The performance pyramid comes from the idea that organisations operate at different levels each of which has a different focus. However it is important that these different levels support each other. Thus the pyramid links the business strategy with day-to-day operations.
In the use of the performance pyramid Lynch and Cross suggest measuring the performance across nine dimensions. These are included into the organisation – from corporate vision to individual objectives.
Within the pyramid the corporate vision is articulated by those responsible for the strategic direction of the organisation. The pyramid views a range of objectives for both external effectiveness and internal efficiency. These objectives can be achieved through measures at various levels as shown in the pyramid. These measures are seen to interact with each other both horizontally at each level, and vertically across the levels in the pyramid.
At the bottom level of the pyramid is what Lynch and Cross refer to as ‘measuring in the trenches’. Here the objective is to enhance quality and delivery performance and reduce cycle time and waste. At this level a number of non-financial indicators will be used in order to measure the operations. The four levels of the pyramid are seen to fit into each other in the achievement of objectives. For example, reductions in cycle time and/or waste will increase productivity and hence profitability and cash flow.
Aim of performance Pyramid Model
The strength of the performance pyramid model lies in the fact that it ties together the hierarchical view of business performance measurement with the business process review. It also makes explicit the difference between measures that are of interest to external parties – such as customer satisfaction, quality and delivery – and measures that are of interest within the business such as productivity, cycle time and waste.
Lynch and Cross concluded that it was essential that the performance measurement systems adopted by an organisation should fulfil the following functions:
- The measures chosen should link operations to strategic goals. It is vital that departments are aware of the extent to which they are contributing – separately and together – in achieving strategic aims.
- The measures chosen must make use of both financial and non-financial information in such a manner that is of value to departmental managers. In addition, the availability of the correct information as and when required is necessary to support decision-making at all levels within an organisation.
- The real value of the system lies in its ability to focus all business activities on the requirements of its customers.
These conclusions helped to shape the performance pyramid which can be regarded as a modelling tool that assists in the design of new performance measurement systems, or alternatively the re-engineering of such systems that are already in operation.
The performance pyramid (Lynch and Cross, 1991)