Lawrie, G. (2004), "Guest editorial", International Journal of Productivity and Performance Management, Vol. 53 No. 7. https://doi.org/10.1108/ijppm.2004.07953gaa.001
Emerald Group Publishing Limited
Copyright © 2004, Emerald Group Publishing Limited
Welcome to this special edition of the International Journal of Productivity and Performance Management. In this issue we have assembled five papers that look at how performance management methods can be applied to the management of an organisation’s pursuit of a strategy.
In the early days of modern strategic management practice (e.g. following the pioneering work on formalising strategy formation activity by Ken Andrews and others at Harvard Business School in the 1960s), it was sufficient to come up with a great strategic plan – but little energy was applied to understanding how best to ensure the plan was implemented by the organisation. From early on it was clear that part of the challenge was communication based – both concerning what the strategy was and how it affected individual elements within the organisation, and concerning feedback from the organisation to the strategists revealing how well or badly the strategy was working. Portfolio planning, systems thinking, formalised change management methods (such as “business process reengineering”), and advanced organisational design changes (such as “matrix management”) can all be viewed as attempts to improve the clarity of both communication and feedback within an organisation concerning strategic goals and priorities. But work by Oliver Williamson and Joseph Stiglitz (among others) over the same period highlighted a major problem: they argued that effective control of a complex process was hampered by the difficulty of communication. In many cases it was simply too hard to communicate clearly an unambiguously what was wanted, or to find out from the data available whether what you wanted to happen had actually happened.
In the early 1990s, two developments have had a strong impact on current thinking on this issue of how best to ensure strategic plans were implemented effectively. The first was the emergence early in the decade of an apparently simplistic approach to performance management called “the balanced scorecard”. Although subsequently adapted and tailored to fit all kinds of applications, the original intention for the balanced scorecard was clearly to inform managers charged with implementing strategies: its key features were a focus on simplicity (managers were limited to a set of about 20 key bits of information about the entity they were responsible for), and its emphasis on non-financial data. By encouraging managers to choose a specific subset of all possible data to focus on, it had the useful side-effect of clarifying (and simplifying) the communication of strategic priorities into the organisation, and concurrently reducing the data collection (and monitoring) burden required to track progress. But to work, it introduced an new binding constraint – balanced scorecard was only useful if the measures chosen to appear in it were well chosen: how to do this was not clear to begin with. The second development was the emergence during the mid-1990s of innovative thinking and writing about the topic of “strategic control” – the idea that the process and method of strategy formation, implementation and review could be articulated through a single management process. The serendipity came from the realisation by various groups that strategic control concepts could usefully inform process of measure selection within a balanced scorecard: with a clearer understanding of how a balanced scorecard might fit into the management process of forming and implementing strategy, design methods could be constructed that ensured the “right” information was captured.
In this special edition, we look at some of the latest thinking in this area. In the first of the papers, Raman Muralidharan outlines recent developments in the field of strategic control thinking – and sets out with interesting examples from various organisations – the challenge for new tools to help ensure that strategic management activity is properly informed about changes in the environment surrounding an organisation. In an echo of Williamson’s observations twenty years before, Muralidharan notes that a major challenge for strategic managers is the incorporation in their thinking of things they don’t yet know much about: having a sound basis for driving such environmental scanning activity is key, and he outlines some first thoughts on what such a framework could look like.
The second paper (Wisnieski and Ólafsson) looks at some of the practical issues that occur when strategic performance management methods are applied. Looking at case material drawn from public sector organisations in the UK and Iceland, the authors identify six significant challenges that need to be addressed to deliver an effective strategic management framework. They observe that in the public sector managers need to accommodate considerable uncertainty: not only are the strategic objectives for a public sector organisation unclear, but the data that would inform about performance against these goals is also difficult to obtain. Under such conditions, where there is no “rational” right answer, their suggested solution is to ensure coherence and consensus within the management team behind whatever choices are made. They recommend that having a clearly defined and effective design process that is focused on ensuring collective participation and support of the outcomes is important.
