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Abstract
Purpose – The work presented aimed at developing an integrated framework for holistic
performance management.
Design/methodology/approach – The research was carried out using an action research approach.
A case study was used as the basis for developing a pilot framework for performance management,
involving both employees in the case organization and researchers. The research is based on
theoretical contributions within performance management, total quality management, and trend
analysis.
Findings – A generic holistic performance management framework is outlined, encompassing
diverse areas that need to play together and reinforce each other to give full effect to an organization.
The main focus is a case study of a bank office, where a tailored version of the performance
management framework was developed to give a setting where all these elements now are harmonized
and work together.
Research limitations/implications – The framework must be viewed as a pilot that should be
further tested in other types of industries/organizations to verify its validity on a broader basis.
Originality/value – The generic framework for integrated performance management is novel and
seems suitable for adaptation to many different industries and types of organization and can function
as a guideline to avoiding launching concepts and programs that ultimately do not cancel each other
out as their inter-linkages have not been understood.
Keywords Performance management, Action research, Total quality management
Paper type Case study
Introduction
It has been said and documented so many times, it hardly requires repeating that the
competitive setting enterprises find themselves in becomes gradually tougher and
tougher. There are more and fiercer competitors, customers grow ever more
demanding and are used to having suppliers at their beck and call, while society at International Journal of Productivity
large expects higher standards pertaining to the environment and ethical issues. The and Performance Management
Vol. 55 No. 1, 2006
response from enterprises, supported by research, has been to come up with a pp. 61-78
continuous string of new ways to create a competitive advantage, resulting in an q Emerald Group Publishing Limited
1741-0401
extreme proliferation of new management concepts and tools, e.g. customer DOI 10.1108/17410400610635507
IJPPM relationship management, balanced scorecard, e-business, supply chain management,
55,1 knowledge management, and so on.
Each of these concepts and tools is in its own right a reasonable and sound
contribution to some aspects of the pressures and challenges faced by enterprises.
Eminent business managers, researchers, and consultants have pushed the various
concepts and tools far, often to a point where many of them have reached a status as
62 academic fields of their own, promoted by specialist experts and die-hard
“missionaries”. By implementing them, many enterprises have achieved tremendous
results, no doubt. However, there are probably equally many that have pursued a
certain concept, found that it did not quite suit the organization, and moved on to
another one, often to find the same thing happening yet again. This is a fairly accurate
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63
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Figure 1.
Impact of business fads
framework that we think can be used in any business setting to create structure and
coherence among management concepts and tools pursued by a company.
Theoretical background
Although we have been active within the fields of business strategy development,
performance measurement, business process orientation, and so on for several years,
we do not know of any generally agreed-upon definition of “performance
management”. In researching this paper, we have looked for one, but found that
very few have attempted defining the term. Extending the search beyond academic
literature and to more general web sites yields more results, but typically of a less
useful nature; “Performance management is actively monitoring the organization’s
performance levels to continuously improve” and the likes appear. Most of these “light
weight” definitions link performance management to some sort of continuous
performance measurement, which is indeed part of the package, but far from the only
important aspect. From this, we simply conclude that performance management as a
term has not yet been well defined. As our work and this paper are not about defining
terms, this is not a major disappointment to us.
Let us move on to see both whether any existing management concepts come close
to qualifying as “holistic” and which of these typically belong to a holistic framework.
In his mapping of business fads, to use Pascale’s term, he listed concepts ranging from
more limited ones such as “experience curve”, “quality circles”, and “matrix” to much
wider ones, e.g. “value chain”, “just in time”, and “globalization”. Except for the fact
that all of these to some extent have been popular buzzwords during the last decades, it
is obvious that they are quite different, both in numbers of “followers” and the breadth
and depth of the concepts. Having witnessed first-hand how “just in time” grew, from a
first few rumors about how Toyota manufactured their cars to a massive concept of
thousands of academic and practice-focused volumes, we know that some of these
concepts probably come quite close to being “holistic” on their own.
IJPPM “Just in time”, although mainly relevant for manufacturing industries, is one of
55,1 these, often referred to as Toyota Production System, as described in Ohno (1988), and
developed initially much in cooperation with Shingo (see for example Shingo (1992)).
