Chapter 14

Strategic performance
management and control
 Learning outcomes
• After reading this chapter, you should be able to:
• demonstrate an understanding of the role of control in managing business
performance
• expound on the four types of strategic control systems that can assist
organisations in effectively implementing their strategies
• discuss the Balanced Scorecard as a strategic performance management tool.
• demonstrate your understanding of the role of project management in
strategic management
• explain the role and application of strategic risk management
• demonstrate your understanding of the essence of sustainability reporting
and how to develop sustainability metrics.
 14.1 Introduction
• A strategic performance tool that organisations would find useful is the
Balanced Scorecard.
• Although not all organisations use the same strategic performance tools, the
Balanced Scorecard has been popular with many organisations.
• The Key Performance Indicators (KPIs) identified from the Balanced Scorecard
framework, bring about a forward thinking outlook as it assists organisations in
focusing on their core performance area.
• Performance management thus requires that organisations implement control
systems to act as a watchdog that detects deviations from standards set.
• Once performance control systems have been activated, performance can be
monitored to identify and close gaps timeously.
 14.1 Introduction (cont.)
• The role of strategic control systems in a volatile business
environment should not be underestimated.
• Four types of strategic control systems have been highlighted in this
chapter, namely:
o assumption control, strategic scanning, special alert control and
implementation control.
o Strategic control is complicated as it requires a great deal of information,
which is not always readily available.
 14.1 Introduction (cont.)
• Projects are tools to implement strategies in organisations. If organisations
experience problems or become aware of opportunities, they can apply a project
management approach.
• For example, when two organisations merge, it can be seen as a programme with
many sub-projects.
• Each of these sub-projects will require attention to changes in the external
environment that might impact the outcomes of these sub-projects.
• Risk management is a continuous process that assists organisations in
understanding, managing, communicating and preventing unfavourable
conditions.
• Applying risk management strategies in the organisation can lead to sustainability
 14.2 Strategic control systems
• The business environment does not change in a predictable, orderly way.
• For this reason, BPM systems are flexible because when internal changes
occur, it could be a direct result of external changes.
• Business Performance Management (BPM) is the area of business
intelligence that enables organisations to effectively monitor, control and
manage strategy implementation according to key performance
indicators (KPIs).
• Business performance management implies that organisations collect
data from various sources, analyse it and take appropriate strategic
actions if, and when required.
 14.2 Strategic control systems (cont.)
• When managing environmental changes, the extent of the risk will determine
the urgency of the response.
• Getting knowledge regarding the performance measurement data distributed
and used throughout an organisation, is at the core of what BPM is all about.
• Organisations need to be flexible and should continuously focus on innovation
to incorporate environmental changes into their strategies
• Four types of strategic control can be distinguished:
o premise control
o special alert control
o strategic scanning
o implementation control.
 14.2.1 Assumption control

• Assumption control is also referred to as premise control, as it is designed to gather data

and analyse it systematically and continuously to determine whether the assumptions (or
premises) on which the strategy is based, are still valid in the light of new information.
• A premise or assumption can be the basis of several strategies, or a strategy can be based
on more than one assumption.
• A premise can be regarded as a specific constraint.
• Assumption control incorporates both environmental and industry constraints6 as
illustrated in Figure 14.1.
• Assumption control requires organisations to incorporate environmental and industry
constraints in their control system, to predict the business environment landscape over the
next three to five years.
• These constraints then act as baseline assumptions to monitor changes or deviations.
14.2.1 Assumption control (cont.)
 14.2.2 Special alert control
• Special alert control monitors events that have a very low likelihood of occurring,
but can have a devastating impact on an organisation, and may even threaten the
existence of the entire organisation.
• Organisations have to thoroughly and rapidly reconsider the current strategy of
the organisation due to the occurrence of a sudden, unexpected event.
• Examples of these events could include:
o natural disasters such as a tsunami or earthquake
o chemical spills of for example nuclear power
o terrorism
o plane crashes
o major product defects
o hostile take-overs.
• If any of the above-mentioned events occur, the existing strategic direction may
become obsolete and redundant.
14.2.2 Special alert control (cont.)
 14.2.3 Environmental scanning
• One way to gain competitive intelligence is to engage in constant environmental scanning
which can be defined as a means of unfocused control.
• In this type of control, the business environment and organisational resources are
monitored to identify threats or opportunities for the continual existence of the
organisation.
• Managers monitor both the internal and external environments by:
o reading trade publications
o talking to customers
o talking to suppliers
o attending trade shows
o attending conferences
o following social networking sites entries such as Facebook and Twitter.