In our third paper (Lawrie and Cobbold), describes the latest developments in thinking about how to structure and design balanced scorecards intended for strategic performance management purposes. The paper shows how balanced scorecard thinking has adapted and evolved since the concept was first publicised by Kaplan and Norton in 1992. Although the developments described were primarily driven by consultants responding to empirical evidence, the paper shows how the changes that have persisted can be seen to have a sound foundation in the wider academic literature relating to performance management and strategic control. The paper illustrates this evolution by identifying three distinct “generations” of balanced scorecard thinking. In describing the key features and benefits of the most recent third-generation designs, the authors echo observations made in both the Muralidharan and Wisnieski and Ólafsson papers concerning the need for a balanced scorecard design process to actively involve potential users of the device, to ensure a common understanding of a more relevant design.
The fourth paper (Cobbold, Lawrie and Issa) is a case study describing a recent project to apply third-generation balanced scorecard design ideas in a private sector organisation. In the case example considered, the third-generation design work followed a period during which the case organisation had been working with traditional “rationalist” strategic planning tools: the decision to implement a third-generation balanced scorecard stemmed from frustration about poor implementation of the rationalist strategy. During the design of the balanced scorecard, the organisation gained new insights into environemental issues that influenced directly the strategic choices reflected in the strategy that was the focus of the balanced scorecard design (as suggested by Muralidharan) – and also saw the design process itself drive useful management development within the organisation (echoing the observation about design process importance in Wisnieski and Ólafsson).
The final paper from Andersen, Lawrie and Savi'c explores how modern performance management thinking fits (and needs to fit) into the wider landscape of management tools if it is to be successful. Specifically the paper considers the practicality and value of combining performance management systems based on third-generation balanced scorecard design concepts with the most common frameworks used for total quality management (TQM). The authors develop a view that implementation of quality management tools in Western economies has been less effective than it appears to have been in Eastern economies (e.g. Japan), because the implementation in the West has been incomplete – quality management tools are being applied in the West independently of the strategic control methods used by the organisation. Accordingly, the quality management methods may be successful in improving quality – but by being disconnected from the strategic control process, it is not necessarily the case that the investments made in quality improvements are directed most appropriately. The authors argue that this imperfect implementation may be due to cultural problems transferring into Western organisations original strategic control methods traditionally used alongside TQM methods, but that the type of strategic control approach described by Muralidharan can usefully approximate them. They go on to demonstrate how third-generation balanced scorecard – which reflects closely Muralidharan’s model of control – can provide a proven and practical method for realising this additional control function for TQM in Western organisations.
Since it was founded five years ago as a specialist strategic performance management consultancy, 2GC has been pleased to see (and contribute to) the increasing energy and attention being paid in the academic literature concerning performance management as a topic in its own right. In this edition, we have tried to highlight some of the latest thinking in this fascinating area, and so I hope that you find this special edition of the International Journal of Productivity and Performance Management valuable.
Gavin LawrieGuest Editor
About the Guest EditorGavin Lawrie is founder and managing director of 2GC Active Management. An internationally acknowledged thought leader, Gavin is an expert concerning the processes needed to design and use strategic performance management systems, particularly within complex organisations. With over 14 years’ experience, he has led performance management projects across four continents. Prior to founding 2GC in 1999, Gavin was a leading member of the Balanced Scorecard Practice of Renaissance Worldwide, a consulting firm founded by David Norton – who with Robert Kaplan had introduced the balanced scorecard concept in 1992. During his time with Renaissance, Gavin had the opportunity to work closely with both David Norton and Robert Kaplan on the design and development of the balanced scorecard framework: an activity 2GC has continued through its own research programme. Under his guidance, 2GC has pioneered the development and use of the innovative third-generation balanced scorecard design, communicating the results of this work through a series of research papers published by 2GC since 2000. Gavin holds an MBA degree from London Business School, and a BEng degree from the University of London. He is a member of the Chartered Institute of Marketing, and the Strategic Planning Society. E-mail: email@example.com