As many other concepts, it started out with a rather narrow focus, in this case the
elimination of waste in manufacturing processes. However, as the basic concept truly
worked, Toyota and other actors saw a need to extend it to cover other aspects of
64 manufacturing operations, particularly to ensure that these aspects supported the
basic philosophy of “just in time”. As a result, “just in time” was expanded to cover a
number of sub-approaches that eventually turned the concept into something close to
an organization-wide movement. Important sub-approaches included:
.
“Just in time”, the original core concept, i.e. components and products were to
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arrive at the moment they were needed, not before and not after.
.
Elimination of waste, often called Muda, which supported the “just in time”
principle.
.
Balanced manufacturing, through several levels of planning and small batch
sizes, in Japanese called Heijunka.
.
Small batch sizes required short setup times, achieved through the SMED
technique; Single Minute exchange of die.
.
Automatic and operator-controlled quality interventions, necessary when batch
sizes and lead times were reduced to prevent large quantities of defective
products to be shipped out. Known as poka yoke or jidoka in Japan.
.
Standard work descriptions, to allow job rotation, improved work methods, and
more flexibility.
.
Suggestion and reward system, to motivate employees to develop improvements
within their work area and allow them a share in savings.
There are even more elements within “just in time”, but these should suffice to
demonstrate that the concept more and more viewed the organization holistically and
took into account employee welfare, quality aspects, and so on. On the other hand, “just
in time” has always been a concept for manufacturing industries and with little
relevance for other types of organizations. Another concept that started with a
narrower focus and has grown is the Balanced Scorecard approach, as described in
Kaplan and Norton (1996). Originally a tool for linking balanced performance measures
in an organization to its strategy, especially for private sector companies, it has been
expanded to other types of organizations, including the public sector. It has also taken
on board other aspects, e.g.:
.
an alternative approach to strategic planning and alignment of an organization;
.
new ways of appraising a company’s assets;
.
linking performance measures to reward systems;
. focusing stronger on human capital and development of this asset; and
.
strong customer satisfaction focus.
Still, perhaps the strongest trait of Balanced Scorecard is its intrinsic simplicity,
making it easy to grasp and fairly easy to implement in an organization. We could also
mention Mintzberg and an approach to holistic performance management based on Holistic
organizational theory. In the book Structure in Fives: Designing Effective performance
Organizations, Mintzberg (1983) outlines three basic coordination mechanisms that
can be viewed as structural elements that form the glue of the organization (see management
Figure 2):
(1) Mutual adjustment: coordination is achieved through two-way communication,
discussion, and clarification among the actors. 65
(2) Direct Supervision: one person takes charge of coordination tasks by telling
others what to do and keeping track of their performance.
(3) Standardization of:
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.
Employee skills: allowing the organization to develop competencies and
skills in certain directions.
.
Work processes: coordination through pre-defined tasks that require little
communication among the employees, as each knows what others will do
and what self to do.
.
Outputs: standardizing the results of work tasks, as a means for
coordination along value chains.
Simple tasks are coordinated through mutual adjustment. As the organization becomes
more complex, direct supervision typically becomes the most important means of
coordination. Standardization, of work processes, skills, and outputs, will in
combination with the former two become more important as tasks grow even more
complex.
A more general concept, independent of industry and organization types, is Total
Quality Management, TQM (as treated in numerous sources, e.g. Crosby (1979)). As
with “just in time”, TQM has gradually grown to include more and more aspects and
sub-areas, most importantly:
.
customer focus;
.
employee involvement;
.
continuous improvement;
.
quality standards and excellence; and
.
business process orientation.
Figure 2.
Mintzberg’s coordination
mechanisms
IJPPM At some point, TQM seems to have grown so big that any new approach or tool
55,1 emerging was included under the TQM umbrella. As such, although TQM is a very
broad approach to managing an enterprise, it hardly qualifies as an integrated
framework where the different pieces truly fit together. Ultimately, TQM, to the extent
that this term is still in use, has fallen into the same trap as the constant business fad
observed by Pascale, i.e. becoming flavor-of-the-month-oriented and ending up with
66 numerous initiatives and tools that really don’t fit together coherently. Despite these
examples, our conclusion is still that there seems to be no convincing “super-concepts”
or frameworks available that achieve this holistic integration that we argue is needed.