• The purpose of environmental scanning is thus to keep up-to-date with environmental

changes.
 14.2.4 Implementation control
• Implementation control takes place as events unfold.
• Strategic implementation control continuously questions the basic direction
of the strategy.
• There are two basic types of implementation controls:
o strategic thrusts or projects
o milestone reviews.
• A strategic thrust is a broad statement of long-term intended strategic
actions, based on a three to five-year planning horizon
• Two monitoring approaches are useful in enacting the implementation
controls of strategic thrusts:
o identify critical success factors for each thrust
o determine meaningful thresholds for the thrusts in terms of criteria such as costs and
research and development needs.
 14.2.4 Implementation control (cont.)
• Organisations choose to adopt the most appropriate strategic thrusts to
become more competitive and to maintain their future competitive position.
• Once strategic thrusts have been identified, milestones must be set to track
the effectively execution of the strategic thrusts.
• All types of strategic control require searching for a vast amount of
information.
• The type of information the organisation needs is known, whereas the
sources used to collect information is not necessarily known, or might be
undefined.
• Once it is known who or what (e.g. the financial manager or a business
application system) is responsible for collecting the necessary information,
management can respond quickly to threats or opportunities to maintain or
achieve a strategic competitive advantage.
 14.3 Strategic performance
14.3.1 Business performance management
• BPM best practices require an environment that reconciles the fundamental
business strategy with essential drivers, stakeholders and enablers.
• The drivers of business performance are based on six pillars, namely:
o leadership performance
o talent and hiring performance
o team performance
o business planning performance
o sales performance
o marketing performance.
• Effective BPM requires that the organisation determines its true drivers of
performance within these pillars and translate it into metrics linked t performance
targets and goals.
14.3 Strategic performance (cont.)
14.3 Strategic performance (cont.)
 14.3 Strategic performance (cont.)
• The importance of measuring business performance should not be
underestimated as it provides organisations with the following benefits:
o assists with monitoring and controlling performance by evaluating the
organisation’s progress towards goal accomplishment
o supports the drive towards improvement by creating strategic goals and key
performance indicators to measure performance
o an aid to maximise the effectiveness of the improvement effort by linking key
performance indicators to performance incentives or discipline
o assists with alignment of organisational goals and objectives and strategies.
• In practice, organisations have to adapt their strategic control systems
according to environmental conditions as illustrated in Figure 14.5.
14.3 Strategic performance (cont.)
 14.3.2 The Balanced Scorecard
• There is a correlation between using performance management
programmes or software, and improved organisational results.
• The Balanced Scorecard (BSC) is a widely accepted strategic
performance management tool.
• The four perspectives of the Balanced Scorecard focus on more than
just short-term financial performance measures to include long-term
strategic dimensions that deal with delivering results.
• An example of a strategy map for Dischem, a pharmacy that delivers
prescription medicine, is illustrated in the following figure 14.6
below.
14.3.2 The Balanced Scorecard (cont.)
14.3.2 The Balanced Scorecard (cont.)
 14.3.2 The Balanced Scorecard (cont.)

• Organisations have to ensure they set effective and efficient KPIs.

• Figure 14.7 outlines the questions that must be asked to identify
effective KPIs and the efficiency measures that should be set to
meet stakeholders’ expectations in terms of specific expected
results.
14.3.2 The Balanced Scorecard (cont.)
 14.3.3 Strategic project management
• In today’s highly competitive and volatile environment, merely following
general management approaches for organisational survival is not sufficient.
• A perception exists that general management and project management are
two different management techniques.
• However, with flatter organisational structures becoming the norm and the
broadening of project management to business focused project management,
there is little difference between these two management techniques.
• Project management principles and practices add value to the implementation
of strategies.
• The difference between business focused project management and traditional
project management is highlighted in Table 14.3 below.
14.3.3 Strategic project management (cont.)
 14.3.3 Strategic project management (cont.)
• The business focus has moved to lean management, being innovative and
possessing a wide diversity of skills to execute strategies successfully.
• At the heart of using business focused project management to drive the
implementation of a strategic plan, are:
o executive and senior management skilled in project management concepts
o an organisational structure that supports project management
o a strategic project management framework in terms of scope of work, timelines with
milestones, budgets, potential risks identified, quality requirements and the
communication process key project management areas identified to link to each strategic
programme initiative
o senior management responsible for the strategic programmes provided with the necessary
resources to execute the strategic initiatives
o alignment of each sub-project with the overall corporate strategy.
 14.3.4 Risk management
• The intended outcome of risk management is to reduce or eliminate
the risk of some events from occurring, or impacting the organisation
to a large extent.
• Risk management can be defined as a process, affected by
stakeholders such as the board of directors, management and
employees to strategically identify potential events that may affect
the organisation and to manage risks identified to achieve the
intended objectives.
• Risk management requires the following five steps as illustrated in
Figure 14.8 below.
14.3.4 Risk management (cont.)
 14.3.4 Risk management (cont.)
• The first step to identify risks and threats requires identifying sources of risks. Sources
of risks encountered in an organisation can include:
o operational risks in terms of the core business, including its systems and practices
o financial risks related to the organisation’s ability to earn, raise or access capital as well as costs
associated with its transfer of risk, for example bonds and insurance premiums
o human risks related to recruiting, retaining and managing its workforce, e.g. employees’
compensation, turnover and absenteeism, unions and unfair dismissal or discrimination
o strategic risks related to organisational grow, e.g. joint ventures, mergers, profitability, customer
satisfaction and financial performance
o legal/regulatory risks related to statutory and regulatory compliance, licensing and accreditation,
e.g. VAT , labour legislation and workplace health and safety, sustainability reporting
o technological risks associated with operational and information technologies, equipment and
devices, e.g. e-commerce transaction security, management information and inventory control
systems accuracy and breakdowns in assembly lines.
 14.3.4 Risk management (cont.)

