Building Block Model

Performance management is the process that management keeps track if company follows the main objectives or not. Each company’s objective usually develop by primary stakeholders who are the shareholders. To ensure that happen, we can use many different methods; Building Block Model is one of them. Fitzgerald and Moon developed this method to measure the performance of the business in the service industry.

The building block model is the method which suggests that the performance measurement should be base on three blocks as below.

  1. Dimension
  2. Standard
  3. Reward


This block will help us to look at both the downstream and upstream results. Downstream result refers to the assessment of our past performance, and it is included Financial Performance and Competitiveness in the market. Upstream refers to the evaluation of the company’s future or trending, and it includes services quality, innovation, flexibility, and resource utilization.

Financial Performance We have to ensure that company has achieved a specific performance goal. It is the comparison between our budget with the actual result. The company has an annual budget plan which consists of a key performance indicator (KPI), such as target profit, sale target, profit margin, and return of capital employed.
Competitive The company will also assess its performance compared to the competitors. We can look at our market share, reveune growth and compare with our competitors.
Quality As a service provider, quality is very important, because we do not provide any physical products to our customers. So how do we assess our quality? We can know by the number of refund, the recurring customers and number of customers complaints.
Innovation   Innovation will look at how the company creates and establish new invention which will be an indicator for future growth. We need to bring innovation ahead of our competitor. For example, Amazon introduces the Prime subscription in which customers will receive their products on the same day, and original TV shows. This new service has put high pressure on competitors, and it shows that the company is working very hard to innovate new services for their customer. In exchange, customers need to pay the monthly fee so that it will boost the revenue at the same time.
Flexibility   The company also need to look at the flexibility in doing their business. For example, we have a budget for a whole year, but if the market change, we must be flexible. We can not follow something which set since last year. Otherwise, we will fall behind. There are many things in which we can check if the company is flexible, the change of price, service customization for customers’ requests and so on.
Resource Utilization   The main resource for the services industry is human resources (employees), so we must utilize all staff in exchange for return. The result is not only the sales and profit, but also the research and development that will help the company to introduce a new product in the future. We can access company utilization by looking at the overall staff utilization, department utilization rate, revenue per headcount. We have to be careful when assessing utilization, as it will be tricky when we put it as part of staff KPI. Utilization should be access along with effeciency rate.

Standard (Building Block Model)

After the company has understood all of its dimensions, we have to set the standard. It just likes the goal or target for all dimensions above. To set the proper target, they have to follow the three points below.

Achievability The target must be within an archivable range, it will demotivate staffs if we set target too high. However, setting too low target will not be useful, as it will reach without any effort from the staff and manager.
Ownership The key performance indicator must depend on each department’s daily tasks which are different from one to another. We have to make sure that the responsible person has direct power to decide on the work, which will impact the result. It so difficult for the people to meet the target while the top management makes the decisions.
Equity It means that all departments must be accessed reasonably by this system. We have to make sure that the target related to each person’s task.

Reward (Building Block Model)

Clarity   Both targets and compensation must be understood by all staff so that they will know what to do to archive the goal. We need to make sure that the company and staffs are on the same page. There must be no conflict of interest between the two parties.
Motivation   Setting too high goals will discourage employees because they already realize that it will never reach. So they just let it go or even slow it down. We have to set the target which is higher than the average, but within achievable range. So the reward will become a source of motivation for them to work hard and increase profit for the company.  
Controllability   To archive any target set by management, all employees must have control over full or part of their work. They must be able to joint the decision-making process.