Introduction

In recent years a revolution in performancemeasurement has emerged[1], urging organi-zations to widen their vision of the measuresused within their business strategy in accor-dance with the now popular adage “you can’tmanage what you can’t measure”. Therethinking behind performance measurementhas been driven by long-running changes inthe business environment, which have led tothe recognition that conventional measures donot present a complete picture of corporateperformance.

Calls are being made for the use of “softer”,non-financial issues, in an attempt to comple-ment traditional “hard” measurement prac-tice – “soft” measures being defined as “thoseareas of the discipline which are generallydifficult to measure and assess”[2]. This hasbeen catalysed by recognition of the interde-pendence between customer and employeesatisfaction, and – in practice – has beenencouraged by the uptake of frameworks suchas the European Business Excellence Modeland the Malcolm Baldrige National QualityAward[3], and planning tools such as Kaplanand Norton’s Balanced Scorecard [4].

Despite the abundance of new case studiesdescribing these issues and conferencesextolling the virtues of these measures, auniversally accepted approach to the use ofcustomer- and employee-based soft measureshas not yet been demonstrated clearly. Thisinvestigation, therefore, evaluates wherecompanies are amidst this revolution, payingparticular attention to the uptake of thesemeasures, how they are measured, who isinvolved and the extended roles of the mea-sures, particularly at a strategic level. Thesample for the survey was The Times top 500companies (by profitability) and the findingsare set in the context of the strategic prefer-ences of these companies, including how thequality movement has influenced what theydo, what success they have had and how theymeasure these achievements. These findingsformed the basis of a year-long, in-depthinvestigation into these practices at six of theresponding companies.

The survey of The Times top 500companies

Forty-five companies completed the question-naire, constituting a 9 per cent response rate –

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Research and conceptsThe use of customer-and employee-basedperformance measuresin The Times top 500companies

Claire Louise Stone andJ. Maria Banks

The authorsClaire Louise Stone is pursuing PhD research at the TotalQuality and Innovation Management Centre, AngliaPolytechnic University, Danbury, UK.J. Maria Banks is pursuing PhD research at Luton Busi-ness School, University of Luton, Luton, UK.

AbstractDiscusses the degree to which customer- and employee-based measures of performance are used within The Timestop 500 companies, as revealed by a postal survey carriedout in 1995 and from initial findings from six in-depth casestudies. The inquiry was initiated as a result of the continu-ing wave of changes resulting from the performancemeasurement revolution and ongoing developments in thefield of total quality management. Investigates thegeneration and use of the measures and assesses thecommonality between management theory and reportedpractice. Concludes that, although best practice (inacademic terms) is apparent in some companies, the use ofthese measures in the determination of business strategyhas not yet become standard practice.

a response reasonable for a “cold” survey ofthis nature. The survey was sent initially tothe chief executive officer (CEO) of eachcompany (11 per cent of whom replied direct-ly). Others who replied came from a highlystrategic perspective; in terms of position, 53per cent were directors or CEOs, with 49 percent having “the board” or “business plan-ning” as their stated function. The companieswere distributed throughout the whole of thetop 500 (ranked by profitability), and theresponses represented a full range of companysizes. However, the average number ofemployees amongst the sample group isaround 23,000, compared to around 15,000for the population as a whole, which leads usto expect that the results which have beengained are more indicative of the behaviour oflarger organizations. Virtually the whole rangeof sectors present in the population replied:areas such as extraction/petrochemicals,chemicals and transport manufacturing wereslightly underrepresented in the sample, whilethe utilities were – in comparison – extremelyenthusiastic in terms of numbers of repliesreceived. The topicality of the research seemsto vary between sectors, which does haveimplications for the issue of non-response.However, checks on 55 non-respondingcompanies revealed that wider issues such astime, company policy, or an inundation withsurveys were the main factors which prevent-ed them participating.

Business improvement programmes inthe top 500 companies

In line with recent research[5], the top 500survey found quality management to be inte-gral to the way in which many of today’scompanies operate. Of the 93 per cent claim-ing to have a quality initiative in place, 87 percent were involved in total quality/continuousimprovement, with 80 per cent having experi-ence of BS EN ISO 9000. The indicationswere that quality is now at a fairly maturestage of development, with 67 per cent ofrespondents having had at least one initiativein place for more than four years.

