Relationship Marketing Audience Retention and Performing Arts Organisation Viability

2.3 Assessing Organizational Operation

Learning Objectives

1. Understand the complexities associated with assessing organizational performance.
2. Larn each of the dimensions of the balanced scorecard framework.
3. Acquire what is meant by a "triple lesser line."

Organizational Performance: A Complex Concept

Organizational performance refers to how well an organization is doing to reach its vision, mission, and goals. Assessing organizational performance is a vital aspect of strategic management. Executives must know how well their organizations are performing to figure out what strategic changes, if any, to make. Performance is a very complex concept, however, and a lot of attention needs to be paid to how it is assessed.

Two of import considerations are (1) functioning measures and (ii) performance referents (Figure two.5 "How Organizations and Individuals Tin can Utilise Financial Performance Measures and Referents"). A performance measure is a metric forth which organizations can exist gauged. About executives examine measures such as profits, stock price, and sales in an attempt to amend understand how well their organizations are competing in the market. Simply these measures provide just a glimpse of organizational functioning. Performance referents are also needed to assess whether an organization is doing well. A performance referent is a benchmark used to brand sense of an organisation'south standing forth a performance measure out. Suppose, for example, that a business firm has a profit margin of 20 percent in 2011. This sounds great on the surface. Just suppose that the business firm'due south profit margin in 2010 was 35 percent and that the average profit margin across all firms in the industry for 2011 was forty percent. Viewed relative to these two referents, the firm's 2011 performance is cause for concern.

Using a variety of performance measures and referents is valuable because unlike measures and referents provide different information almost an organization's operation. The parable of the blind men and the elephant—popularized in Western cultures through a poem by John Godfrey Saxe in the nineteenth century—is useful for understanding the complexity associated with measuring organizational functioning. As the story goes, six bullheaded men gear up out to "see" what an elephant was like. The commencement human touched the elephant's side and believed the beast to be like a neat wall. The second felt the tusks and thought elephants must be like spears. Feeling the trunk, the third man thought it was a type of snake. Feeling a limb, the fourth human thought information technology was like a tree trunk. The fifth, examining an ear, thought information technology was like a fan. The sixth, touching the tail, thought it was like a rope. If the men failed to communicate their unlike impressions they would have all been partially right just incorrect virtually what ultimately mattered.

Figure ii.five How Organizations and Individuals Can Use Fiscal Operation Measures and Referents

This story parallels the challenge involved in understanding the multidimensional nature of organization performance because different measures and referents may tell a dissimilar story about the organization's operation. For example, the Fortune 500 lists the largest US firms in terms of sales. These firms are generally non the strongest performers in terms of growth in stock price, however, in part because they are so big that making major improvements is difficult. During the belatedly 1990s, a number of Internet-centered businesses enjoyed exceptional growth in sales and stock price but reported losses rather than profits. Many investors in these firms who only fixated on a unmarried performance measure—sales growth—absorbed heavy losses when the stock market'south attention turned to profits and the stock prices of these firms plummeted.

The story of the blind men and the elephant provides a metaphor for agreement the complexities of measuring organizational performance.

The number of functioning measures and referents that are relevant for understanding an organization'southward performance can exist overwhelming, withal. For case, a study of what operation metrics were used within restaurant organizations' almanac reports establish that 788 unlike combinations of measures and referents were used within this 1 industry in a single yr (Short & Palmer, 2003). Thus executives need to cull a rich nevertheless limited set of performance measures and referents to focus on.

The Balanced Scorecard

To organize an organisation's functioning measures, Professor Robert Kaplan and Professor David Norton of Harvard Academy developed a tool called the balanced scorecard. Using the scorecard helps managers resist the temptation to fixate on fiscal measures and instead monitor a diverse ready of important measures (Table 2.half dozen "Beyond Profits: Measuring Performance Using the Counterbalanced Scorecard"). Indeed, the thought backside the framework is to provide a "balance" between financial measures and other measures that are of import for agreement organizational activities that lead to sustained, long-term performance. The balanced scorecard recommends that managers proceeds an overview of the organization's performance past tracking a minor number of key measures that collectively reflect 4 dimensions: (1) fiscal, (2) customer, (3) internal business concern process, and (4) learning and growth (Kaplan & Norton, 1992).

Table ii.6 Beyond Profits: Measuring Performance Using the Balanced Scorecard

Considering the concept of organizational performance is multidimensional, wise managers realize that understanding organizational performance is similar flying a plane pilots must be on track in terms of distance, air speed, and oil pressure and make certain they have plenty gas to finish their flight programme. For tracking organizational functioning, assessing how the organization is doing financially is just a starting point. The "balanced scorecard" encourages managers to also monitor how well the organisation is serving customers, managing internal activities, and setting the stage for hereafter improvements. This provides a fast but comprehensive view of the organization. Equally shown below, monitoring these iv dimensions besides tin help individuals assess themselves.

Scorecard Point	Definition	You lot could ask yourself…
Financial measures	such as return on avails and stock price–relate to effectiveness and profits.	How can I improve my personal wealth? Measures might include greenbacks, savings account, and retirement.
Customer measures	such as number of new or echo customers and percentage of repeat customers–relate to customer allure and satisfaction.	How stiff is my social network? The number of new contacts y'all make over time might reflect this dimension.
Internal business process measures	such as speed at serving a client and time it takes to create a new product and get it to marketplace–chronicle to organizational efficiency.	Am I getting better at my current chore? Tracking improvements in personal efficiency such as the fourth dimension needed to complete a chore can be helpful.
Learning and growth measures	such as the boilerplate number of new skills learned by each employee every year–relate to the time to come and emphasize that employee learning is oft more important than formal training.	What skills should I develop at present for the future? Although the acquisition of new skills is difficult to measure out, the attainment of specialized licenses or earning of a graduate caste are tangible benchmarks.

