Steve Jobs said; “get closer than ever to your customer. So close that you tell them what they need well before they realise it themselves.” In fact, organisations build their strategic perspectives and associated metric dimensions from their consumers.
A popular perspective is the balanced scorecard (BSC) with four dimensions: financial, customer, internal processes, and learning and growth. A less common perspective is the process scorecard (PSC) with four dimensions: effectiveness, quality, efficiency, and productivity. Here, we propose a framework for organisational excellence that is based on an integrated scorecard that combines both the balanced and process perspectives.
The Meaning of Quality
Definition of quality has evolved over time, from focusing on the product and the provided service, to considering the process and the value. Currently, the most prevalent definition of quality is “customer delight”. Delighting the customer requires addressing four questions:
Who are your customers? The purpose is to profile and pareto your customer population. For hospitals, patients are the customer. They may be profiled on age, nationality, and/or payment method.
What delights your customers? The purpose is to identify those characteristics that are valued by the customer. These may include responsiveness, tangibles, reliability, empathy and cost.
How delighted are they currently? For the critical-to-customer characteristics, the organisation needs to determine how far its current performance from the target. This requires soliciting the opinion of the customers, usually through a survey method.
Why aren’t you delighting them more? The purpose is to initiate improvement projects. Depending on the answer to the previous question, a project mandate is developed with specific objective and timeline.Before we go further, we need to clarify some points associated with the customer concept. The customer is the recipient of the service. The partners assist in the delivery of the products and services. Some of the customers are internal; as is the case with the human resources or information technology departments, whose customers are internal. The customer who receives the service and the client who pays for it are not necessarily the same. For example, a patient is the customer of the hospital, and the insurance firm is the client. The needs and requirements of both must be considered separately when designing the service that may affect both. Customers are not one monolithic thing; they should be profiled and prioritised for effectiveness and value.
To delight customers, specific features and their associated metrics need to be defined. The features are typically identified from insightful reading, and in some cases anticipation, of customer requirements. This is a serious exercise that falls under the area of “Quality of Design.”
Some of the identified metrics are process-related that are reflected in the produced service or product, while others are related to the opinion of the customer that is usually captured through customer opinion surveys. Process metrics may be classified into two types; productivity that focuses on getting more outputs from the available resources, and efficiency that focuses on reducing the resources for a given output.
Productivity may be simply determined by dividing the output by the input. One example is the number of patients served per clinic, or at a micro perspective, the number of patients served for each type of sickness. On the other hand, efficiency is defined as the input divided by the output. For instance, utilization of resources, such as MRI or beds, may be measured by dividing the time used by the available time for the resource. Another important metric is the waiting time of the patient or timeliness, which is measured as the percentage of patients that are served on-time. Process compliance or Sigma level is another measure of interest. A four Sigma level process is better than a two or three Sigma level process.
Examples of customer metrics are those related to soliciting the opinion of patients in the services they’ve received. Various service dimensions such as tangibility, responsiveness, and empathy may be measured by a set of questions each, and then aggregated to compute a composite measure. Another more efficient measure is the net promoter score that measures patient loyalty.
The instance of ‘delight’ typically drives values to the organization, which are captured with financial and effectiveness metrics. Typical examples of financial metrics are net profit margin, operating expense ratio, and return on assets. Effectiveness is measured as actual output divided by planned output. Examples of effectiveness metrics may relate to growth targets such as sales and number of people served. Impact metrics also fall under the banner of effectiveness. Examples are Carbon Footprint and eradication of a certain disease.The three key factors that impact the process well-being are the technology, the management system, and the people. The latter is the one that has the highest impact and yet pauses the greatest challenge. The performance of people may be captured through learning and growth metrics. An example is the training intensity, which measures the amount of training the worker receive, and their contribution to work improvement activities and initiatives.
The balanced scorecard (BSC) consists of four perspectives; financial, customer, internal processes, and learning and growth. The process scorecard (PSC) also consists of four perspectives; effectiveness, quality, productivity, and efficiency.
An integrated scorecard (ISC) may be derived by combining the two perspectives, which will also consist of the following four perspectives:
Financial and Effectiveness.
Productivity & Efficiency.
Learning and Growth.
It is not enough to balance metrics based on the ISC; equally important is to ensure that there is a balance between leading and lagging metrics. For example, at process sigma level, a leading indicator should resonate in the lagging indicator of higher level of patient satisfaction.
Performance Management System Framework
Using the integrated scorecard (ISC), we construct a performance measurement system framework. There are four types of strategic objectives associated with the ISC:
Grow and sustain.
Provide outstanding services and products, and delight customers.
Improve processes and resources utilization.
Develop the human capital.
Using the proposed framework, the organization may develop its set of metrics for each sector and department, and then cascade these metrics to the individual employee level. For a small size organization, the total number of metrics ranges from 150 to 200. Applying the Pareto Principle, few of these metrics, in the range of 10 to 15, are selected as Key Performance Indicators (KPIs) to be monitored at the corporate level.
Each metric must have a complete definition that includes: code, name, dimension/perspective, strategic objective, formula, unit, assumptions, frequency of measurement, accountable party, responsible party, data sources, target values, base value, standard, and levels of performance.
It is important that people in the organisation share a clear understanding of the meaning of quality and how it impacts the organisation performance. Here, we proposed an integrated scorecard to relate the performance in quality to other areas of performances. Then we developed a performance measurement system framework to relate the integrated scorecard to strategic objectives and set the stage for the development of metrics at the department and corporate levels.
References available on request.