DHL’s Performance Measurement System

Introduction

Making effective strategic decisions is critical in organizations’ efforts to achieve competitiveness.  Managers should thus possess adequate knowledge in making decisions related to business strategy, coordination, and utilization of scarce organizational resources (Burney & Widener 2007).  This move is essential in enhancing an organization’s capability to deal with the complexity and uncertainty that might arise from internal or external sources (Cordova & Yanine 2013).  Undertaking performance measurement is one of the approaches that firms can employ in evaluating the effectiveness of their performance.   

In measuring performance, organizations must employ effective strategic tools and techniques. According to Harvey (2008), performance measurement entails the process of establishing measurable indicators that a firm can systematically use in tracking or evaluating the progress that has been made in pursuit of predetermined goals.  Performance measurement enables an organization’s manager to undertake strategic control by examining whether the selected strategies have been or are successfully implemented. Thus, the need for organizations to establish effective performance measurement and control systems is critical.

  Mohamed et al. (2009) assert that performance measurement systems have undergone remarkable transformations over the past few decades. Traditionally, organizations relied on different financial measures such as return on investment, profit, and return on asset in examining their performance (Epstein 2009). The transformation currently being witnessed in the modern business environment, for example, growth in the rate of technological innovation and increase in the level of customer focus, have created the need for the adoption of effective performance measurement and control systems.  

Purpose

This paper entails a report that critically evaluates the effectiveness of DHL strategic performance measurement and control system. The analysis focuses on whether the system adopted by the firm best represents a  strategic performance measurement and control system or it is just a conventional dashboard that most organizations have in their businesses to track data.

Company Brief  

DHL specializes in the provision of logistic solutions to clients globally. Some of its services include the provision of air freight, rail and road transport, postal services, supply chain management services, and international express services (MarketLine 2017). From its inception in 1969 in Bonn, Germany, DHL has achieved global success which is evidenced by its operation in over 220 countries hence its international status. The company has a workforce of over 350,000 employees. The company reported an annual revenue of EUR57,334 for its financial year that ended December 2016. Its net profit margin was recorded at 4.6% which represents an increase from the 2.6% net margin recorded during its 2015 financial year (MarketLine 2017). The firm has organized its operation into six main units including DHL Parcel, DHL Freight, DHL Express, DHL e-Commerce, DHL Supply Chain, and DHL Global Forwarding (DHL 2017).

Business strategy

Businesses that seek to attain sustainable competitive advantage as one of their goals must formulate effective strategies.  Enz (2010) affirms that strategy outlines the plan of action that a firm intends to follow in the quest to achieve short-term goals. Business-level strategies constitute one of the categories of strategies that firms should formulate. Business strategy is concerned with how a business intends to achieve competitiveness concerning a particular business unit. Schermerhorn (2010) emphasizes that business strategy is concerned with how a firm intends to achieve competitiveness in a particular market or industry.

 In pursuit of enhancing the sustainable competitiveness of its respective business units, DHL has employed a focus strategy as its business-level strategy. Its rationale for employing a focus strategy is to foster competitiveness in its specific market segment. Ireland, Hoskisson, and Hitt (2008) affirm that a focus strategy enables a firm to satisfy the needs of a specific customer group within a broad market.  DHL has adopted a focused differentiation strategy as its business strategy. Hill and Jones (2012) note that a focus strategy enables an organization to exploit opportunities in the market by taking advantage of prevailing market gaps.

In its operation, DHL emphasizes developing new solutions that are intended to address the needs of a specific customer group. A focused differentiation strategy enables DHL to leverage its distinctive competence (Hill, Jones & Schilling 2014). The company has established innovation centers through which it engages with its logistic experts, customers, industry and business partners, and research institutions to succeed in addressing the needs of its target market (MarketLine 2017). In line with its focus innovation strategy, DHL has established a Trend Research Team whose role is to assess the prevailing market trend. This has significantly contributed to the improvement of DHL’s success in the changing market environment.

Critical success factor

DHL’s success depends on its effectiveness in satisfying its customers. Subsequently, the firm has entrenched an omnichannel strategy that emphasizes implementing seamless approaches to satisfy customers.  Guo (2016) asserts that under the omnichannel strategy, firms seek to satisfy customers by establishing contact at different levels of interaction with the firm. Integration of an omni-channel strategy enables a firm to differentiate its products and services hence succeeding in a market that has increasingly become crowded (Guo 2016). To succeed in enhancing the level of customer satisfaction, DHL has taken into account two main critical success factors including logistics and supply chain.

1. Supply chain; DHL also pursues establishment of an efficient supply chain as one of its critical success factor.  The firm has established a comprehensive supply chain system which enables the firm satisfy its customer promise (DHL 2015).
2. Logistics; this success factor emphasizes the importance of establishing an effective and efficient approach to delivering products and services to clients. DHL has established effective logistics which has considerably contributed to the minimization of the cost of its operation. Moreover, integration of logistics as a critical success factor has enhanced DHL’s success in offering customers personalized and seamless services hence increasing the level of customer satisfaction (DHL 2015).
   