Financial Measures

Financial measures of operation relate to organizational effectiveness and profits. Examples include financial ratios such as return on assets, return on disinterestedness, and return on investment. Other common financial measures include profits and stock price. Such measures help respond the key question "How practise we look to shareholders?"

Financial performance measures are commonly articulated and emphasized within an arrangement's annual report to shareholders. To provide context, such measures should be objective and be coupled with meaningful referents, such equally the firm's past performance. For example, Starbucks's 2009 annual report highlights the firm'southward performance in terms of net revenue, operating income, and cash menstruation over a five-yr period.

Customer Measures

Customer measures of performance relate to customer attraction, satisfaction, and retentiveness. These measures provide insight to the key question "How do customers see us?" Examples might include the number of new customers and the percentage of repeat customers.

Starbucks realizes the importance of repeat customers and has taken a number of steps to satisfy and to attract regular visitors to their stores. For case, Starbucks rewards regular customers with complimentary drinks and offers all customers free Wi-Fi access (Miller, 2010). Starbucks also encourages repeat visits past providing cards with codes for free iTunes downloads. The featured songs modify regularly, encouraging frequent echo visits.

Internal Business organisation Procedure Measures

Internal business organisation process measures of operation relate to organizational efficiency. These measures assistance respond the key question "What must we excel at?" Examples include the time it takes to manufacture the organization'southward good or deliver a service. The time it takes to create a new product and bring it to market is another example of this type of measure.

Organizations such equally Starbucks realize the importance of such efficiency measures for the long-term success of its system, and Starbucks carefully examines its processes with the goal of decreasing order fulfillment time. In i contempo example, Starbucks efficiency experts challenged their employees to assemble a Mr. Potato Head to sympathize how work could be washed more quickly (Jargon, 2009). The aim of this exercise was to help Starbucks employees in general match the speed of the firm'southward high performers, who boast an average time per order of twenty-5 seconds.

Learning and Growth Measures

Learning and growth measures of performance chronicle to the future. Such measures provide insight to tell the arrangement, "Tin can we go along to ameliorate and create value?" Learning and growth measures focus on innovation and go along with an understanding that strategies alter over time. Consequently, developing new ways to add together value will exist needed as the arrangement continues to accommodate to an evolving environment. An case of a learning and growth mensurate is the number of new skills learned by employees every yr.

Ane way Starbucks encourages its employees to learn skills that may benefit both the firm and individuals in the future is through its tuition reimbursement program. Employees who take worked with Starbucks for more than than a year are eligible. Starbucks hopes that the knowledge acquired while earning a college degree might provide employees with the skills needed to develop innovations that will benefit the visitor in the future. Another do good of this program is that information technology helps Starbucks advantage and retain loftier-achieving employees.

Measuring Performance Using the Triple Bottom Line

Ralph Waldo Emerson once noted, "Doing well is the effect of doing good. That'south what capitalism is all about." While the counterbalanced scorecard provides a popular framework to help executives understand an organisation's performance, other frameworks highlight areas such equally social responsibility. One such framework, the triple bottom line, emphasizes the three Ps of people (making certain that the actions of the organization are socially responsible), the planet (making sure organizations human action in a style that promotes ecology sustainability), and traditional organization profits. This notion was introduced in the early 1980s but did not attract much attention until the late 1990s.

The triple bottom line emphasizes the iii Ps of people (social concerns), planet (environmental concerns), and profits (economic concerns).

In the case of Starbucks, the firm has fabricated clear the importance it attaches to the planet by creating an environmental mission statement ("Starbucks is committed to a role of environmental leadership in all facets of our business") in add-on to its overall mission (Starbucks, 2011). In terms of the "people" dimension of the triple bottom line, Starbucks strives to purchase coffee beans harvested by farmers who work under humane weather condition and are paid reasonable wages. The business firm works to exist assisting every bit well, of course.

Central Takeaway

• Organizational functioning is a multidimensional concept, and wise managers rely on multiple measures of performance when gauging the success or failure of their organizations. The balanced scorecard provides a tool to aid executives gain a general agreement of their organization'southward current level of achievement beyond a set of 4 important dimensions. The triple lesser line provides another tool to help executives focus on operation targets beyond profits alone; this approach stresses the importance of social and ecology outcomes.

Exercises

1. How might you utilise the balanced scorecard framework to measure out performance of your college or university?
2. Place a measurable example of each of the balanced scorecard dimensions other than the examples offered in this section.
3. Identify a mission statement from an organization that emphasizes each of the elements of the triple bottom line.

References

Jargon, J. 2009, Baronial four. Latest Starbucks buzzword: "Lean" Japanese techniques. Wall Street Journal, p. A1..

Kaplan, R. S., & Norton, D. 1992, February. The counterbalanced scorecard: Measures that bulldoze performance. Harvard Business organization Review, seventy–79.

Miller, C. 2010, June fifteen. Aiming at rivals, Starbucks volition offer complimentary Wi-Fi. New York Times. Section B, p. i.

Brusk, J. C., & Palmer, T. B. 2003. Organizational performance referents: An empirical examination of their content and influences. Organizational Behavior and Human Determination Processes, 90, 209–224.

Starbucks, Our Starbucks mission argument. Retrieved on March 31, 2011, from http://www.starbucks.com/near-us/company-information/mission-statement. Accessed March 31, 2011.

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Source: https://open.lib.umn.edu/strategicmanagement/chapter/2-3-assessing-organizational-performance/

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