How can one judge whether a concept or framework has this capability? We have come
to view the following as a fairly accurate “litmus test”:
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Research approach
The case study work followed a typical action research approach, where three
researchers were actively involved in bringing about changes in the bank, while the
change process was used to collect experiences and develop new insight. It was an
expressed goal that employees from the bank should be active participants in all
phases of the project, and collaboration was a key element.
In the first phase of the case, a general status overview of the bank office and its
performance was developed. This was followed by a second phase where shortcomings
identified were addressed by developing improvements, for the purpose of improving
the performance of the business processes (as described in Winter (1989)). It was also
an objective that the learning processes should continue in the bank also after the
researchers had left the field, in line with action research recommendations (Elden and
Chisholm, 1993). To undertake these tasks, the following methodological elements
were employed:
.
interviews with all employees in the bank;
. observation of employees’ interaction with customers in customer meetings and
other situations;
.
interviews with customers, both with customers that had been observed in
interactions with service personnel and customers who had not been in contact
with the bank in a while;
.
performance measurement of some key factors, e.g. customer flow in the bank
office;
.
group work among the bank employees to analyze problem areas and develop
improvements; and
.
the use of tools like business process analysis, root cause analysis, and similar Holistic
techniques to shed light on problem areas. performance
Industry and case company introduction
management
On a corporate level, the case company is a financial services group, covering among
others banking, insurance, and real estate. It is one of the key actors in the country,
with offices across the entire nation. While the case study has been linked to the 67
corporate level of the group, it has mainly taken place in one of the local branches of the
bank. This is a fairly average type of local bank office, with about 15 employees in the
private banking section, but the office also covers limited banking services for
enterprises and real estate. Even though this particular office has proven to be among
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the best in the entire corporation, last by coming out number one in the annual regional
competition for the most profitable office, several issues rendered a change necessary:
(1) The entire banking market is changing, with customers increasingly going
from almost viewing themselves as lucky a bank that wants them as customers
and giving them loans to realizing they are attractive customers with much
bargaining power.
(2) There has been a continuous process toward “deregulation” and openness in the
bank market. This has resulted in much more media attention and focus on
prices and terms, banks moving across national borders, and more
standardization in terms of products and services.
(3) This is intensified by the barriers for changing bank constantly being lowered,
both because this is becoming practically speaking easier, with less cost
involved, but also because people realize benefits can be achieved by actively
using their bargaining power and looking for the best deal. The times of the
life-long bank customer are long gone.
(4) From an internal perspective, many bank employees have seen the changes
happening and realized that the banks must change. From being administrative
case workers approving or denying loans, bank employees have become service
personnel just like other service providers, a new role that requires new skills,
new work processes, and new support systems.
(5) Finally, the financial group in question is in the middle of a merger with another
large group, with all the implications such a move has. For the local bank office
in the case, it will be merged with the partner’s equivalent office in the same
location, different organizational cultures, work processes, support systems,
and so on must be adapted to each other, and the physical facilities must be
rebuilt.
The macro perspective of these forces, i.e. the changes taking place in the banking
sector, is important to understand the effects on the case company. The products
offered by banks to the personal banking market are very similar. Customers can
choose among a large number of competing banks, which all seem quite similar to
them. As a result, people switch bank more often – on the average, one out of five US
bank customers change bank during a year. For many banks, the local bank offices are
viewed as one key tool in countering this trend, through building stronger
relationships with their customers. More demanding customers, new technology in
IJPPM banks, and increased knowledge and skills requirements to act as “customer-keepers”
55,1 have all changed the role of the service personnel in banks (Farmen and Hol, 2003).
Automated service solutions mean customers handle much of the transactions
themselves, through Internet banking, ATMs, automated loan applications, etc. This
leaves the service personnel with less routine work and much more focus on advising
customers and developing personal relationships with them.
68 Keeping in mind that “our” bank office is among the best in the group, it is not
surprising that many areas turned out to perform very well. Most importantly, we
deemed the following to be the best assets of the bank:
.
