|ISSUE 3 - SUMMER 2002|
Performance Management and Growth Metrics
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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.