Challenge 2: Driving performance – KPI and driver models
Having got control of their organisations, (Challenge 1), executives then want to drive change and improvement. So, a popular second stage is to attempt to focus effort and create change using a combination of KPIs and Performance Driver Models.
Performance Driver Models are used to analyse financial or customer (beneficiary) behaviour, looking for drivers in the organisation that will improve them. Ideally, improving these divers will lead to improvement in outcomes. However, the focus is still more on measures and activity, rather than objectives and behaviours as in the more systematic Balanced Scorecard approach.
The intention of “Key Performance Indicators” is to focus the organisation on improving the performance of that single key measure. They are often chosen from performance driver models. Examples of these from the commercial world include airlines focusing on “flights leaving and arriving on time”, or hotels using “room occupancy”. A charity might look at “Donor legacies”, “Lives touched” or “Administration expenses”. This focus is intended to drive change and improvement that ultimately ripples through to the customers and finances.
This “second generation management thinking” often leads to second generation operational balanced scorecard applications that report both performance and the exceptions that need to be managed. This thinking focuses attention and usually adds some value, producing some operational improvements. However, the focus is still fundamentally operational and measure focused. The tool is a blunt instrument of change and its impact is often limited. Smarter executives realise these limitations and soon want something more strategic and effective at bringing about change. They quickly realise that to achieve this they have to step beyond these simpler approaches.
They have to step up to the strategic management system and fourth generation balanced scorecard approach.