Sales focus: cross-selling and maximizing the sales volume per customer is an
important key to profitability for any bank. A very clear focus on product sales
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system would show a flag when events in a customer’s financial situation would
make this person likely to be in need of or open for advice, a so-called lead. The
overall customer group had not been segmented into groups of customers with
higher potential for broad portfolios and thus better profitability, and little was
done to proactively get these into the bank for customer meetings.
.
More deliberate use of time. Related to the previous point, the use of time by the
service personnel was somewhat arbitrary. Time is probably the most important
resource they have, and spending it on customers with low potential is a waste.
Thus, both talking to the right customers and being prepared when talking to
them is crucial.
.
Reduce the product focus. Most banks today have large portfolios of various
services, termed products, ranging from savings to insurance to credit cards and
so on. From corporate levels, product campaigns are frequently launched where
the bank offices are rewarded for selling certain quotas of products. These
quotas are divided further among the individual employees, and follow-up and
even bonuses are linked to such product sales. The sales training is
correspondingly focused on developing argumentation for certain products
and overcoming doubt and resistance on the part of the customer. By many
customers, the resulting customer meetings are construed as almost offensive
product pushing not grounded in real customer needs and with the customer’s
best interests in mind.
.
Better advice. The answer to this challenge seems to be improving the service
personnel’s skills in assessing the true needs of the customer and providing
advice that is seen as having the customer, not the bank, in mind.
.
“The Relationship Bank”. Ultimately, the relationship and trust between the
bank and customer will be the most powerful competitive advantage for the
banks. Instead of knowing the bank simply through the Internet bank web site,
customers will know the bank through personal interaction with an advisor that
has proven her or his ability to give truly useful advice. Changing bank means
losing this relationship as opposed to simply seeing a different logo on a web site.
This is a transition from transaction-based banking to relational banking (as
described for many different industries as relationship management, for example
Morgan and Hunt (1994) and depicted in Figure 3), where relational marketing
can be defined as “all marketing activities aimed at establishing, developing, and
maintaining successful relationships” (Jackson, 1985b). However, several studies
IJPPM
55,1
70
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Figure 3.
Relationship marketing
The next section will describe how improvements in these areas of weakness,
combined with other related elements, were combined to create a holistic performance
management framework for the bank office.
71
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Figure 4.
A generic performance
management framework
Stakeholder understanding and strategic planning are key elements, to develop insight
into enterprise’s main stakeholders, their requirements and expectations, and chart the
course of the organization. Strategic planning is a topic that has been extensively
covered in literature. We see no need to voice any personal beliefs regarding how such
planning should be undertaken, but it is a fact that many strategic plans are not
grounded in neither the external stakeholder environment nor internal resources and
capabilities and are never implemented due to a lack of action plans.
Related to this are market research and segmentation, which might be perceived as
sub-activities of strategic planning. However, we often find that enterprises are either
too concerned with their products or services or with mergers and acquisitions in their
strategic planning to devote sufficient attention to these aspects. As a result, all
customers are treated the same way, regardless of their importance in terms of
profitability or public image for the enterprise.
This again is linked to a relational customer approach, which, like in banking, in
most sectors is becoming a crucial differentiating factor when products and services
are continuously becoming more standardized. For enterprises selling physical
products, an approach is to include value-adding services in the augmented product. In
IJPPM service sectors like banking, developing trust-based personal relationships with the
55,1 customer is a key mechanism.
From an internal perspective, it is vital to develop business processes that allow
an optimal use of time and create value, as opposed to processes where time and
resources are wasted and the value for both customer and enterprise is far from
maximized. Organizing based on business processes is gradually becoming a
72 common approach (see for example McCormack (2001)). Along with this
transformation normally comes a stronger focus on the processes and their
performance, created through simplicity, clear interfaces, avoidance of duplication
and rework, and so on. This is closely linked to the physical layout and design of
the facilities, which sounds intrinsically boring. Nevertheless, this aspect has a
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important than others in the bank case, and some elements from the generic framework
have not been included.
In more detail, each element of the framework plays an integral and important role
in the overall picture.
