The Performance Prism Model By Neely Business Essay

The Performance Prism (2002) is a model that has been developed by Neely, Adams and Kennerley to further aid organisations in their pursuit of measuring the overall performance of their operations. The creators of this model suggest that for organisations operating within almost any given industry, the most important aspect of management is to deliver on the expectations of the stakeholders associated with that organisation. The Performance Prism is designed to help with the complex relationships that organisations often possess with their various stakeholders within the context of its operating environment. It provides an innovative and holistic framework that directs management attention to what is important for long term success and viability and helps organisations to design, build, operate and refresh their performance measurement systems in a way that is relevant to the specific issues that they face within their given industry.

This model attempts to distinguish itself from other similar models such as the Balanced Scorecard by offering a unique perspective on a measuring system that can ultimately be adopted as a way of operating within an industry, rather than just measuring performance of the organisation. The balanced scorecard (Kaplan & Norton, 1992), with its four perspectives, focuses on finance, customers, internal processes and innovation and learning. In doing so it downplays the importance of other stakeholders, such as suppliers and employees. The business excellence model (EFQM, 1991) combines results, which are readily measurable, with enablers, some of which are not. Shareholder value frameworks (Bender &Ward, 2008) incorporate the cost of capital into the equation, but ignore all aspects relating to stakeholders. Both activity based costing (Kaplan & Bruns, 1987) and cost of quality (Feigenbaum, 1991), on the other hand, focus on the identification and control of cost drivers, non-value-adding activities which are themselves often embedded in the business processes. The major criticisms of these systems are that it clearly ignores any other perspectives on performance, those being the wants and needs of shareholders, customers and employees. As almost a direct opposite to these approaches, benchmarking (Camp, 1989) tends to involve taking a largely external perspective, often comparing performance with that of competitors or other ‘best practitioners’ of business processes. However, this kind of activity is frequently pursued as a one-off exercise towards generating ideas for short-term improvement initiatives, rather than the design of a formalised ongoing performance measurement system.

The fact that so many of these process already exist suggests that none of them have been completely successful in fulfilling the needs of a broader scope of organisations, even though each of them clearly can add some element of value to an organisation who adopts such initiatives. Each can provide management with a method of measuring and assessing components of the organisation relating to performance. Depending upon the situation an organisation finds itself in, an explicit focus on shareholder value, and ignoring other aspects of operations may be the most appropriate action to take. In another circumstance, or even in the same organisation but at a different point in time, this initiative may have devastating consequences. Then, perhaps, a decision to adopt the balanced scorecard or the business excellence model may be the correct course of action to take. New management within an organisation, who has inherited too overt a current focus on short-term shareholder value, may find these frameworks a useful vehicle to help switch attention more towards the interests of customers, investments in process improvement or the development of innovative products and services. The key is to recognise that, despite the claims of some of the proponents of these various frameworks and methodologies, there is no one ‘holy grail’ of performance management tools or best way to view business performance. Through the Performance Prism, Neely, Adams and Kennerley suggest the reason for this is that business performance is itself a multi-faceted concept (Neely & Adams, 2002).

A prism refracts light. It illustrates the hidden complexity of something as apparently simple as white light. This is relevant to the thinking behind Neely’s (2002) model of the Performance Prism. It illustrates the complexity of performance measurement and management. Neely (2002) argues that single dimensional, traditional frameworks only pick up elements of this complexity. He goes on to suggest that while each of them offers a unique perspective on performance, they do not analyse the organisation from a performance perspective as an entire entity. The model seeks to integrate five related perspectives and provide a structure that allows executives to think through the answers to five fundamental questions:

1. Stakeholder Satisfaction: Who are our stakeholders and what do they want and need?

2. Stakeholder Contribution: What do we want and need from our stakeholders?

3. Strategies: What strategies should be put in place to satisfy these sets of wants and needs?

4. Processes: What processes do we need to put in place to satisfy these sets of wants and needs?

5. Capabilities: What capabilities – bundles of people, practices, technology and infrastructure

do we need to put in place in order to allow us to operate our processes more effectively and efficiently?

(Neely & Adams, 2007)

Together these five viewpoints provide a comprehensive and integrated framework for managing organisational performance and, by answering the related questions, organisations can build a structured business performance model.

Stakeholder Satisfaction

Organisations exist primarily to provide either a product or service and to deliver ‘value’ to their key stakeholders. The term stakeholder can be used to describe a broad range of entities including investors, customers, employees, suppliers, regulators and pressure groups. Freeman and Reed (1983) defined a stakeholder as any party that can affect or be affected by the actions of the business as a whole. The term ‘Value’ will be viewed dissimilarly for different stakeholder groups; Customers typically will want rapid and reliable delivery of high quality products and services that offer good value for money whereas employees will seek value in the form of competitive compensation packages, training and development, and promotion prospects. Shareholders definition of the term value will be more concerned with return on their investment and the profitable growth prospects of the organisation relative to its competitors.

Stakeholder Contribution

‘Organisations and their stakeholders have to recognise that their relationships are reciprocal’ (Neely &Adams, 2007).

It must also be remembered that for every stakeholder there is a ‘quid pro quo’: what the organisation wants and needs from stakeholders as well as what the stakeholder wants and needs from the organisation. This is a dynamic and subtle tension that exists between the two sets of entities. For example, whilst customers require ease of availability, speed of delivery, competitive price and quality, the organisation ask them to be loyal and engaging. Similarly employees would like to have jobs that give them purpose, good compensation, promotion prospects and training whilst employers are looking for loyalty, flexibility, productivity, and creativity.

Strategies

When respective stakeholders’ wants and needs have been firmly established, management must then decide to what extent they will prioritise the stakeholders’ satisfaction in the strategies which the organisation develops to deliver the requisite stakeholder value, while simultaneously ensuring that its own requirements are being met. Delivery of long term stakeholder value can be viewed as the ‘destination’ whilst strategy can be viewed as the chosen route to eventually reach that destination.

Processes

The chosen strategy must be underpinned by processes aligned and designed to facilitate its successful achievement. Processes are what make the organisation work and are the mechanisms for it achieving its goals and objectives. They are essentially cross-functional and represent the blueprints for what work is done where and when, and how it will be executed. Many organisations consider their highest level business processes in four separate categories:

1. Development of products and services

2. Generation of demand for them

3. Fulfillment of demand for them

4. Overall planning and management of the enterprise

Each of these categories are often underpinned by a various assortment of sub-processes, created to help the organisation function at an optimum level of efficiency and effectiveness (Hall & Johnson, 2009).

Capabilities

Processes cannot merely function without any input from people within the organisation. They require labour with certain skills, some policies and procedures about the way things are done, some physical infrastructure for it to happen and some technology to enable or enhance it. These are capabilities which can be defined as the combination of an organisation’s practices, technology and infrastructure that collectively represents that organisation’s ability to create value for its stakeholders through its process operations.