The Performance Pyramid

As part of performance management it is generally agreed that a system should include financial performance indicators and non-financial ones. The performance pyramid is an attempt to incorporate both.

What is the performance pyramid?

• The performance pyramid, developed by Lynch and Cross, includes a hierarchy of financial and non-financial performance measures.
• The diagram below shows actions to assist in the achievement of corporate vision may be cascaded down through a number of levels, i.e. it shows the link between strategy and day to day operations.

Level 1: At the top of the organisation is the corporate vision or mission through which the organisation describes how it will achieve long-term success and competitive advantage.

Level 2: This focuses on the achievement of an organisation's CSFs in terms of market-related measures and financial measures. The marketing and financial success of a proposal is the initial focus for the achievement of corporate vision.

Level 3: The marketing and financial strategies set at level 2 must be linked to the achievement of customer satisfaction, increased flexibility and high productivity at the next level. These are the guiding forces that drive the strategic objectives of the organisation.

Level 4: The status of the level 3 driving forces can be monitored using the lower level departmental indicators of quality,delivery, cycle time and waste.

The left hand side of the pyramid contains measures which have an external focus and which are predominantly non-financial. Those on the right are focused on the internal efficiency of the organisation and are predominantly financial.

The one drawback of the performance pyramid is that it does tend to concentrate on two groups of stakeholders, i.e. shareholders and customers. It is necessary to ensure that measures are included which relate to other stakeholders as well.

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