Customer segmentation lays the foundation for ensuring that the bank spends its
time and energy on the right customers. This is a common marketing approach and
usually not very complicated, unless more advanced criteria are used. In this case, the
purpose of market segmentation was mainly to create an awareness of the different
customer groups, the products and services typically are most relevant for each of
them, and thus understand which types of customers are most profitable for the bank.
The bank customers were eventually divided into the quite traditional groups of:
.
children and teenagers;
.
young adults in the establishment phase;
Figure 5.
The performance
management framework
for the bank
IJPPM .
established adults; and
55,1 .
elders.
These categories were then correlated with the different bank products in a
customer/product matrix, including an indication of the relative profitability of each
product. At a quick glance, such a matrix tells the bank’s service personnel which
74 products are most relevant for a certain customer, and which of these will be most
profitable for the bank. One key warning, however, is not to use this matrix for the
same type of “product pushing” that had been the old customer approach!
Customer flow is the “physical” movement of customers through various stages of
the bank, both when contacting the bank through phone, internet bank, or appearing
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physically in the bank office. By mapping current flow patterns, bottlenecks, and
illogical flows, a more ideal customer flow could be devised. Most importantly, a best
possible sorting of requests can be made as early as possible in the customer contact
process. This ensures that requests that can be dealt with there and then are taken care
of immediately. Further, that requests that need preparation on the part of the service
personnel are deferred to a booked meeting later on, and that only the suitable requests
are transferred deeper into the bank on unannounced arrival.
This is again very closely linked to the physical layout of the bank office, which is
a dimension of banking that has undergone much development the last years. From
multiple transaction-oriented counters, with all the other functions hidden in the back,
bank service automation under which the customer itself does most of money
transactions through ATMs, internet bank services, and so on, these counters have
been built significantly down. Lately, there has been a tendency to have only a very
minimum of front-end “counters”, in our case just one general information counter
and one cash/transaction-oriented one. At the same time, service personnel for loans,
savings, etc. have been made much more accessible to the customers, in many cases
in open cubicles right behind the front-end counters and physically open to
customers. The result has been that very few customers could be dealt with to
completion at the front, transferring most of them deeper into the bank for even the
smallest of requests. In our case, the solution is to almost re-build the front-end
counter, but in the form of a customer-oriented starting point for any customer
entering the bank. The bank will still be relatively open backwards, with easy access
for customers to more dedicated service personnel, but routed forward by the
front-end personnel. There will also be a more pleasant waiting and information zone
and a zone where customers can access automated services (as shown in the
framework figure).
To support this new layout and the resulting customer flow patterns, new business
processes had to be developed. The main objective of these new processes is to ensure
that the people in the bank meant to be those who sell new, profitable products to the
right customers have time to do so. This means allowing them to spend as much as
possible of their time on planned, effective customer activities for which they are well
prepared. This means business processes that:
.
Route customers correctly regarding which customers are dealt with to
completion at the front-end, which are to be let through directly, and which are to
be booked for future appointments.
.
Respect the threshold for letting customers through from the front-end, thus Holistic
giving them time of the service personnel in the back. performance
.
Handle customer contacts made through phone, e-mail, and web. management
To make this system work, the roles of the various service personnel in the bank, as
well as the competence of these, must be changed accordingly. Most significantly, this
means upgrading the status of the front-end position in the bank. Traditionally, credit 75
handling and savings advice have been the coveted positions in a bank, carrying the
highest pay and prestige levels. Under the new system, the front-end position will be
the most crucial one, the one that effectively dictates both how proactively the
back-office personnel can spend their time and the extent to which customers feel their
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needs have been taken care of. From being a low-prestige position often manned by
part-time or even temporary personnel in many banks, it will require people with long
experience and good insight into most other functions in the bank as well as a capacity
for making almost split-second decisions about a customer’s needs and further
progress through the bank. To motivate this type of competence at the front-end,
means such as pay or other benefits must probably be put to use.
