Strategic Performance in history

 

At strategic level, performance management had a shorter history as strategic management as a discipline was established only in the 20th century. It was driven mainly by strategic management and organisational behaviour practitioners.

 

Overall, there are multiple connection points between the strategic, operational and individual performance management evolution, as they all evolved under the umbrella of the management discipline (Brudan, 2009). The chronological evolution of strategic performance management is illustrated by a selection of citations in the table below:

 

Timeline

Event – Comments

Source

1920s

Traditional performance measures are primarily financial ones aimed mostly at outcomes. This is not particularly surprising since most cost accounting systems were developed in the 1920s. As a result, most accounting reports are not directly related to strategic concerns in other areas. Granted, some strategic goals are financial, but most are not focused on money issues. Trying to track things like customer service, quality, flexibility, and innovation – to mention a few – using 1920s’ tools seems a bit of a stretch.

Denton (2005)

1946

Concept of a Corporation – the first book to treat a business corporation as a political and social institution, authored by Peter Drucker. Based on his observations of management practices of General Motors (1943), he launched the idea of “self-governing plant community”, by which he means the assumption of managerial responsibility by individual employees, work teams and employee groups over such areas as the structure of jobs, the performance of major tasks and the management of community affairs, meaning such things as shift and vacation schedules, safety and benefits.

Galagan (1998)

1954 

The term "management by objectives" was first popularized by Peter Drucker in his book 'The Practice of Management'.

Drucker (1954)

1950s and 1960s 

Interest in strategy as an area of management study followed the diffusion of strategic planning (‘long-range planning’) among large companies during the 1950s and 1960s. Articles on long-range planning began appearing in the Harvard Business Review during 1956–61 (Ewing, 1956; Wrap, 1957; Payne, 1957; Platt and Maines, 1959; Quinn, 1961) and by 1965 the first systematic, analytically based frameworks for strategy formulation appeared (Ansoff, 1965; Learned et al.,1965).

Grant (2003)

1951

Ralph Cordiner, the CEO of General Electric, commissioned a high-level task force to identify key corporate performance measures. The categories the task force singled out were timeless and comprehensive: in addition to profitability, the list included market share, productivity, employee attitudes, public responsibility, and the balance between short- and long-term goals.  According to a knowledgeable senior executive, the 1951 effort had only a modest effect because the measures believed to determine the company's stock price, to which incentives were tied, were all financial: earnings per share, return on equity, return on investment, return on sales and earnings growth rate. He believed that once the financial markets valued other measures, progress within companies would accelerate.

Eccles (1991)

1961

D. Ronald Daniel states in a Harvard Business Review article that: “companies were plagued by a common problem: inadequate management information. The data were inadequate, not in the sense of there not being enough, but in terms of relevancy for setting objectives, for shaping alternative strategies, for making decisions, and for measuring results against planned goals.”

It was proposed that a company needed a compilation of environmental, competitive and internal information provided by financial and nonfinancial data in the form of "success factors". The idea did not really catch on, not in the literature or in the practice of the day can much reference be found to nonfinancial indicators. This was probably because the idea was too optimistic about the capabilities of computers of the time to deliver the right information.

Daniel (1961)

1965

Anthony at the Harvard Business School proposes under the title of ‘management planning and control systems’ a separation of ‘management control’ from ‘strategic planning’ and ‘operational control’.

Anthony (1965)

1976

Beer and Ruh publish a HBR article in which they describe and analyse the performance management system piloted by Corning Glass Works. It was developed by staff psychologists and personnel specialists who were looking for a system that would incorporate the strengths of Management by Objectives with a better way to help managers observe, evaluate and aid in improving the performance of subordinates.  The PMS was a formal vehicle used by Corning to manage, measure and improve the performance and potential for advancement of approximately 3,800 managerial and professional employees.

Beer & Ruh (1976)

1979

John F. Rockart describes in his HBR article a new approach developed by a research team at MIT's Sloan School of Management, termed the "critical success factor (CSF) method. The CSF method focuses on individual managers and on each manager's current information needs—both hard and soft. It provides for identifying managerial information needs in a clear and meaningful way.

Rockart (1979)

1980s

As strategic management developed as an area of academic study, interest in companies’ strategic planning practices waned. By the 1980s empirical research in strategic planning systems focused upon just two areas: the impact of strategic planning on firm performance and the role of strategic planning in strategic decision making. The first area spawned many studies but no robust findings. Ramanujam, Ramanujam, and Camillus (1986: 347) observed: ‘The results of this body of research are fragmented and contradictory, while Boyd’s (1991) survey concluded: ‘The overall effect of planning on performance is very weak.’

The contribution of both areas of research has been limited by lack of empirical investigation of the phenomenon itself. Planning–performance studies relied upon largely superficial characterizations of strategic planning practices based mainly upon questionnaire data.

Grant (2003)

1991

Eccles publishes the “Performance Measurement Manifesto” in Harvard Business Review. In this article, he predicts a performance measurement revolution will take place in the next five years. During this revolution traditional financial information systems would be replaced by nonfinacnial information system. According to Eccles, such a revolution was necessary to improve managers’ satisfaction with the information they receive and satisfy the increased information requirements of modern-day-organisations caused by new techniques like total quality management, focus on customer satisfaction and benchmarking.

