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Growth
and Performance Management
In today’s competitive environment, it’s not enough
to have strong profitability. Wall
Street constantly expects continued and predictable growth, whether from
start-ups, mid-sized corporations or huge, established companies like
Wal-Mart and across all industries, regardless of business cycles or macro-economic
effects. To continually grow, it
is not enough to rely on a naturally expanding base of customers, whether
domestically or globally. For decades,
McDonalds has relied on domestic saturation and then global expansion
to fuel its growth. Today, faced
with stagnating growth, McDonalds has experienced turmoil in the executive
ranks as they attempt to develop sources to recapture their growth rate. Occasionally there have been forays into product
innovation (which are most notable for their failures) such as the McDLT, the McLean, and the Arch Deluxe. But by defining itself as the quintessential
provider of particular hamburgers in a fast food environment for so many
years, McDonalds has locked itself into an image that then becomes difficult
to change, even as they now seek growth by expanding the concept of who
they are. After 50 years of Big
Macs and Quarter Pounders, how open can the
public be to the idea of them serving spaghetti or becoming a quasi-retail
location?
From a performance management perspective, this
means strategically measuring growth is more than creating a list that
tracks increases in numbers of customers, products sold, or even “share
of wallet” as compared to competitors.
These are the results of growth.
Instead, strategic growth metrics must be designed to focus efforts
on initiatives that will drive growth.
Performance
Management Frameworks
The metrics framework provided by balanced performance
measurement systems, such as the Balanced Scorecard, is highly useful
for driving strategy into action. The
Balanced Scorecard looks beyond the traditional financial metrics, adding
three additional inter-related perspectives. It (1) reflects how financial results are affected
by customer satisfaction, which (2) is determined by the execution of
processes, and which (3) relies on the organization’s learning capabilities.
It is this cause and effect link between the four perspectives
that make the metrics coherent, instead of just a list.
The Balanced Scorecard relates strategic initiatives (cause) to
how the firm does business (effect).
However, like many strategic implementation tools,
the traditional Balanced Scorecard and measurement reporting looks at strategy
as an iterative loop: create strategy, implement, gather feedback, and
adjust strategy. With this linear
view, when organizations suddenly find their growth stagnating, they react
by revising, improving or changing their strategy by casting around for
acquisition targets to create new customer bases, justified by operational
synergies. What’s needed is a model that shows where your
current business is, and continually evaluating potential growth initiatives
and how they organically fit, rather than ending up with a hodgepodge
of efforts episodically tacked on as solutions to growth problems.
Growth strategy and metrics should be continually developed and
aligned parallel to the current business.
To provide for the parallel strategy of growth, a second dimension
can be added to the Balanced Scorecard.
This second dimension acknowledges that the demands
(and measurements) of running a current business are quite different and
separate than those of developing new products/services, customers, and
evaluating new businesses to enter, whether as a green field, a merger,
or an acquisition. In addition,
it eliminates the arguments over which strategy and businesses an organization
should focus on- the current versus new dilemma.
The answer is both. As new
initiatives become established products and businesses, their strategic
focus shifts from the second dimension to the first.
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