Some of these elements of the framework might sound as if customers are simply to
be labeled and treated as homogenous members of a broad customer segment as
opposed to individual customers with personal needs. This is indeed not the case! A
relational-based customer approach is at the heart of the holistic framework. Moving
away from the product-focused sales approach aimed at convincing customers of
buying products they often have little need for is the main weapon in the battle to keep
customers on a long-term basis. Understanding true customer needs and aiding them
in selecting services and financial solutions that truly meet their needs is essential
under such an approach. Three of the changes necessary to make this approach
credible are:
(1) A new “sales” process focused on needs understanding and offering products
that will benefit the customer, not only the bank. In this case, it seems a
two-stage process will be used; the first meeting with the customer will focus
solely on identifying customer needs, as opposed to current practice where the
same meeting is used also for sales pitches, thus often antagonizing the
customer. The new approach will give the customer representative time to both
figure out what the customer truly needs and prepare a package of products
that fit these needs, to be presented in the second meeting.
(2) A relation-building “program”, not so much the type of customer loyalty
programs that many banks already have and typically give customers slightly
better conditions, but a program aiming at developing closer and more
trust-based relationships with customers. This can include regular personal
follow-up talks with customers, events targeted at certain customer groups,
seminars in the bank after closing time, and so on.
(3) Training in relational marketing/customer care. Up to now, the training of the
bank’s service personnel has very much focused on general area knowledge, e.g.
about credit systems, trends in personal savings, or stock market behavior, or
specific products and services offered by the bank, especially how to market
and argue the value of these to customers. Customer care based on trust and the
IJPPM development of relationships is a completely different way of thinking, and the
55,1 employees in the bank must be trained in this approach.
intrinsic first concern that came to mind were the best interests of the customer, not the
bank. Changing core values in an organization is a slow process that requires much
deliberate work and effort. However, in this case, two conditions might make this
easier; First, the employees have been heavily involved in both seeing the need for this
change and devising the approach to changing it. Second, as the two old banks
physically move into joint premises in a few months, thus merging the two existing
cultures, there is a unique opportunity for making such changes when the organization
is in a state of transition anyway.
As research has demonstrated clearly (see for example Sink and Tuttle (1989)), the
performance indicators used to follow up employee and organizational performance
strongly impacts the behavior of the organization and its members. In this case, there is
an urgent need to change the way performance is assessed and followed up. So far, this
has been mostly linked to product sales, per product type and per employee, both
generally and connected to frequent product campaigns initiated centrally and
focusing on selling credit cards, travel insurance, internet banking accounts, or the
likes. Clearly, this has been counter-productive in terms of the bank’s ability to come
across as a trusted source of advice, as many customers explicitly say they feel victims
to product sales that do not consider their true needs. This is of course a result of
management focus on product quotas and an indirect link between product sales
success and individual pay levels. Instead, the service personnel should be measured
on aspects like the number of customers lost to other banks during a year, the average
number of years customers have been customers of this bank, average customer
satisfaction in the customer portfolio, the portion of “broad customers” in the portfolio,
etc. Similarly, the front-end personnel should be measured on aspects that enhance
their function in the bank, e.g. the number of customer requests completed at the
front-end or the number of “correct referrals” to back-office functions made. As these
new performance indicators settle in the organization, both with the manager and the
employees, they should further reinforce the changes made to business processes and
the customer approach.
In the end, all of these changes that belong to the holistic performance management
framework for the bank office of the case study should lead to a significant further
improvement of performance. Through broad discussions with both employees and
customers of the bank, we feel confident this new approach will lead to a better and
more comfortable work situation for the service personnel and a more rewarding bank
connection for the customers. They will no longer feel like “pushy salesmen” who try to
get one foot in the door to sell another product, but can devote their energy to
disclosing the true needs of the customers and satisfying these. For the bank, this will Holistic
be more profitable as well. It should reduce the number of customers switching bank, performance
and long-term customers are always more profitable than having to constantly acquire
new ones. The customers should feel the change through the relational approach and management
be more likely to stay with the bank.
The big question is; does this framework stand the ultimate test? Can the bank
office implement these changes, score well on the new performance measures, and still 77
not achieve its goals of being the best bank in the area? We believe so. All of these
positive effects are due to the fact that all the elements match and support each other,
they will not contradict and cancel one another out. As such, the framework matches
the main criterion defined to be a truly holistic performance management framework.
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Corresponding author
Bjorn Andersen is the corresponding author.
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