Many new frameworks and techniques have been developed in the last 10 years or so to measure a company's performance. These frameworks and techniques are changing the way organisations are managed and their performance measured.

Value-based Management (VBM)
VBM is a return to economic values in assessing the performance of the firm and places the concerns of shareholders above others. Ultimately, it maintains that an organisation's strategy should be tested, based on whether it adds value for its shareholders. Value-based measures such as economic value added (EVA) have developed as a way to measure shareholder value.

Shareholder value, a key corporate objective of many companies, is achieved when the return from capital employed in the business is greater than the cost of obtaining funds. Traditionally performance in this area has been measured using accounting ratios such as earnings per share, return on capital employed and return on investment. However, these have been criticised for many reasons, including being backward-looking, open to manipulation or prone to difficulties due to different accounting procedures. EVA has been proposed as a better measure than traditional ratios to assess corporate performance and shareholder wealth creation.

A suggested advantage of the VBM approach is that it ensures that a business has a single overriding financial objective. Performance measurement systems tend to have multiple measures stemming from multiple objectives. Therefore, conflicting objectives can lead to performance measures that require trade-offs. To some extent, the VBM approach does not require such trade-offs because shareholder value is the primary objective of the firm and all planning and control systems are consistent with this.

Activity-based costing (ABC) and activity-based management (ABM)
The development of ABC and ABM has led to radical changes in cost management systems. The focus of ABC is on the activities and processes within an organisation and is based on the principle that by controlling the activities that consume resources, costs can be controlled at source. After ABC has provided accurate information about the true costs of those activities, ABM makes use of this information through value analysis and performance measures which support strategic and operational decision-making. Where ABM is implemented, it can provide the data needs to plan and direct improvement activities and eliminate waste.

Balanced Scorecard
The balanced scorecard is a tool developed by Kaplan and Norton to articulate, execute and monitor strategy using a mix of financial and non-financial measures. It is designed to translate vision and strategy into objectives and measures across four balanced perspectives: financial, customers, internal business processes and learning and growth. It focuses on all the activities that generate financial results rather than the financial side alone.

The scorecard depicts strategy as a series of cause-and-effect relationships between critical variables and gives a framework for ensuring that strategy is translated into a coherent set of performance measures. The use of a hierarchy of scorecards cascading through the organisation ensures that strategy and performance measurement is closely aligned.

The Balanced Scorecard can act as both a control system and a management tool. In other words, it can be used for monitoring performance as well as for strategic planning. Its versatility may be one of the reasons why so many companies have chosen to adopt it. (For more information, please refer to a previous article on ‘Adopting the Balanced Scorecard.’)

Benchmarking
Benchmarking is a way of identifying potential improvements in effectiveness and efficiency, in current operations and also in considering future strategy, by looking at how the organisation's performance compares with others. First, the organisation needs to look objectively at its current internal operations and then look at the best practice in those areas in other organisations or other industry sectors. This can also be carried out between departments within the same organisation. Since the organisation's situation is often very specific, it tends to be used more for generic or common processes and functions such as human resources and finance. Benchmarking networks and clubs of similar organisations have developed to facilitate comparison.

Strategic Enterprise management (SEM)
A broad view of SEM is to adopt a dynamic management activity that allows organisations to sustain competitive advantage through superior strategic management. A key driver of improved corporate performance through a SEM approach is faster and better decision-making at various levels of the organisation.

Fundamentally, SEM is about empowering people to run an organisation as efficiently as it can be run in the present. SEM will provide a systematic use of quantitative and qualitative measurement and logical tools for analysing and solving problems. It monitors the results of actions taken so to ensure an organisation can refine its existing processes and competencies.

An SEM system is an information system providing the support needed for the strategic management process. The basis of a typical SEM system will be a pool of data from the data warehouse which is then fed into a range of analytical tools. These tools include techniques such as shareholder value management, activity-based management and a balanced scorecard. The results from these applications can then be input to the strategic management process.

Six Sigma
Six Sigma is a performance measurement framework initially pioneered by Motorola but now adopted by companies as diverse as GE, Citigroup or Honda. Companies that advocate the Six Sigma approach measure their performance against a standard of three variations per million opportunities - which equates to getting things right 99.999 per cent of the time.

Essentially, Six Sigma is a management tool designed to cut waste and make better, cheaper or faster products or services. It does this by selecting an objective or a goal, measuring how well the company is doing against it in terms of variation and then making changes in order to achieve the Six Sigma standard.

The advocates of Six Sigma claim that it is more than a cost-cutting exercise in that an entire new infrastructure needs to be created in order to make sure the changes in value streams are supported throughout the business. In addition, although it is focused on securing efficiency gains, it does this by identifying and eliminating non-value added waste rather than destroying value.

The Performance Prism
The Performance Prism was recently developed by Cranfield University to reflect the need for organisations to consider the requirements of all stakeholders in the development of a performance measurement framework.

The five linked facets of the Performance Prism prompt the following questions when defining performance measures:

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