From Taylorism to EFQM – Business Control through Indicators
// Business Intelligence
What does a performance measurement system have to do with quality? Anyone who intensely deals with this topic will soon find out: a great deal. Performance measurement system that is the new term for an indicator system. For a long time already, indicators and/or statistical measured values have been the undisputable proof for the quality of a product or process that is specified in advance. Already Taylor had started to record the productivity of production line workers in figures. Back then, the quality claim to work processes accordingly was speed. But both Taylorism and pure production operations have played a sub-ordinate role for quite some time already. The service industry is relieving the producing industry of its predominant role in the economy and therefore processes, strategies and indicators are also changing.
Keep your eyes toward the future, not just on the past
This economic development is reflected in the indicators that were and are reviewed at companies. Up into the 80s, purely quantitative values of the balance sheet and P&L were at the centre of both theory and practice. Indicators such as Working Capital and ROI allowed for quick conclusions regarding a company‘s economic position. In stock market oriented times, value-oriented indicators such as EVA, price-earnings ratio, dividend and profit additionally moved into the focus of management and supplemented the reporting. Shareholder value is generally considered to be of more significance than ever. Criticism to these quantitative measures is not fundamental in nature but rather refers to their short term nature and orientation towards the past. Therefore, there is an increasing demand for control indicator systems that ought to provide a balanced view of short and long-term indicators.
Linking figures and strategy
Kaplan & Norton‘s Balanced Scorecard in 1992 revolutionised performance measurement. In the face of the problematic single dimension nature of financial figures, it emphasised a balanced view of quantitative and qualitative indicators. Kaplan and Norton call this a balance of driver and result indicators. These should be linked to the business strategy since this is the only way to assure that the correct control-relevant indicators are reported and that the business goals are achieved. In particular, performance measurement represents these links of indicators and strategies and the cause and effect relationships between them. Nevertheless, there is uncertainty with respect to strictly translating the strategy into goals and therefore there is uncertainty regarding the practical implementation of the Balanced Scorecard. In addition, a company-wide communication and implementation is quite costly.
Competitive advantages due to learning effects
What the Balanced Scorecard in its function as a performance measurement system has in common with quality management is the emphasis on the learning processes – the continual improvement. As such, two seemingly completely different disciplines are linked to one another, right from the start. Performance measurement as part of quality management originally was intended to support exactly such quality initiatives that have to be taken care of in addition to the day-to-day business. Through their close ties to strategy, performance measurement systems then became so comprehensive that they summarise an organisation and its success factors in a single view. The term quality in the stricter sense is only a part of the whole from this perspective.
Most of the time, quality management is associated with the ISO standards. Those of have made it their purpose to standardise quality management at organisations worldwide. But this has very little to do with performance measurement in the sense of initiating strategy link and improvement processes. However, many customers still demand an ISO certificate, and companies therefore are forced to perform the audit.
Combining ISO and Balanced Scorecard with EFQM
Here, e.g. the Business Excellence Model of the European Foundation for Quality Management (EFQM) is offering an alternative. It can be combined with the Balanced Scorecard and/or ISO. Based on this, a company has to utilise its approaches on the so-called enabler side, such as management, strategy, employees, partnerships & resources as well as processes, products & services in a well-founded and integrated manner and also consciously control and improve the results side (employee, customer, company-related and key results in the sense of financial and process results) that result from them. This is achieved through self-assessment and comparison to the best (benchmarking). By differentiating the results based on metrics and indicators, EFQM also supports the creation of a systematic and balanced indicator system (see also the article by André Moll: „The Excellence Approach of EFQM“, pg. 40 - 42).
Ultimately, each and every company has to individually decide which models, systems and indicators it wants to use and which trend it thereby follows. But they would be well advised to bear in mind the original origin of performance measurement as an improvement instrument and to also be aware that the so-called performance revolution has not been completed by a long shot. Software companies such as SAP, Oracle, etc. have long picked up the topic and are developing applications for IT-based performance reporting. Other current topics of the performance measurement theory are, for example, how the business‘ value can be more exactly be determined through the calculation of intellectual capital. Yet, in the service sector, there is still a large knowledge gap regarding the measurability of productivity that needs to be filled. And there is disagreement regarding the valuation of a company‘s innovative strength.
Therefore, the development on the path towards a comprehensive business control continues.