In my previous blog I gave a number of reasons why Kaplan & Norton’s Balanced Scorecard is not as good as its popularity suggests. Also, as mentioned there, better alternatives are available. One of these alternatives, and one that I particularly favor, is the Performance Prism developed by Andy Neely, Chris Adams, and Mike Kennerley. In this blog I will briefly discuss this alternative.
Five perspectives for performance measurement
The Performance prism provides a holistic view on performance by integrating 5 related perspectives. These 5 perspectives stimulate managers to think about and answer the following 5 key questions:
- Stakeholder Satisfaction: Who are our stakeholders and what do they want and need?
- Stakeholder Contribution: What do we want and need from our stakeholders?
- Strategies: What strategies do we need to put in place to satisfy these sets of wants and needs?
- Processes: What processes do we need to put in place to satisfy these sets of wants and needs?
- Capabilities: Whatcapabilities – bundles of people, practices, technology and infrastructure – do we need to put in place to allow us to operate our processes more effectively and efficiently?
These questions, and their relationship are depicted in the following figure:
Distinctive characteristics of the Performance Prism
As these questions show, the Performance Prism starts with stakeholders, not with strategy. This order reflects that an organization’s strategy is a response to its stakeholders and thus that the selection of stakeholders and their needs and contribution come before strategy – and not the other way around, as in most other performance measurement systems.
With its focus on stakeholders, the Performance Prism doesn’t only focus on shareholders and even doesn’t consider shareholders necessarily as most important stakeholders. This distinguishes the Performance Prism from most other performance measurement systems, including the Balanced Scorecard. As Kaplan & Norton reveal in their work on strategy maps – which are complementary to and derived from the Balanced Scorecard – they see the financial perspective as the bottom-line, thereby giving shareholders priority over other stakeholders.
Unlike the Balanced Scorecard, the Performance Prism also doesn’t decide for the organization who should be considered its most important stakeholders. The Balanced Scorecard defines two of them – shareholders and customers. No mention is made, though, of other stakeholders such as end-users, employees, suppliers, or local communities. Yet all of these stakeholders can have a substantial impact on the performance of the organization, and for some organizations these may be more important than its shareholders or customers. As the first two questions above show, the Performance Prism leaves it up to the discretion of the management to decide who are the important stakeholders. This makes the Performance Prism more flexible and better applicable to a wide range of organizations.
Important is also that the Performance Prism looks at the reciprocal relationship with stakeholders. It emphasizes both what the organization wants or needs from its stakeholders and what these stakeholders want or need from the organization. As such, the Performance Prism takes into account that a healthy performing organization requires a balanced relationship with stakeholders in which both the organization and the stakeholders benefit and contribute.
A final important characteristic of the Performance Prims is its emphasis on aligning the five perspectives. As the questions above show, strategies, processes, and capabilities should be aligned with stakeholder needs and stakeholder contributions. As such, the Performance Prism helps organizations to develop an integrative approach to performance management that facilitates the effective implementation of its strategy. By developing measures for all five perspectives, organizations can obtain deep insights into their performance, which allows them to respond and act as needed.
The Performance Prism is an alternative for the Balanced Scorecard that is worth considering for organizations looking for a system to measure and manage their performance. Based on a stakeholder approach it is richer, more flexible, and more integrative than other systems. For more info on the Performance Prism see this site.