A synthesis

Recognize in the model elements that may speak the same language as the controller who wants
to convert static elements into dynamic ones.

Planning and control system

3 subsystems described as processes aimed at affecting different, interrelated functions.

- Strategic planning – deciding the objectives of the organization, resources used to attain
them and policies for governing resources’ acquisition.
- Management control – how resources are obtained and used effectively and efficiently to
accomplish objectives
- Operational control – how specific tasks are carried out effectively and efficiently

Organizational Growth, Strategy, and Performance

- Organizational growth – underlies the aptitude of an organization to attain a set of results
leading to its long term success and continuity
o Qualitative and Quantitative phenomenon
o Implies development
- Strategic decisions  search for a level of performance based on a set of measures which
show balanced and sustainable organizational development

Quantitative or dimensional perspective of organizational growth

- Can be framed under both Structural And operational viewpoints
o Structural viewpoint – growth measured in terms of investment stocks available at
a given time
o Operational viewpoint – growth is measured in terms of flows (sales volumes,
revenues, personnel turnover rate, change in machinery capacity or R&D
investments)
 Increases its structural endowment over time

Qualitative perspective of growth

- Learning is a prerequisite for growth
- Management sustainable growth – match short- with long-term perspectives and combine
efficiency with effectiveness.

Three perspectives of sustainable growth

Organization’s growth rate is balanced if it crosses different perspectives

- Internal profile of growth in an organization

o Balanced growth: search of consistency between different subsystems, sectors
and departmental/functional areas of an organization.
o Unbalanced growth: investing more on an area or sector
- External profile of growth in an organization
o Balanced growth: performance rate crossing:
 Financial dimension
  financial equilibrium and profitability
 At least balance between revenues and expenses
 Competitive dimension
 Capacility to satisfy customers’ needs with its products or services
at a reasonable price
 Therefore to generate value to the user’s benefit
 Social dimension
 Organization’s capability of meeting the expectations of different
stakeholders
- TIME: Another perspective to asses sustainable growth. Short-term performance vs. Long-
term results
o Strategic perspective is strictly related not only to long-term strategic planning but
to analysis of the impact of current and often inertial decisions on the change of
organizational structures and external environmental conditions.
- Sustainable growth means having a performance rate consistent with 3 perspectives

Framing organizational growth sustainability: the institutional and inter-institutional

levels
 Two levels for managing organizational performance under the perspective of
sustainability: institutional and inter-institutional.
o Institutional level – performance assessed in relation to the effects of decisions on
the wider systems (bounded territorial area or industry they belong to)
 Measured by sales orders, revenues, income and cash flows
o Inter-institutional - Vertical or horizontal strategic relationship with other firms in
the value chain
 Wider system
 Measured by tax contributions, increasing employment, shared
knowledge with business partners.
 Tangible or intangible resources
o Intangible: organizational climate, trust, knowledge and image.
 Critical tipping point in managing strategic resources to affect organizational performance
is associated with the capability of policy-makers to:
o Identify those strategic resources that most determine the success in the
environment (i.e. competitive and social systems)
o Insure that the endowment of such resources is satisfactory over time
o Keep a proper balance between the different relevant strategic resources.

Dynamic performance management systems for supporting organizational growth

 Performance should be evaluated according to the aptitude of an organization to pursue a
growth rate that balances the short with the long term and is also consistent with
physiological goals (elements of a socio-economic system to which an organization
belongs).
 Balanced score card
 o Organizational performance cannot be managed by focusing only on end-results.
One should understand how such results are generated, which factors affect
them, and how decision-makers can be made accountable for them
o Performance cannot be measured only in terms of financials. Also a customer, a
process, and a learning and growth perspective is needed.
o Fails to translate company strategy into a coherent set of measures and objectives
because it lacks a rigorous methodology for selecting metrics and for establishing
relationships between metrics and corporate strategy

To provide decision-makers with proper lenses for interpreting phenomena understanding the
feedback loop structure underlying performance and indentifying alternative strategies to adopt
so as to change the structure for performance improvement SD modeling has been used.

Designing Dynamic-Performance Management systems

Core of dynamic performance manamgent  Designing a P&C system to support decision-makers
to asses performance in a sustainability perspective

The objective view of performance

 External perspective (taking into account the “organization-environment” relationships)

must be framed first
o Implies the identification of the clients/users, stakeholders with whom an
organization interacts
o Products or services and social benefits an organization provides them
o Clients-products
 Competitive profile – groups of clients or users whose needs are satisfied
by an organization and the products or services delivered to them
 Social profile – definition of different groups of stakeholders towards an
organization and social benefits provided to them
 Identifying “clients-products” allows to define a set of organizational
objectives that define the “end-results” and the related outcome
indicators (performance can be evaluated with these)
 Internal perspective (identification of management processes)
 o Product = intermediate product (services provided by back-office units to their
own internal clients)
 Implication of a bad mapping - Focusing objectives and performance measures exclusively
on front-office units and related products delivered to external clients might well generate
an unbalanced attribution of responsibility.
o Design of a performance-management system requires that the chain of final and
intermediate products delivered to both internal and external clients be fully
mapped.
o Underlying processes, responsibility areas, assigned resources and policy levers
should be made explicit. (OBJECTIVE VIEW OF PERFORMANCE MANAGEMENT)

The instrumental view of performance

 Implies that alternative means for improving performance in relation to a specific product
be made explicit.
o Identify both end-results and their respective drivers
o To affect such drivers each responsibility area must build up, preserve and deploy
a proper endowment of strategic resources that are systemically linked to each
other.
o For instance, liquidity (strategic resource) may change as an effect of cash flows
(an end-result); the image of an organization (strategic resource) may change as
an effect of their satisfaction (end-result). There are also interdependencies
between different strategies resources

Organizational growth can be sustainable if the rate at which end-results change the endowment
of corresponding strategic resources remains balanced. This imples the management is able to:

 Gradually increase the mix of strategic resources and not just one of them
 Resource increase is not obtained by reducing the endowment of the wider strategic
resources in the territory or industry.

