The Performance Prism is a second generation performance measurement and management framework 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, 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 combines results, which are readily measurable, with enablers, some of which are not. Shareholder value frameworks incorporate the cost of capital into the equation, but ignore all aspects relating to stakeholders. Both activity based costing and cost of quality, 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 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 formalized ongoing performance measurement system.
Its advantages over other frameworks are that it addresses all of an organisations stakeholders – principally investors, customers & intermediaries, employees, suppliers, regulators and communities. It does this in two ways: by considering what the wants and needs of those stakeholders are and, uniquely, what the organisation wants and needs from its stakeholders. In this way, the reciprocal relationship with each stakeholder is examined. The Performance Prism then addresses the strategies, processes and importantly the capabilities that are needed in order to satisfy these two critical sets of wants and needs. Performance prism (pyramid) has four outer walls and a bottom. On each wall business terms are written like;
- Stakeholders’ satisfaction
- Stakeholders’ contribution
All above facets (points) are performed into logical order. Although this is no universal rule, but any amendments to its may be risky. Following these steps business will have a clear understanding of its position in the environment and each prior step justifies the rationale of later step, so that business performance are being managed in the right direction.
- Stakeholders Satisfaction: Performance prism recognizes that if business needs to be successful it should recognize the needs of its stakeholders as its first priority. Stakeholders needs and demands to be recognized to implement strategies. Traditionally performance management process starts from strategies but performance prism is distinct from all these as it emphasizes the performance management process should be start from stakeholders.
- Strategies: Strategies are short term step by step feasible plan to achieve some specific determinable objective. The strategies need to be developed to satisfy stakeholders like shareholders and customers. Shareholders may want dividends and capital growth and customer may want good quality products at affordable prices. Business has to adopt the strategic direction which leads to the fulfilment of stakeholders demands.
- Processes: Processes are the series of activities performed with a view to achieve some outcome. Processes need to be developed to put the strategies into action. Processes implemented should be consistent with the stakeholders’ demands and strategies. The advantage of using the performance prism is that processes have certain objective or target instead of carrying out processes without any motive.
- Capabilities: Capabilities means knowledge, skill and experience needed to perform processes. Capabilities need to be achieved, if not already available, through training and practice. Capability needs to be achieved to be able to operate processes in light of stakeholders’ contribution. Performance prism emphasizes that processes need to be performed should determine capabilities needed instead of carrying out process which for capabilities are available but this will not bring results.
- Stakeholder Contribution: Stakeholder contribution is knowledge shared by stakeholders to the business which helps to maintain and develop capabilities. Like feedback and suggestions from customers regarding product specification changes or seminars arranged by government to inform about new legislation requiring minimum quality standards.
- The New Spectrum: How the Performance Prism Framework Helps (BusinessFinanceMag)
- The Performance Prism – ACCA Global