In order to put this quality-related activityinto context, companies were asked to weightthe emphasis placed by their board in thedetermination of business strategy. The barchart in Figure 1 demonstrates that there wasa very clear bias towards financial priorities,with customers being rated a poor second.

Emphasis on employees and on issues sur-rounding productivity received much lessattention.

This traditional focus was underlined bycurrent pay and reward systems, whichfavoured the use of financial performancemeasures as a basis for incentives amongstover a quarter of respondents: 16 per cent ofcompanies reported to be linking pay withcustomer-related issues, 15 per cent withemployee-related issues and 8 per cent usedquality-related measures. It is suggested thatresults can be used to motivate action; conse-quently if pay is linked to satisfaction mea-sures, the culture in the organization will beencouraged to change to be increasinglyaware of these soft issues. However, the surveyrevealed that this practice is not yet beingundertaken to any great degree.

Those who had a quality initiative werequestioned about the models or frameworkswhich influenced them. Table I shows that theEFQM framework has experienced significantgrowth, its use reported by 35 per cent of allrespondents at the expense of the more tradi-tional philosophies. There were also indica-tions that some companies were beginning touse hybrid models, but their exact make-upwas not specified.

The basis of quality measuresThe majority of the group with a qualityinitiative reported that they were confidentthat it had been at least moderately successful;only 2 per cent had doubts. The means bywhich this success is measured has been at thecentre of much debate over the years, and inthis study 76 per cent reported that they hadsome measures in place for evaluationpurposes. In spite of the traditional focus on

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Figure 1 The emphasis companies place at a strategic level

financial measures, this was not reflected inthe way in which quality is assessed. As illus-trated in Figure 2, the most popular measureswere operational in nature, including areassuch as quality, cycle-time reductions andreject rates; and customer measures such ascustomer satisfaction rating, complaints andwarranties. Best practice in this area wasfound amongst the users of frameworks suchas the EFQM Model and the Baldrige Award.These companies were more likely to havequality measures in place than non-users ofsuch frameworks, with the measures usedincorporating softer issues to a much higherdegree[3].

Customer-based measures ofperformance

This section investigates the use of customerfeedback methods and the subsequent cus-tomer-based performance measures derivedfrom this process. The popularization ofcustomer-based measures is a result of theenthusiasm that customer-led qualityimprovements result in bottom line benefits,together with their endorsement in the frame-works and planning tools already discussed.However, weaknesses have been identified inthe use of these measures, shedding doubt onthe relevance of current customer-basedmeasurement concepts.

A vital element of any performance measure-ment system is data collection. The situationin the top 500 was that all of the respondingcompanies had at least one feedback methodin place. The majority of respondents (87 percent) tended to use personal representatives,though not exclusively, with 82 per cent mak-ing use of customer complaints procedures.The use of customer surveys was closebehind, with 78 per cent claiming to useeither written or telephone surveys, and 66per cent using both.

Respondents were also asked about whogets involved in the data collection process, inorder to determine if specialist functions werebeing used to cope with the increased focuson customer satisfaction. The results showthat 62 per cent did indeed have a centralsource for collecting customer information,and 20 per cent collected the data individuallybut sent it to a central source. A further 40 percent collected data individually for their ownpurposes, but it is not clear if this informationwas shared. Thirty-six per cent claimed to beenlisting the services of research consultants.

The use of customer satisfaction dataIt is recognized that companies have a lot togain from focusing on customers’ needs andthe resulting benefits. In this survey, compa-nies were asked to what extent they acted onthe data collected from customers. Althoughthe responses appeared to be positive, since76 per cent claimed to be acting on the dataeither completely or largely, further analysis ofthe survey suggested that the data was notbeing used to the extent that the theory wouldhave us believe.

