In this post, we will talk in detail about the major concept behind the performance pyramid philosophy in performance management.
Performance Pyramid comes from the idea that an organization operates at a different level, each of which has a different concern which should nevertheless in achieving business objectives.
This concept also believes that the business strategy link to day to day operations.
Performance Pyramid believes that traditional performance management focuses mainly on financial performance which is not tied to the organization’s operation to its business strategy.
Instate of focusing only on financial performance indicators, the Performance Pyramid has considered two main objectives, say, internal effect and external effect.
The following is the graph of the Performance pyramid:
At the top level, the corporate level, the organization’s objective has been developing which is the financial objective and market objective is set.
For example, the corporate objective of the organization related to market is to be the market leader in term of market share, and the corporate objective of the organization relate to the financial indicator is to increase share price 5% every year.
The organization may have many other corporate objectives related to finance and the market.
Performance Pyramid philosophy believes that this corporate objective could be meeting only if they are supported by operation or unit business objectives.
At the business operation system or unit level, there are three indicators that could help the organization to meet its corporate objectives.
The first one is customer satisfaction. Customer satisfaction at the business unit level should be identified, set, and measure in order to ensure that the organization meets its corporate objectives related to the market objective. So, the organization should strictly measure its customer’s level properly.
The second factor of the Performance pyramid at the business unit level is flexibility is simply means how flexible the company’s product or service as well as its operation, and finance are able to respond to the change in the markets.
The business process and operating system should be considered strictly whether it could respond or not. Say, if the technology change, could the business operating system could respond to it or not?
Productivity refers to the management of resources such as labour, material, skill, time, and others.
The company should have enough labour, material, as well as any other kinds of resources to ensure that it could respond to the market change, customer demand or demand in the market.
The performance pyramid believes this factor could help the organization to help its corporate objectives.
Department and work centres:
Performance Pyramid believes that the above three business unit’s objectives: Customer satisfaction, Flexibilities, and Productivities could be met unless there is support from the department and work level.
There are five criteria at the departmental level could help the business unit level to meet its objective. They are included: quality, delivery, process time, and waste.
Quality of product and consistency of standard of service is very should be properly identified and measure.
In every business, the qualities of products that it provides to its customer, and consistency of standard of service that the company provided could attract the customers to provide the trust and authorship on its.
Bother product and service, delivery is critical that could help business success. Therefore, the measurement should be identified and set.
The processing time is also a very important part. The length of the process to produce the products or to provide the service is a very important point.
Performance pyramid believes that if the company reduces the time to produce the product, then the productivities are increased and hence lead to an increase in the financial of the company.
Waste of time in doing non-value adds activities are also the main factors behind the concept of the Performance pyramid.
The company should consider if there any activities that the company currently performs which are not added value to the company.