IS Business Performance

29 Jan

As I stated in my previous blog, performance measurements should:

o    Recognise good performance

o    Identify high performers

o    Provide feedback

o    Provide evidence to determine if strategy is working

o    Provide a common language for communication

o    Recognise if goals are being met

o    Show if customers are satisfied

o    Determine if and where improvements are necessary

o    Drive improvement [1]

A business needs to be carefully managed and controlled in order to ensure success of its investments. This is why performance measurement systems are important in keeping track of a company’s progress. “Performance measurement gives a company vital information about what is happening in the business and provides it with a starting point  for a system of target setting that will help you implement your strategies for growth” [2]

Once the key business drivers of a company have been identified, one must then find the most effective way of measuring them. ‘Le1008’  has previously spoken about different types of standardised measures in her blogs, and I will attempt to continue on and discuss another standardised measure which is commonly used to measure business performance. The framework I will be discussing is ‘Action- Profit Linkage’.

Epstein and Westbrook developed this model in 2001 to help firms measure, control, analyse and interpret the links between a company’s actions and their profit. It is a multiple-stakeholder behavioural model which outlines the results that can occur because of alterations in stakeholder behaviour.

The Action-Profit Linkage’ (APL) model begins with corporate strategy and from there it moves to four other segments1. Company actions, 2. Delivered product/service, 3. Customer actions, and 4. Economic impact. Behaviours, attitudes and perceptions are measured in each of the components.

1.        Company actions-“Management and employee behaviour can be measured as activities in the company action component by measuring learning, workload, reward and recognition and culture”

2.        Delivered product/service- “Product/service characteristics such as price and quality can be measured along with employee or customer perceptions of the product/service”

3.        Customer actions- “Customer behaviors such as purchase rates, share of requirements, repeat purchases, cross-sell rates and new referrals can be measured as well as attitudes such as customer satisfaction and intent to purchase”

4.        Economic impact- “Economic impact such as customer revenues and profitability, number of new customers and market share can be measured” [3]

 

Epstein and Westbrook believed that firms would show dramatic improvements if they understood the linkages between the five components, and that is what the tried to achieve with the creation of their framework. Their model shares features with that of Balance Scorecards (BSC), which were spoken about in le1008’s blogs. Like Balanced Scorecards, the APL framework looks at a firm as a collection of activities. They both combine internal and external measures and lagging and leading indicators. However, they do differ in some ways also.  “While the BSC does have this notion of causal linkages between elements within the BSC, the APL model ascribes behavioral causal linkages and because of this focuses more on the company’s actions (Epstein & Westbrook, 2001)” [4]. Despite the differences though the two frameworks are highly compatible, and both are commonly used today in many companies to measure business performance.

 

[1]- https://sopinion8ed.wordpress.com/2013/01/13/introduction-to-performance-measurement/

[2]- http://www.infoentrepreneurs.org/en/guides/measure-performance-and-set-targets/

[3]- http://www.kellen.net/bpm.htm

[4]- http://www.kellen.net/bpm.htm

 

 

 

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