One suggestion is that customer satisfac-tion levels are tracked externally as well asinternally. First, on an internal basis, almosthalf the respondents reported a positive trendin customer satisfaction levels over the lastthree years: 50 per cent claiming a slightincrease and around 20 per cent reportingsubstantial improvements. However, only 56per cent engaged in the external benchmarking

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Table I Quality philosophies/frameworks

Philosophies (%) Frameworks (%) Others (%)Juran Crosby Deming Baldrige EFQM

In current use 7 10 17 5 33 17Formerly used 10 17 14 10 2 0

Total 17 27 31 15 35 17

Figure 2 The basis of quality measures

of this kind of measure, perhaps because ofthe recognized difficulties in implementationand the problems in collecting reliable data onbest practice. Where benchmarking wasundertaken, the majority (76 per cent)claimed to be performing at higher levels thantheir competitors.

A lot of emphasis has also been placed ontechniques for customer-based measurement.When questioned further about the kind ofcustomer-based performance measures in usein the top 500, no strong pattern emerged. Inall, there were 46 different measures reported.Table II shows the range of measures used ifmentioned by more than two companies.Customer satisfaction data was used by 44 percent of respondents, complaints by 24 percent, with many of the measures noted by toofew companies to identify them as significant.Most companies used more than one mea-sure. There were 39 different measures identi-fied by respondents as indices used to link toeconomic performance, serving to demon-strate the very broad nature of customer-based performance measurement and the lackof a sophisticated measurement model.

Since much of the current work into cus-tomer-based performance measurement

concerns loyalty, retention, repeat businessand/or referrals as a reflection of customersatisfaction, the survey asked about thedependence on these areas, to see how rele-vant such measures might be in the develop-ment of future models. The findings high-lighted in Table III revealed that the depen-dency levels reported by companies on reten-tion and repeat business, in particular, is notcommensurate with their use as customer-based performance measure: over 78 per centreported that they were at least largely depen-dent on retaining customers’ business, withover 75 per cent at least largely dependent ongetting repeat custom. Yet very few identifiedeither indices as a customer-based perfor-mance measure (9 per cent in the case ofretention and 4 per cent for repeat business).Referrals were of little importance since only4 per cent of respondents reported a largeamount of dependence on them for theirbusiness, with no one reporting further use ofthe measure. In the area of customer loyaltyover 58 per cent claimed that their loyal cus-tomers were more profitable to them thantheir non-loyal customers, but as with theother measures, only 7 per cent claimed to usethis as a customer-based performance measure.

Customer satisfaction and the bottomlineUltimately there is increasing pressure formanagers to make programmes attributable inorder to establish their value to the organiza-tion. In addition, there is a great deal of spec-ulation surrounding the belief that improvedcustomer focus leads to superior economicresults. This is reflected by the 84 per cent ofrespondents in the top 500 who reported thatthey were at least moderately confident thateconomic value had been added as a result ofthe effort to improve customer satisfaction;only 4 per cent had doubts. However, whenquestioned if they had evidence for this, only57 per cent responded positively, highlightingthat, while the measurement revolution has

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Table III The dependency levels on retention, repeat business and referrals

Dependence level (%)Measure Completely Largely Moderately Not very Not at all

Repeat business 27 48 9 2 0Business from referrals 0 4 31 36 7Retaining customers 38 40 7 4 0

Table II Customer based performance measures in use

Measure Frequency

Customer satisfaction/surveys 20Customer complaints 11Warranty claims 4Market share 4Retention 4Sales 4Returns 3Mystery shopper 3Repeat business 2Loyalty 2Speed of telephone response 2Benchmarks 2Service levels 2Others: costs, visits, waste, etc. (33x) 1

taken hold, the issues surrounding it remainunsettled and in the chaos, some companiesare unsure of how useful and useable thesemeasures can be in assessing strategy.

Influences on the use of customer-relatedmeasuresConsequently the research undertaken at casestudy level has sought to investigate the rele-vance of current customer-based measuresand to determine the barriers which exist inthe use of these measures. Early indicationsare that tensions exist between the desirabilityof customer-related measures and the limita-tions of every day organizational life.Accounting systems and sales records couldprovide the key to measures such as retentionand repeat business, but there is no frame-work in place to extract such data. For some,the data is too vast, or the nature of the cus-tomer base too complicated to make themeasures easily manageable. For others,external pressures and the consequences ofchange are hindering progress. However,there are signs that a belief in the value ofloyalty measures by dedicated personnel isencouraging investigations by some compa-nies into how they might overcome the barri-ers found in this area.

