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May 24, 2005

Optimizing Performance Capacity

Concepts like the Balanced Scorecard have shown that the notion of business performance should be built on a logical foundation of contributions identified from multiple corporate perspectives.

The BSC perspectives -- which describe the overall set of interactions between a workforce, the process designs, the market requirements, and the economy -- give a good account of the "biology" of the business.

The organic flavor of the Balanced Scorecard (BSC) set a benchmark of expectations about a management team's ability to describe the underlying complexity of operational effectiveness. It neither downplayed the complexity, nor asked for overwhelmingly detailed intelligence. Furthermore, it had strong intuitive appeal to the virtuous management desire to "take care of the business" in terms of health and prosperity, not just wins and dollars.

Yet with amazing consistency, senior executives cite the same two shortcomings in the attempt to adopt of the BSC. On the one hand, it didn't tell companies how to accomplish the linkages that it described; and on the other hand it wasn't a boon to profitability within the short and brutal cycles of typical "performance measurement." Some companies get it done anyway, but most who try don't.

Understanding that the BSC consciousness is institutionalized in evolutionary fashion helps to put these shortcomings in perspective (no pun intended). In a sense, the major focus of the BSC is accountability. It provides a guide to constructing the explanation of why things worked the way they did. As management tries to attribute outcomes more consistently to the "biological fundamentals" represented by the BSC's four perspectives, it is actually trying to account for how health drives performance.

More often, though, management is pressed to describe how competency drives performance, and this is a view that is coming into focus more rapidly now than before. Due to the distinctive pressures of the current business climate, the major issues controlling the dynamics of the business outcomes are strategy, efficiency, and governance.

The following graphic shows why this is the case: the three high-level variables or "levers" of corporate management are
- direction and purpose against market shifts;
- bandwidth; against the economy; and,
- permission under regulatory constraints.
When any one of those three variables changes, there is a corresponding risk or opportunity created in the three management concerns that link them together -- those links being priority, availablity, and authority (as seen below):

Those management links are the very ones that obviously dominate the decisions about what to do, what to change and what to stop -- in other words, they are the internal business drivers that put competencies like strategy, efficiency and governance into play. The goal is to optimize their balance so that the overall response capacity of the organization can be held at a maximum.

In sum, reviewing events according to this view accounts for how the organization is brought to a state that is best for business agility and continuity.

Posted by Malcolm Ryder at May 24, 2005 1:50 PM

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