• Classification of risks
o Risks can be classified as:
 disruption-related risks, which are a result of natural, biological,
technological, industrial and other human activities
 specific effect risks, which include damage to property, infrastructure and
facilities; financial costs and indirect economic losses; fatalities, injuries and
illness; impairment of ecosystems and loss of biodiversity and social and
cultural losses.
 14.3.4 Risk management (cont.)
• Risks can be categorised according to impact (varying from very low to very
high), likelihood of happening (linked to number of years), frequency,
influence of risk sensitivity (essential, to be monitored and to be observed
risks) and in terms of extent of consequences.
• If a risk may pose to be fatal to the survival of the organisation, this risk will be
prioritised.
• The manager must create a risk management plan and develop strategies to
minimise or eliminate the impact of the risks by utilising four risk
management strategies:
o risk acceptance, e.g. accept the consequence and budget for it
o risk avoidance, e.g. close down a high-risk business area
o risk reductions, e.g. reduce the negative effects of the risk
o mitigation, e.g. transferring risk to another party.
 14.3.4 Risk management (cont.)
• There are many risk management standards to guide managers in
developing strategies, as developed by organisations such as the
Project Management Institution, the International Organisation for
Standardisation (ISO), the National Institute of Science and
Technology and actuarial societies.
• The most popular risk management standards used is the ISO 31000
risk management standards as it can be used by any organisation
regardless of its size, activity or sector.
• The ISO 31000 risk management outlines the process for managing
risk as is illustrated in Figure 14.9 below.
14.3.4 Risk management (cont.)
 14.3.4 Risk management (cont.)

• Continuous risk management helps organisations understand,

manage, and communicate risk and avoid potential catastrophic
conditions that can lead to loss of life, property and the
environment.
• More specific benefits of risk management for organisations are to:
o identify critical and non-critical risks
o describe the extent of each risk in depth
o record all risks and notify management of their severity
o take action to reduce the likelihood of risks occurring
o reduce the impact on business and the environment.
 14.4 Strategic reporting and measurement