Performance measurement system

Mohamed et al. (2009) emphasize that implementing a performance measurement system is essential in providing managers insight into the effectiveness of its operations and programs in facilitating the attainment of the desired goals. Performance measurement is concerned with evaluating effectiveness, efficiency, and capability associated with a process, system, or action that a firm has adopted in pursuit of a predetermined outcome. Effectiveness is concerned with evaluating the degree to which the right issues are taken into account such as measuring the degree to which the stakeholder needs have been met (Agbanu et al. 2016).  By undertaking performance measurement, managers can succeed in identifying areas of their operation that need improvement. Agbanu et al. (2016) emphasize that in the face of the growing degree of complexity in the contemporary business environment, firms have a responsibility to optimally respond to the changing complexity.  Thus, implementing an effective performance measurement system is fundamental to firms’ success.

DHL has employed the performance prism as the tool for measuring performance. The rationale for employing the performance prism is underlined by the fact that it constitutes a holistic performance measurement and control system. Manzoni and Islam (2009) emphasize that performance prism involves an innovative performance measurement framework that assesses different facets of an organization’s performance. According to Neely (2007), the performance prism as a framework for measuring performance emphasizes the importance of firms’ developing a comprehensive understanding of their respective stakeholders. The performance prism constitutes an important framework because it enables firm managers to formulate strategies and establish business processes, and measures that can be relied on in addressing the needs of their target customers. Its relevance is underlined by the fact that it is based on a stakeholder-centric perspective (Neely 2007).  Through the integration of performance prism, organizations can succeed in exploiting the opportunities inherent in the market in addition to addressing the risks inherent in the market.  O’Boyle and Hassan (2013) argue that if well implemented and applied, performance prism can assist firms in establishing effective and complex relationships with their different stakeholders.

Critique of performance measurement system at DHL

DHL has an entrenched performance prism as its performance measurement framework.  DHL’s decision to implement a performance prism was informed by performance problems that the firm was experiencing in evaluating performance. Traditionally, DHL overemphasized operational data in evaluating its performance. Nevertheless, the operational data did not provide DHL’s management team with the adequate and relevant information that is required to optimally manage its operations at the strategic level (Neely, Adams & Crowe 2001). Neely (2001) argues that conventional performance measures that rely on financial metrics are ineffective in assisting firms to succeed in the contemporary business environment.  According to Greenwood (2002), relying on traditional performance measures, for example, return on asset, may result in misrepresentation of facts hence limiting managers’ effectiveness in making decisions related to planning and control.   

During its quarterly performance review meeting in 2000, DHL’s board resolved to adopt a more strategic approach to evaluating performance by employing the performance prism as its performance measurement framework (Neely, Adams & Crowe 2001).  Arlbjorn and Haug (2010) assert that the effectiveness of the performance prism is underlined by the fact that it takes into account an organization’s internal and external stakeholders including customers, suppliers, employees, investors, the community, regulators, and intermediaries.  DHL has focused on entrenching the five facets of the performance prism that include its capabilities, strategies, stakeholder satisfaction, processes, and stakeholder contribution as evaluated herein.

Stakeholder satisfaction; in the quest to facilitate its performance, DHL is concerned about its different stakeholders. The firm’s consideration of its stakeholders has considerably contributed to the firm’s effectiveness in addressing their respective needs. Additionally, the firm’s consideration of the stakeholders has enabled the firm to exploit the ideas inherent amongst the stakeholders. In measuring its effectiveness in satisfying stakeholders, DHL assesses the stakeholders’ opinions and feelings toward the firm. In doing so, the firm can gain insight into its effectiveness in meeting the prevailing market needs and demands. In addition to this approach, measuring performance about the level of stakeholder satisfaction also entails undertaking a comparative evaluation of the level of satisfaction among the stakeholders.

In assessing its success in satisfying stakeholders, DHL has entrenched several key measures. The first measure entails evaluating the feedback and complaints from different stakeholders. The firm gathers feedback using different information communication technologies. For example, DHL has implemented a customer relationship management system that enables the firm to gather feedback from customers.  Determination of the level of stakeholder satisfaction is also undertaken by conducting retention or loyalty analysis. Blazey (2008) asserts that evaluating the level of loyalty can indicate which stakeholders are satisfied with a firm’s products and services.  Alternatively, determination of the firm’s performance about stakeholder satisfaction also involves evaluating the firm’s market share.  Despite its expansive global market, DHL has succeeded in developing a strong global market share. For example, the firm ranks as the global market leader in the international express business unit with a market share of 34% (DHL 2016). This indicates that the firm has attained exemplary performance in satisfying stakeholders and hence it’s strong market share and global market presence.  