End-Results can be positioned on several layers.

 On the last layer are those that change the endowment of:
o strategic resources that cannot be purchased in the market (liquity, equity)
o Resources generated by management routines (company’s delivery delay as
perceived by customers, organizational climate, burnout).
 To affect this last layers more layers must be identified
Competitive performance drivers are associated with critical success factors in the competitive
system.

 Can be measured in relative terms (ratio) i.e. Ratio between business performance
perceived by clients and a benchmark
 Gauged in relation to perceived past performance, client’s expectations or competitors’
performance

social performance drivers

 can be measured in terms of ratios between company strategic assets and a target either
stakeholders’ expectations or perceived past organizational performance.
 For example, a social performance driver could be referred to the ratio between the actual
and planned number of perceived social initiatives undertaken by a firm.
Financial performance drivers
 also must be measured in relative terms.
 For instance, the “debts-to-total investments” ratio often affects the change in company
solvency perceived by funders. Such a driver is the ratio between two stocks.

The Subjective View of Performance

 The subjective view provides a synthesis of the previous two views

o It makes explicit, as a function of the pursued results
 both the activities to undertake and the related objectives
 performance targets to include in plans and budgets for each decision
area.
o performance measures, i.e., drivers and end-results, must be linked to the goals
and objectives of decision-makers
 Expected results provide a benchmark to which to refer for setting goals and objectives for
each responsibility area in a P&C context.
 Both objectives and performance measures:
o Can be gauged on a corporate and strategic business-area level, or in the public
sector on the level of governmental functions.
o Both are related to the expected end-results and performance-driver targets
assigned to the various responsible areas in a firm, within a budgeting context.
 Therefore, activities and the processes to which they are related can be associated with
corresponding objectives and performance measures, in a consistent action plan, from
which resources are assigned in an organization, available policy levers for each decision
area are made explicit, and responsibility for expected results is focused.
  Crucial issue - need to properly identify performance measures and to assign to decision
areas for performance evaluation in a budgeting and control process.
o need for specific, measurable, achievable, relevant, and time-related objectives
has been emphasized.
o risks associated with improper goal-setting
 Unfocused goals, leading managers to maximize their own efforts towards
a subset of the overall relevant picture
 Bounded attention towards non-monetary goals, leading managers to
focus their own decisions only on improving financial results, rather than
also on qualitative factors impacting on performance;
 A distortion between means and ends, leading to an exclusive focus on the
constitution of resources, rather than also on their effect upon
performance;
 A deliberate downgrading of performance standards, against which actual
performance levels will be compared when the performance cycle will be
closed.

The case illustrates how SD modeling has been used to map the product system, processes, and
performance indicators in a bank delivering a deposit service.

8.5.4 An Integrative Framework of Performance

 The three performance views described here play a complementary role in a dynamic
performance-management system.
o The objective view defines what the object of performance management is.
o The instrumental view identifies how to affect the defined object(s).
o The subjective view focuses on who is responsible for the accomplishment of
activities aimed at building and coordinating strategic resources, to affect
performance drivers and end-results, and to obtain an estimate of the volume and
quality of products/services so as to efficiently and effectively satisfy the needs
of target clients.
  Figure 8.7 sketches a synthetic picture of the three previously described perspectives. It
shows how,
o once the products defined there have originated through the fulfillment of
administrative tasks, it is necessary to move backwards:
 to outline the underlying processes and activities
 to define goals and objectives for each responsibility area.
 Such objectives must correspond to the results and indicators that will be
achieved through actions aimed at managing a given strategic-resource
system.
o Both performance drivers and end-results should describe whether an
organization is able to meet the various expectations coming from internal and
external clients, concerning delivered products.

8.6 Results and Major Insights from Using SD Modeling

SD modeling provides a powerful method to enhance performance management according to a
sustainability perspective in organizations.
SD supports for decision makers in:
• Framing trade-offs associated with the search for consistency between the internal, external,
and time perspectives of organizational growth;
• Understanding how strategic asset accumulation and depletion processes triggered by the use of
different policy levers affect performance drivers (the instrumental view of performance);
• Measuring how performance drivers affect end-results, and how in turn they affect strategic-
asset accumulation and depletion processes (the instrumental view of performance);
• Tracking products and processes (the objective view of performance);
• Negotiating goals/objectives, planning, and performance monitoring and evaluation (the
subjective view of performance);
• Avoiding common errors in BSC practice, related to the identification of causalities between
measures:
o For instance, in static BSCs, performance indexes are often confused with performance
drivers.
o INDEX is a synthetic expression of performance that does not affect the customer
loss rate, but instead is one of its effects.

The objective view implies that products generated by administrative tasks are made explicit

The instrumental view implies that performance measures related to both end-results and drivers
are made explicit.

The subjective view makes explicit, as a function of the pursued results, the activities to
undertake, the related objectives (and performance targets) to include in the plans and budgets
for each decision area.

This view requires that performance measures associated to the delivery of organization
‘products’ are made explicit, and then linked to the goals and objectives of decision makers
operating in different responsibility areas.