Four reasons why cascading measures down from strategic initiatives will never work
By David Parmenter
Cascading measures down an organization was probably the most damaging process used in the balanced scorecard approach. There are four reasons why it does not and will never work:
- By cascading down from a measure such as “return on capital employed” you could justify any measure.
- There is no linkage to the organisation’s critical success factors so measures will be encouraging action in the wrong direction.
- There is no robust testing of measures for a “dark side,” an unintended consequence.
- This process leads to too many measures, all of which are misleadingly called KPIs.
The answer lies with the critical success factors
Having first ascertained the organization’s CSFs it is thus best to start the balanced scorecard from the ground up at the team level within the
operations. It is at the operational team level that KPIs will be found. Find me an accounting team, in head office with a winning KPI! They will not have one.
Like many support functions, their team will work with PIs and RIs. This sends a clear message: finish the monthly and annual accounts quickly
and spend more time helping the teams who are working directly on the organization’s KPIs.
By cascading up, not down, CEOs are saying that finding the right measures that link to the CSFs is important. It is the El Dorado of management when you have every employee, every day, aligning themselves with the organization’s CSFs. Very few organizations have achieved this alignment, this magical alignment between effort and effectiveness, Toyota being a shining light.
An organization not knowing it’s critical success factors (CSFs) is like going to soccer’s World Cup without a goalkeeper
An organization not knowing it’s critical success factors (CSFs) is like going to soccer’s World Cup without a goalkeeper or, at best, an incompetent one. The term critical success factors does not appear to be addressed by some of the leading writers of the past 30 years. Peter Drucker, Jim Collins, Gary Hamel, Tom Peters, Robert Kaplan, and David Norton all appear to ignore the existence of critical success factors. Yet, in my mind, this is a missing link in management theory, for CSFs may be the El Dorado of management.
Critical success factors (CSFs) are operational issues or aspects that need to be done well day-in, day-out by the staff in the organization. I believe an organization should have between five to eight CSFs. While most organizations know their success factors, few organizations have:
- Worded their success factors appropriately
- Segregated out success factors from their strategic objectives
- Sifted through the success factors to find their critical ones—their CSFs
- Communicated the CSFs to staff
To understand more
This information has been extracted from David Parmenter’s Key Performance Indicators (4th Edition) which is the highest rated KPI book on Amazon.
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