• Strategic reporting shows organisations the extent of their

performance progress towards goal achievement.
• The report can be used for internal activities as well as public
accountability as required in the King III report for JSE listed
companies.
• The strategic report is compiled by indicating their performance
progress against specific sustainability metrics.
 14.4.1 Sustainability reporting
• Sustainability is also known as corporate citizenship, social responsibility,
climate change initiatives, or the “Green” movement.
• Sustainability can include environmental awareness, involvement in local
community outreach programmes, measuring and reporting green house gas
(GHG) emissions, or to reduce natural resource usage and energy by
changing organisational business processes and practices.
• With the progressively increasing global awareness of sustainability and
climate change, organisations of all sectors have reacted by reporting their
impact on the global economy, environment and society.
• The top global sustainability companies for 2013 and their increase in
applying sustainability practices, are shown in Table 14.4 below.
14.4.1 Sustainability reporting (cont.)
 14.4.1 Sustainability reporting (cont.)
• Although reporting is not yet globally mandated, organisations should consider
reporting, as doing so can yield many benefits, including:
o creating, maintaining and improving the business relationship with stakeholders
o meeting the expectations of investors and external stakeholders
o better understanding of current corporate responsibility and sustainability performance
and areas for improvement;
o ability to respond to corporate responsibility and sustainability activities of competitors;
o achieving greater credibility among employees, business partners, and government
regulators;
o attracting consumers who value businesses that are implementing sustainable practices;
and
o enjoying an improved public image and reputation.
 14.4.1 Sustainability reporting (cont.)
• Although many organisations would like to engage in sustainable reporting and enjoy the
benefits thereof, there are some barriers to sustainability reporting, such as:
o lack of knowledge on how to compile a sustainability report
o lack of governmental fiscal incentives
o many choices amongst sustainability reporting tools, schemes and guidelines
o inadequate number of staff or governmental support and external sustainability reporting
consultants
o high implementation and maintenance costs associated with employee wages, measurement
systems, and the direct distribution of the report
o the challenge of whether sustainability reporting aligns with the overall goal of maximising profit
and shareholders’ wealth.
• Below is an example of how manufacturing companies have moved from traditional
manufacturing towards sustainable manufacturing and increased their shareholders’
value.
14.4.1 Sustainability reporting (cont.)
 14.4.2 Sustainability metrics
• Sustainability metrics are tools that measure the benefits achieved
through the implementation of sustainability.
• To measure sustainability involves indicators to determine the extent
of meeting triple bottom line successes.
• The purpose of metrics is that they enable goal setting, assist in
determining business value, and pave the way for future sustainable
practices adoption.
• Guidelines for setting metrics are to ensure that the measurements
add value to organisational decisions.
• The metrics must address the needs of all the stakeholders (internal
and external).
 14.4.2 Sustainability metrics (cont.)
• The following specific on-going metrics have been identified for measurement
within the six sustainability metric categories shown in the above table:
o Continue to measure the amount of volatile organic compounds (VOCs) emitted (kg/vehicle).
o Continue testing the level of contaminants in waste water, such as Biological Oxygen Demand
(BOD5), Chemical Oxygen Demand (COD), pH, oil and grease, and heavy metals.
o Expand upon five-year target of an 8% reduction in CO2 emissions from 2005-2010 by
increasing the company’s goal for 2010-2015 to achieve an additional 20% reduction.
o Normalise all greenhouse gas emissions (GHGs) to lbs./vehicle. calculate carbon footprint of
common business practices (such as travel) and aim for a 20% reduction by 2015.
o Measure all employees using public transit/walking/biking.
o Measure pollutant levels in local air and downwind areas.
o Gauge the concentration of contaminants in local and downstream surface and ground
waters.
o Monitor local ground and surface water levels.
o Calculate the volume of water used by source with a goal of 100% water re-use at all facilities.
o Determine the emissions from vehicles manufactured.
 14.4.2 Sustainability metrics (cont.)
• As can be seen some of the metrics are more long-term in nature,
whilst some are used as benchmarks for annual improvement.
Advantages to monitor and measure environmental and
organisational performance include:
o setting effective and value-added priorities
o benchmarking to continuously improve
o encouragement of bottom- up, organisation-wide innovation
o reinforcing personal and organisational accountability
o strengthening strategic planning and goal-setting processes
o improved internal and external communication.
 14.5 Summary
• In order to survive in the dynamic changing environment, the
challenge for organisations is not only to formulate strategies, but to
ensure all staff work towards achieving these strategic objectives.
• For organisations to thrive in the competitive environment,
performance management must be applied.
• Four strategic control systems have been discussed and the problems
arising from engaging in strategic control have been highlighted.
• The Balanced Scorecard as a performance management tool was
been brought to light.
• It suggests that managers need to be proactive and take into
consideration the interests of their most important stakeholders, and
link them to key performance areas in terms of finance, processes,
customers and learning and innovation.
 14.5 Summary (cont.)
• Each of these key performance areas could be regarded as a
sub-project requiring strategic focused project management
competence.
• The identification of risks will prepare organisations to better
cope in the dynamic and competitive business environment.
• Utilising risk management can identify impediments to
achieving strategic objectives and eliminate or reduce the
effect these risks may have on the organisation.
• This in turn could contribute towards sustainable
organisational success in the long run.
• Organisations that publicly report their sustainability practices
should ensure they clearly specify their sustainability metrics
and indicate the extent of achieving each metric.
 Discussion questions

1. Explain the business performance management process and indicate the

important role control is playing in business performance.
2. Discuss the four types of strategic control that can assist organisations in
effectively implementing their strategies.
3. Discuss the Balanced Scorecard as a strategic performance management tool.
4. Expound on the complexity of managing the performance of a project.
5. Explain how to strategically identify potential events that may affect the
organisation and how to manage risks to achieve intended objectives.
6. Discuss the importance of strategic reporting.
7. Clarify what can be regarded as sustainability metrics and explain how it
should be used to measure and benchmark performance.