market and the customer is what ultimately produces profitability.
Within the systemic conception of the model, the indicators can be classified by their characteristics into two main groups, namely:
- Lagging indicators (management or performance indicators): Those that measure the results of short-term objectives, the result of which can change very little.
The credo of a measurement system
- Measure, measure and measure. Optimization of levels of detail against the scope of the indicators. Facilitate self-control. Analysis of GAPs and Benchmarketing. Generate quantitative culture. Activity costing (ABC) Administration by activity (ABM) Permanent audit.
In God we trust, all others must present data.
What to measure?
All the processes of the organization are measurable and each business unit must define the perspectives or dimensions that must integrate its own model according to its characteristics of its management measurement model.
The management model must be "cascaded", which implies that it involves all MEMBERS OF THE ORGANIZATION. MANAGEMENT MEASUREMENT IS THE RESPONSIBILITY OF EVERYONE! "Let's not forget that the purpose of the model is none other than to improve our results, uniting the members of an organization around a system that consistently measures, motivates and encourages strategy."
However, there must be a unit in the company responsible for collecting and processing the information that serves to support the analysis of evaluation of the organization's results.
Model perspectives
- External Perspective: Set of critical, economic, political, geographic, and cultural indicators that must be monitored because they affect the performance of business in the sector or corporate sphere. Competitive perspective: Set of indicators that allow determining the competitiveness of the business through the analysis of variables related to the behavior of the sector, the bargaining power of suppliers and customers, the threat of substitutes, the intensity of competition and barriers to entry and exit from the business. Financial Perspective: Set of indicators that allow the performance of the organization vis-à-vis its owners and third parties in terms of profitability, solidity and especially the added value they generate for it. Market and customer perspective:Set of indicators that allow the organization to know the impact and market acceptance of its products and services, as well as the levels of customer satisfaction and loyalty. Internal perspective: Set of indicators that measure the efficiency and effectiveness of processes internal in terms of the value they generate by facilitating the performance of the organization and customer loyalty. Intellectual capital perspective: Set of indicators that measure the processes of continuous improvement and incorporation of learning from the organization, translated in terms of creativity and innovation in the response to the market and to the growth of the organization.Perspective of social responsibility: Set of indicators that measure the organization's compliance with its social responsibilities,both internal and external as a corporate citizen.
The gestation of a results-oriented culture is the great contribution of the comprehensive management measurement model, in fact all executives will have to learn to manage it, to make it a day-to-day routine in their organizations. The next step is none other than turning your CMI into a variable remuneration base based on performance evaluation.
The balance
Each company must build its own CMI, in accordance with the conditions of each company, for each strategic business unit, for the different areas, for the processes, and for each job. Below is a scorecard that reflects the organization's strategic priorities.
Once the WCC has been created, it must be included in a specific action plan that allows monitoring and controlling the development of the model. For this, it is essential to define a work route for each perspective, indicating strategies, their standards, the activities they imply, the measurement dates, the resources required and those responsible for each of them.
The measurement
The model is not only an instrument for collecting and analyzing information, it is a powerful tool that places strategy at the center of the organization, which is why Robert Kapplan has said that the development of a comprehensive measurement system should serve to:
- Gain clarity on strategy. Get focus. Develop leadership. Align strategy. Educate organization in a corporate culture. Establish strategic goals. Align programs and investments. Build an effective feedback system.
Finally, if we are not capable of generating a change towards measurement as an improvement strategy in the culture of organizations, we do not expect them to remain over time.
Bibliographic Note:
1 The Balanced Score Card: TRASLATING Strategy into Actions. Harvard Business School Press. Boston 1996. p. 286.
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