Are You Still Using a First Generation Performance Framework?

Editor's Note: Take a look at our featured best practice, Supercharge Strategy Execution: Performance Scorecard (35-slide PowerPoint presentation). The Performance Scorecard is a unique framework that acts as an invaluable tool for senior management to cut through the clutter of reviewing multiple (and at times irrelevant) department Key Performance Indicators (KPIs) and provides a single view dashboard to aid performance [read more]

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What is a “first” or “second” generation Performance Management and Measurement framework?

Let’s begin by defining these concepts.

First generation Performance Management and Measurement frameworks derive Key Performance Indicators (KPIs) from strategy.  These include well known and established frameworks, such as Balanced Scorecard (BSC) and EFQM Excellence Model.

These first generation frameworks have led organizations to increase the number and range of performance measure, but do not add the value that could be achieved.   These frameworks have significant weaknesses in the way that these KPIs are identified, integrated, communicated and acted upon.

On other hand, a second generation Performance Management and Measurement frameworks derives KPIs from stakeholder and organizational needs.  This concept was developed by Andrew Jack, when he observed the management and employee dissatisfaction with existing Performance Measurement and Management frameworks.  To address these issues, Andrew Jack developed the second generation framework, Value Mapping.

Value Mapping focuses on driving true value for the organization, by deriving measures tied to Value Drivers and Value Outcomes:

• Value Drivers are things that drive Value Creation.
• Value Outcomes are the desired outcomes for the stakeholders.

The Value Mapping framework utilizes a pictorial way of integrating the most useful performance measures, which helps employees to reconnect themselves to their performance.  It identifies the most important value required by the stakeholders and then develops a strategy to integrate it.  Value Mapping also focuses on effective communication and assets that can create greater value to drive performance.

From the Value Mapping process visual above, we see the components of this model are:

• Value Needs Assessment
• Review of Strategy and Objectives
• Mapping and Integration of Objectives
• Predicted Value Outcome Mapping
• Value Drivers Assessment
• Value Driver Mapping
• Measures Development and Refinement
• Communication, Planning, and Allocation of Energy/Resources
• Value Outcome Assessment and Reporting Value

All organizations should be value-focused.  This is the basis to Value Mapping.  The Value Mapping model is an approach to value creation that uses the language of value to identify and structure performance measures.

Before we can review and develop our KPIs, we need to understand the Value Outcomes that we are trying to create, which are influenced by the needs of our stakeholders.

Value Mapping, specifically, helps management and employees reconnect with performance measures and performance management.  Value Mapping identifies the most important stakeholder needs and uses these to measure value outcomes, as well as to develop an integrated strategy. Value Mapping approach also places great emphasis on the effective communication of the activities and assets that create value, the value drivers, and the measures of their performance.  It is an approach that can help to structure the reporting of value for all people concerned in the success of the organization.

Interested in gaining more understanding on how to implement Value Mapping?  You can learn more and download an editable PowerPoint about Value Mapping here on the Flevy documents marketplace.

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Performance Management (also known as Strategic Performance Management, Performance Measurement, Business Performance Management, Enterprise Performance Management, or Corporate Performance Management) is a strategic management approach for monitoring how a business is performing. It describes the methodologies, metrics, processes, systems, and software that are used for monitoring and managing the business performance of an organization.

As Peter Drucker famously said, "If you can't measure it, you can't improve it."

Having a structured and robust Strategic Performance Management system (e.g. the Balanced Scorecard) is critical to the sustainable success of any organization; and affects all areas of our organization.

Learn about our Performance Management Best Practice Frameworks here.