The measure of management

The balanced scorecards four perspectives A value creation map for TT Club A generic value creation map. Positive for ports?
The balanced scorecards four perspectives A value creation map for TT Club A generic value creation map. Positive for ports?
Industry Database

Over the last decade, management techniques have evolved substantially, with one of the most highly regarded being the so-called " strategic performance management" , or SPM, theory. Already in use worldwide by government departments, major corporations, academic institutions and not-for-profit organisations, it promises to deliver substantial benefits similar to those promised by earlier initiatives such as just-in-time, or total quality management.

But what about the application for ports? There are many factors that ports cannot, or are unlikely to be able to change. Most obvious among these are their location, access by sea and land, economic hinterland and regulatory, or ownership, status. So is port performance - the success of some facilities and the relative lack of success at others - all down to the luck of the draw and the blessing of favourable tangible assets?

While it is clear that the world's major ports and terminals have evolved, by and large, to serve economically active geographical regions and, since the age of containerisation, to act as relay hubs for more lightly-tonnaged trade lanes, the role that management plays in turning natural strengths into commercial success should not be underestimated.

There is also relative success - after all not all ports can aspire to be a Long Beach, Rotterdam, Hong Kong, Singapore or Shanghai - and the fact that among facilities with broadly similar physical advantages there can be considerable differences in overall performance. It is therefore critical to understand the key drivers of this success, and how they can be harnessed.

Historically, management techniques have been focused primarily on financial performance: a straightforward if somewhat one-sided measure of a commercial company's success but not necessarily so applicable to a publicly-owned body, such as a port trust for example.

More importantly, financial measurements only measure the outcome of past performance and are less reliable predictors of future performance.

However, since the 1990s management thinking has evolved, with strategic performance management becoming central to the extraction of stakeholder, rather than solely shareholder, value.

Cranfield University's Bernard Marr, an authority on SPM, defines it as "the organisational approach to define, assess, implement and continuously refine organisational strategy".

Earlier work that now forms part of strategic performance management included the balanced scorecard, or BSC, method of measurement, developed and articulated in 1992 by Drs Robert Kaplan, of Harvard Business School, and David Norton. They recognised that an exclusive focus on financial measurement presented an incomplete picture. In addition, financial measurement is only backward-looking, and Kaplan and Norton realised that modern management needed a variety of continuously measurable indicators that would assist it to perform against all the variables forming the enterprise's strategic plan.

They retained traditional financial measures in the BSC, but commented: "These financial measures are inadequate, however, for guiding and evaluating the journey that information age companies must make to create future value through investment in customers, suppliers, employees, processes, technology, and innovation."

In its original form the balanced scorecard suggests that we view the organisation from four perspectives - learning and growth, business process, customer and financial - and develop measurements, collect data and analyse it in relation to each, as illustrated in Figure 1.

Over time, different organisations that have adopted strategic performance management may have altered some terminology and will certainly have defined, within each perspective, the measurements that are critical to their own success.

TT Club, a major insurance provider to the ports and terminals sector, has been applying the SPM approach and Nick Baker, business planning director in charge of implementation, is very positive about the benefits the Club has seen so far.

"As an insurance provider, reliant primarily on our stock of intellectual capital in terms of our skills, history, knowledge and network, of course we are going to have a different set of key performance indicators within each of the BSC perspectives to, say, a port or terminal operator. Having said that, SPM (incorporating the BSC) is transferable to any organisation and is integral to the successful achievement of any organisation's strategic objectives."

TT Club collaborated with Bernard Marr of the Centre for Business Performance Management at Cranfield University, to work through the SPM process, which involves five main steps:

1) Devising a value creation map which visualises the interrelationship of the core competencies, capabilities and resources to create value for the Club's customers. This is a diagrammatic description of how an organisation creates value by connecting strategic objectives in explicit cause-and-effect relationships with each other, especially clarifying the key drivers of performance and how they are combined to deliver the organisational value proposition, as shown in Figure 2.

2) Stress testing this through the use of alternative future scenarios designed to test the organisation's business model.

3) Formulating a business plan robust enough to meet such eventualities.

4) Aligning the key performance indicators designed to help managers drive the business to achieve the strategic objectives.

5) Implementing more effective strategic reviews and controls.

In terms of key performance indicators, within the business process perspective, for example, these include the speed of issuing documentation, promptness of invoicing and credit control - all fundamental to most organisations. Similarly under customer relationships, the continuous monitoring of the number of active customers, the proportion of revenue or earnings attributable to the top percentile, and the ratios of new business to quotations and customer retention all have their place in any management system.

"What is different is not the fact that these aspects are being looked at, " Mr Baker remarks. "Rather it is putting in place a framework that attributes a value to all the key measures, compares those values to an optimum or acceptable measurement in each category, and presents the results in a coherent and consistent way so that management can easily identify any areas that need attention in order to stay in line with the business plan and strategic objectives.

"The skill is in setting and reviewing the KPIs to drive correct behaviour that will enable one to achieve one's plan, " says Mr Baker.

"That and making sure they conform to the business's strategy map."

Cranfield's Mr Marr goes further. "All too often, " he warns, "I see organisations come undone by falling into one or more of three classic traps. The strategy trap catches out those who develop a one-sided view of strategy that does not connect external opportunities with their internal core competencies and resources. The measurement trap looms for those who don't link their indicators to the strategy and either try to quantify the unquantifiable or measure everything just because it's measurable."

"Finally, " he says, "there's the management trap. This lies in wait for organisations that either collect too many irrelevant measures or use the measures in a command-and-control fashion: both situations mean that measures will not be used for any strategic decisionmaking or learning."

So, how might strategic performance management work in a port or terminal environment, and what issues are there in implementation?

"In much the same way as in any other business" says Mr Baker.

"For example, one can envisage that a value creation map would show that elements contributing towards meeting the terminal's customers' needs would involve the quality of the physical infrastructure, the skill of the operational personnel, the political stability and economic health of the host country or hinterland."

The performance measures might include the well-tried industry standards of teus moved per hour, crane, berth and yard utilisation or vehicle waiting times for collections and deliveries. Learning and growth might focus on more intangible areas such as the quality of labour relations, employee retention, and training undertaken.

The key message is that a growing number of companies in many industries, including major players in logistics, are moving toward this approach. An interesting question is how far the ports and terminals industry has already adopted this methodology and what impact it could have on the performance of the sector as a whole.

Acknowledgements go to Nick Baker, TT Club's business planning director, and Bernard Marr, research fellow at the Cranfield University School of Management for their contributions to this article.

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