Employee-based measures ofperformance

This section investigates the use of surveyingtools as a means of gauging levels of employeesatisfaction and the subsequent use of themeasures which are derived. The propagationof the softer side of total quality (TQ) hasresulted from the identification of culturalstumbling blocks which have inhibited tradi-tional implementation processes. The newfocus of measurement theory and practice,which includes an increased use of the afore-mentioned frameworks and planning tools,has led to renewed motivation towards the useof employee-related measures.

In order to put the degree of use of surveysinto context, respondents were first askedabout the communications methods used togain feedback from their employees, as shownin Figure 3. Appraisals and interviews werethe most favoured method (taking place in 98per cent of cases), with team briefing follow-ing closely amongst 89 per cent. Employeesurveys were used by 76 per cent of the

respondents and the subsequent analysis ofthe data focuses on this specific group.

The majority (68 per cent) of companiescarry out surveys on an annual or biennialbasis, or somewhere in between, with a fur-ther 15 per cent using the surveys on an ad hocbasis. There was a wide variety of experienceamongst the respondents: some had beenusing surveys since 1965, while others seemedonly recently to have recognized their poten-tial. Attempts were made to find out who wasinvolved in the initiation, design and imple-mentation of both the first survey carried outand the most recently conducted. The man-aging director appeared as the most usualinitiator of the whole surveying process, forboth the first survey carried out (in 53 percent of cases), and the most recent survey (43per cent of cases). In the design of the firstsurvey, external consultants were used by 39per cent, with the personnel/human resourcemanagement functions taking a part in therole in 24 per cent of cases. In more recentdesign phases, personnel/HRM and projectteams played a greater part in the process atthe expense of the involvement of externalconsultants, perhaps as a result of the learningcurves climbed during the first surveys. Theresults reveal that implementation has alwaystended to be predominantly via the peoplemanagement route, or via transient projectteams.

Respondents were invited to give the mainreasons for carrying out the surveys in rankorder, and relative weightings of the answerswere used to analyse current thinking. Themost popular reason given was “as an aid tosenior management decision making”, fol-lowed very closely by “to check the currentsituation in the organization”. The indicationof “concern for employee welfare and feel-ings” was third in the ranking, with the surveys

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Figure 3 Communications methods used in The Times top 500

being used “to support suggestions forchanges to the working environment” to alesser degree. The use of the surveys seems tobe more strategic in nature, rather than “as anaid to middle management decision making”.Their use has also been encouraged by pro-grammes such as Investors in People: no oneadmitted to using the surveys simply “becauseit’s fashionable”.

Of the issues on which these surveysfocused, communication in the company wasthe most popular, followed by employeeinvolvement/commitment and then manage-ment and leadership issues. These issues areimperative to management decision makingand form many of the critical areas of concernin management today. Reward and recogni-tion, training and development, workingconditions, career opportunities and team-work also emerged as important issues, as didempowerment and supervision. Other issuesincluded the level of interest in work, morale,safety, customer and supplier relationships,and aspects of TQ.

The use of the employee satisfaction dataIt has been argued that the surveying concepthas much to offer companies, but until itbecomes integral to the thinking processwithin a business, there is still much progressto be made. Many concerns have been airedas to the degree of use of the informationgenerated by employee surveys. When ques-tioned, 82 per cent of the respondentsclaimed that the information from their sur-veys was acted on either completely or largely.However, it is difficult to judge the validity ofthese answers without evidence, and in thelight of further questioning in the survey, itseems that a good deal of potential activityremains undiscovered.

The data was also used as the basis ofcomparison by 13 companies (38 per cent),who said that they use a formal benchmarkingprocess to compare their employee satisfac-tion data against other companies in order todetermine best practice (see Figure 4). It wasalso used internally to track progress on softissues: the majority of companies (47 percent) believing that they have seen an increasein the trend in employee satisfaction over thelast three years, compared to 29 per cent whoreported a decline.