Eccles (1991)

1992 -2007

1992 - Kaplan and Norton introduced the BSC to the wider public in 1992. The concept was presented at that time as a performance measurement tool, used to capture besides the financial measures, the value-creating activities from an organization’s intangible assets.

1993 - In a new article, the authors made the first references about the connection between performance metrics and strategy.

1996 - The BSC was labeled as a strategic performance management system, which formed the basis of a rallying framework for strategic processes, resource allocation, budgeting and planning, goal setting and employee learning.

2001 – In their second book on the subject, Kaplan and Norton present the Balanced Scorecard as an all encompassing strategic management and control system.

2007 - Companies expand their use of the balanced scorecard, employing it as the foundation of an integrated and iterative strategic management system.

Companies are using the scorecard to:

  • clarify and update strategy;
  • communicate strategy throughout the company;
  • align unit and individual goals with the strategy;
  • link strategic objectives to long-term targets and annual budgets;
  • identify and align strategic initiatives;
  • conduct periodic performance reviews to learn about and improve strategy.

The Balanced Scorecard enables a company to align its management processes and focuses the entire organization on implementing long-term strategy.

Kaplan & Norton, 1992

 

 

Kaplan & Norton, 1993

 

 

Kaplan & Norton, 1996a

 

 

Kaplan & Norton, 2001

 

 

Kaplan & Norton, 2001

 

References

  • Ansoff,  H., I. (1965), Corporate Strategy, McGraw-Hill, New York, NY.
  • Anthony, R., N. (1965), Planning and Control Systems: A Framework for Analysis, Harvard Business School Division of Research.
  • Brudan, A. (2009), Integrated Performance Management: Linking Strategic, Operational and Individual Performance, available at: http://www.pma.otago.ac.nz/pma-cd/papers/1090.pdf (accessed 12 August 2010).
  • Beer, M. & Ruh, R., A. (1976) Employee Growth Through Performance Management, Harvard Business Review, Vol. 77, No. 2.
  • Boyd, B., K. (1991), Strategic planning and financial performance: a meta-analysis, Journal of Management Studies, Vol. 28, pp. 353–374.
  • Daniel, D., R. (1961), Management Information Crisis, Harvard Business Review, Vol. 39, Iss. 5, pp. 111-121.
  • de Waal, A. (2002), Quest for balance: the human element in performance management, John Wiley&Sons, New York, NY.
  • Denton, D,. K. (2005), Measuring relevant things, International Journal of Productivity and Performance Management, Vol. 54, No. 4, pp. 278-287.
  • Drucker, P., F. (1954), The Practice of Management, pp. 62-63.
  • Eccles, R., G. (1991), The performance measurement manifesto, Harvard Business Review, January-February 1991, pp. 131-137.
  • Ewing, D., W. (1956), Looking around: long-range business planning, Harvard Business Review, Vol. 56, No. 4, pp. 135–146.
  • Galagan, P., A. (1998), Peter Drucker, Training & Development, American Society for Training & Development, Vol. 52, p. 22.
  • Grant, R., M. (2003), Strategic Planning in a turbulent environment: evidence from the oil majors, Strategic Management Journal, Vol. 24, pp. 491-517.
  • Kaplan, R., S. & Norton, D., P. (1992), The Balanced Scorecard - Measures That Drive Performance, Harvard Business Review, Vol. 70, No. 1, pp. 71-79.
  • Kaplan, R.S. & Norton D.P. (1993), Putting the Balanced Scorecard to Work, Harvard Business Review, Vol.71, No.5, 134-142.
  • Kaplan, R.S. & Norton D.P. (1996a), Jan-Feb, Using the balanced scorecard as a strategic management system. Harvard Business Review, Vol.74, No.1, 75-85.
  • Kaplan, R., S. & Norton,  D., P. (2001), The Strategy-Focused Organization: How Balanced Scorecard Companies Thrive in the New Business EnvironmentHarvard Business School Press, Boston.
  • Learned, E., Christensen, C., R., Andrews, K., R. & Guth, W., D. (1965), Business Policy: Text and Cases. Irwin: Homewood, IL.
  • Payne, B. (1957), Steps in long-range planning, Harvard Business Review, Vol. 35, No. 2, pp. 95-101.
  • Platt, W., J. & Maines, N., R. (1959), Pretest your long-range plans, Harvard Business Review, Vol. 37, No. 1, pp. 119–127.
  • Ramanujam, V., Ramanujam, N. & Camillus, J., C. (1986), Multiobjective assessment of effectiveness of strategic planning: a discriminant analysis approach, Academy of Management Journal, Vol. 29, No. 2, pp. 347–472.
  • Quinn, J., B. (1961), Long-range planning of industrial research, Harvard Business Review, Vol. 39, No. 4, pp. 88-102.
  • Rockart, J., F., (1979), Chief executives define their own data needs, Harvard Business Review, Vol. 57, Iss. 2, pp. 81-93.
  • Wrap, H. (1957), Organization for long-range planning, Harvard Business Review, Vol. 35, No. 1, pp. 37-47.

Strategic : Profile and evolution

 

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