Performance Measurement

        Performance measurement is a vital part in monitoring the health of a business. Understanding which topics should be measured within the company and the numerous methods and processes available for performance measurement has created much debate. It is evident that choosing the appropriate method is of the utmost importance as many of these processes are complex and require the associated time and financial expenditure to develop.

        Fleet size and makeup, route structure and differing regulatory environments are all factors that affect the operation. These operational, or non financial, measures must be examined alongside traditional financial measures in order to give an accurate indication of the airlines performance. The Balanced Scorecard was devised by Kaplan and Norton (1993) in an attempt to provide managers with a fast and comprehensive overview of their business. It combines financial and operational measures to provide a dashboard which can be read to give an indication of a company’s performance.

        The Balanced Scorecard (BSC) of Southwest Airlines measures performance from four key perspectives; 1) The customer perspective, 2) The internal perspective, 3) The innovation and learning perspective and 4) The financial perspective.

        Southwest Airlines’ strategy is to offer an operational excellence customer value proposition that is based on three key components—low ticket prices, convenience, and reliability. The company has narrowed its fleet and now operates only one type of aircraft, the Boeing 737, to reduce maintenance and the cost of training, and simplify scheduling as all crew members would feel comfortable in flying the 737. The company further reduces costs by not offering meals, seat assignments, or baggage transfers and by booking a large portion of its passenger revenue over the Internet. It is important that Southwest Airlines decide which customers to target and what internal business processes are crucial to attracting and retaining those customers as different companies, having different strategies, will target different customers with different kinds of products and services. Measures of performance must be tailored to meet the specific strategy of each company.

        A component that I would add to the balanced scorecard in order to more fully measure whether or not the company is achieving its goals is that the performance measures should be linked together on a cause-and-effect basis. Each link can then be read as a hypothesis in the form “If we improve this performance measure, then this other performance measure should also improve.”

        In order to make the balanced scorecard more useful, I would modify the time it takes to plan the scorecard as the balanced scorecard takes time to organize. It is not a tool you can just think up overnight to solve a problem. Instead, I believe that company management should hold a meeting to plan out what goals they would like to see the company reach in each of the four scorecard categories. The balanced scorecard should be treated as the top priority of the organization if implementation is to succeed.