Half of the companies in question formallyuse the measures further, many derivingindices from the employee surveys such as

level of morale, team spirit, pride in the work-place, communications and overall employeesatisfaction. Many companies also take thisgeneration of measures a step further andactively input data into various frameworks,such as the Balanced Scorecard, to aid deci-sion making at both strategic and team levels.However, despite the wide publicity whichthis tool receives, only four companies (12 percent of survey users) are actively usingemployee-related soft data on such an inte-grated basis, with seven declaring the ad hocuse to which the measures are put, such asdetermining plans for total quality initiatives,training and development, or pay and rewardsystems[6]. There is still a long way to gobefore this information plays an establishedpart in the determination of business strategy.

Employee satisfaction and the bottomlineThere are numerous benefits of focusing onemployee satisfaction issues: many projectsare under way which aim to demonstrate therelationship between soft issues and the bot-tom line, as established literature is somewhatinconclusive. Respondents were asked: “howconfident are you that economic value hasbeen added as a result of the efforts toimprove employee satisfaction?”. At the timeof the survey, only 9 per cent of companieswere completely convinced that there hasbeen some beneficial financial effect, with 35per cent of the group admitting to beinglargely confident and 41 per cent moderatelyso. However, only 35 per cent of this groupbelieve that they have evidence in support oftheir answer, which again underlines the lackof permeation of the practice of measuring thesoft issues. It seems that the majority of com-panies still seem to be working on intuition

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Figure 4 The use of employee-related measures

and gut feeling that this form of measurementreally has something to offer.

Influences on the use of employee-relatedmeasuresIn the light of these findings, the case studyresearch has focused on why companies haveadopted this practice, and are able to progresstheir use of these measures from basic tointegrated use. Initial indications are thatcultural barriers and resource allocation canbe inhibitors to progress. These elements arethemselves influenced by the perceived valueof the process and by the abundance of evi-dence of previous success in this area. As withthe measurement of customer satisfaction,extraneous change has proved also to be amajor factor; throughout the case studyphase, widespread redundancy, a resignationof a key project member and a merger have allbeen observed, all of which have been seen tocounteract progress. However, there arefacilitators strong enough to break thesevicious circles. Initial observations are that aconsistent approach to deployment and thebelief, perseverance and enthusiasm of projectchampions can contribute greatly to progressin this area.

Conclusion

The analysis of the survey has clarified somepractical issues associated with the revolutionin performance measurement and has high-lighted significant gaps between managementtheory and practice in this area. Althoughmany companies were seeking actively tocollect data from both customers and employ-ees, and were enthusiastic that their efforts inthese areas were beneficial, it appears that therevolution in performance measurement has a

long way to go before it is promoted as anintegral part of management practice. Howev-er, it seems that tools such as the BalancedScorecard and EFQM and Baldrige frame-works are acting as a catalyst to the measure-ment revolution. Certainly early indicationsfrom recent case study investigations are that,as time progresses and managers begin toembrace the more holistic approach to mea-surement which these tools urge, improve-ments in the practice of soft measurement areslowly beginning to evolve.

References

1 Eccles, R.G., “The performance measurement mani-festo”, Harvard Business Review, January-February1991, pp. 131-7.

2 Black, S. and Porter, L.J., “An empirical model for totalquality management”, Total Quality Management,Vol. 6 No. 2, 1995, pp. 149-64.

3 Stone, C.L. and Banks, J.M., “Improving businessperformance through customers and employees: theEFQM Model as a driver of new measurement prac-tice”, EFQM Learning Edge Conference, Paris, April1996.

4 Kaplan, R.S. and Norton, D.P., “Using the BalancedScorecard as a strategic management system”,Harvard Business Review, January-February 1996, pp.75-85.

5 Wilkinson, A., Redman, T. and Snape, E., Quality andthe Manager, The Institute of Management, Corby,1993.

6 Stone, C.L., “Analysing business performance: count-ing the ‘soft’ issues”, The Leadership and Organiza-tion Development Journal, Vol. 17 No. 4, 1996,pp. 21-8.

Further reading

Banks, J.M. and Stone, C.L., “Business improvementprogrammes: measuring progress in The Times Top500”, in Kanji, G.K. (Ed.), Total Quality Managementin Action, Chapman and Hall, London, 1996.

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Commentary

A classic survey of the UK’s top firms. Any surprises in here?