Performance Prism

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Measuring Stakeholder Value. Explanation of Performance Prism.

What is the Performance Prism? Description

The Performance Prism (Cranfield University) is an innovative performance measurement and Performance Management framework of the second generation. Its advantage over other frameworks is that it covers all stakeholders of an organization. Principally investors, customers & intermediaries, employees, suppliers, regulators and communities. It does this in two ways: by considering what the wants and the needs are of the stakeholders, and, uniquely, what the organization wants and needs from its stakeholders. In this way, the reciprocal relationship with each stakeholder is examined.

Five facets of the Performance Prism

1. Stakeholder Satisfaction.
2. Stakeholder Contribution.
3. Strategies.
4. Processes.
5. Capabilities.

These five perspectives are distinct, but logically interlinked.

Philosophy of the Performance Prism

The Performance Prism is based on the belief that those organizations aspiring to be successful in the long term within today's business environment, have an exceptionally clear picture of who their key stakeholders are and what they want. They have defined what strategies they will pursue to ensure that value is delivered to these stakeholders. They understand what processes the enterprise needs if these strategies are to be delivered and they have defined what capabilities they need to execute these processes. The most sophisticated organizations amongst them have also thought carefully about what it is that the organization wants from its stakeholders. Employee loyalty, customer profitability, long term investments, etcetera. In essence they have a clear business model and an explicit understanding of what constitutes and drives good performance.

Approach: Starting with Stakeholders, not with Strategy

According to Performance Prism vision, one of the great fallacies of performance measurement is that measures should be derived from strategy. Listen to any conference speaker on the subject. Read any management text written about this topic. Nine times out of ten, the statement will be made: "derive your measures from your strategy". This is such a conceptually appealing notion, that nobody stops to question it. Yet if you thus derive measures from strategy, you misunderstand fundamentally the purpose of measurement and the role of strategy. That's why the Performance Prism starts its process with thinking about the Stakeholders and what they want.

 Five key questions for measurement design

1. Stakeholder Satisfaction. Who are the key stakeholders. What do they want and what do they need?
2. Strategies. What strategies do we have to put in place, to satisfy the wants and the needs of these key stakeholders?
3. Processes. What critical processes do we need, if we are to execute these strategies?
4. Capabilities. What capabilities do we need to operate and to enhance these processes?
5. Stakeholder Contribution. What contributions do we require from our stakeholders if we are to maintain and develop these capabilities?

Complexity and the Prism

A prism refracts light. It illustrates the hidden complexity of something as apparently simple as white light and decomposes it in its elements. So it is with the Performance Prism. It illustrates the hidden complexity of our corporate world. One dimensional, traditional frameworks pick up elements of this complexity. While each of them offers a unique perspective on performance, it is essential to recognize that this is all that they offer: a single uni-dimensional perspective on performance. Performance, however, is not uni-dimensional. To understand it in its entirety, it is essential to view from the multiple and interlinked perspectives offered by the Performance Prism.

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The CRITICAL Element

"In the 5 step approach of the Performance Prism, it is not comforting to notice that the EMPLOYEE and his/her contibution does not come out clearly. Rather it is not singled out as a key factor. My belief is that if the employee is satisfied then his/her contributions will interact most beneficially with the other elements of the Prism to produce the results and this will adequately cater for all the needs of all the prism faces."

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- USA

Stakeholders vs Shareholders

"Consider the 'stakeholder' approach of the Performance Prism vs shareholders. In this performance management model the emphasis is on teach one to focus on those persons and groups (and in some cases institutions) which collectively make up several diverse classes of stakeholders generally defined as those to whom the organization delivers value and from whom the organization receives value in return. By understanding who your stakeholders are, how they affect you and how you (the organization) affects them, you will automatically begin to 're-position' the manner by which you form your strategies, acquire & develop your capabilities, and carry out your processes to deliver outbound value to your various stakeholders, and in return SEEK INBOUND VALUE from them to satisfy the organization's own wants and needs."

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- USA

Practical Application of the Prism

"This performance management paradigm is by far the most elegant of it type and not well understood I fear. For it it were, there would be many more users of this particular model. I believe this is partially due to the new labeling of prisms and facets among other elements which people are not familiar with."

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