Strategy;   Drury (2006) asserts that strategy refers to how an organization intends to achieve the intended goals and objectives. In measuring strategy, DHL assesses several aspehincludingude the firm’s success in implementing its strategy, the extent to which the strategy is shared with the internal stakeholders, and the appropriateness of the strategy to the firm’s long-term success. The performance prism appreciates that a firm’s success depends on the quality of the strategy that the firm has adopted.  In pursuit of competitiveness, DHL has entrenched focused innovation as one of its business-level strategies. The firm is of the view that pursuing focused innovation will enable the firm to achieve market dominance.  In measuring the effectiveness of its strategy, DHL evaluates several issues. First, the firm assesses the degree to which it is effective in implementing its strategies. In implementing its focused innovation strategy, DHL considers the importance of engaging different stakeholders. This aspect is underlined by the fact that the firm adopts a collaborative approach in implementing the focus innovation strategy. The company has established innovation centers through which it engages with its logistic experts, customers, industry and business partners, and research institutions to succeed in implementing strategy (MarketLine 2017).

Heesen (2016) identifies ensuring adequate communication of the strategy to all stakeholders in an organization as an important aspect of measuring an organization’s effectiveness in measuring performance.  In measuring the effectiveness of its strategy, DHL evaluates its global market position and the effectiveness of the strategy in enhancing the firm’s capacity to generate revenue. Evaluation of the appropriateness of the strategy adopted also involves examining its effectiveness in enabling the firm to develop an extensive product mix attracting diverse customer groups. The adoption of a focused innovation strategy has enabled DHL to attract diverse customer groups by addressing their respective needs.  Analyzing these measures, DHL has been able to undertake the requisite adjustments in its strategy hence strengthening its competitiveness.

Strategy contribution; this facet of performance measurement is concerned with assessing what the stakeholders contribute to the firm in enhancing its performance (Vincent & Kumar 2014). DHL has established a diverse category of stakeholders that includes customers, investors, employees, and regulators. To ensure that the relationship with different stakeholders is valuable to its long-term survival, DHL undertakes continuous measurement of what the stakeholders contribute to the firm. For example, in measuring the performance of customers, DHL undertakes a customer profitability analysis. This analysis is aimed at determining the degree to which customers contribute towards improvement in the firm’s level of profitability.  

By undertaking customer profitability analysis, DHL has been able to control its approach to customer management. For example, the firm can determine the category of customers that it will emphasize and which to de-emphasize depending on the customer group’s contribution to the firm’s level of profitability (Dury 2006).  About investors, DHL measures the rate of its capital growth and the degree to which investors are willing to take additional risks by purchasing additional shares. By assessing these metrics, DHL has been able to determine the value of its investors in enhancing the likelihood of the firm achieving long-term competitiveness.  Conversely, performance measurement concerning regulators involves assessing the extent to which the industry regulators are effective in administering regulatory practices, for example, eliminating bureaucracies associated with the regulatory processes.

Processes; in line with its focused innovation strategy, DHL has entrenched effective processes that are aimed at fostering the performance of its strategy. One of the notable processes entails developing products and services through innovation to satisfy the market demand. In measuring the effectiveness of its processes, DHL assesses several aspects such as the effectiveness of the processes in generating and fulfilling demand. Over the past years, DHL has implemented effective innovative processes that have enabled the firm to succeed in introducing new products and services in the market hence serving the market appropriately.  DHL also undertakes business process reengineering to evaluate the effectiveness of its processes. Through business process reengineering, DHL can redesign or adjust its processes hence culminating in the improvement of cycle time and the firm’s productivity (Mohapatra 2013).  

Capabilities; Baskerville, Stage, and DeGross (2000) affirm that an organization’s capabilities can be defined in terms of the practices, infrastructure, people, and technology that enable an organization to develop competitiveness. DHL has developed adequate capabilities that have facilitated the firm’s success. The capabilities that the firm has attained relate to planning and scheduling global operations, distribution, supply chain management, and customer order handling. In evaluating its success in achieving the desired capabilities, DHL has adopted the concept of benchmarking. Through benchmarking, the organization can determine whether it has achieved the right capability to strengthen its competitiveness.

Critique of the performance measurement system and control system at DHL

DHL’s adoption of the performance prism as it’s a tool for measuring performance has significantly improved DHL’s operational efficiency and competitiveness.  Performance prism enabled DHL to establish a strong connection between the firm’s strategy and its rewards. This arises from the fact that the performance prism as a performance measurement and control system constitutes a holistic tool for measuring performance. The tool ensures that the different organizational stakeholders (internal and external) are adequately involved in measuring performance. Performance prism ensures adequate involvement and engagement of the respective stakeholders.  Through the performance prism, DHL has succeeded in involving the relevant internal stakeholders in implementing the focused innovation strategy. Moreover, evaluation of the firm’s capabilities provides DHL insight into the areas of operation that should be improved to achieve competitiveness.

Conclusion

In the face of the uncertainty that characterizes the contemporary market, organizational man management teams employ effective performance measurement and control systems. Implementation of performance measurement and control systems enables animations to attain the desired competitiveness by ensuring that the requisite adjustments in the firm’s operations and strategies are undertaken. DHL has effectively implemented a performance measurement and control system by adopting the performance prism. DHL ensures that all the respective facets of the performance prism are taken into account.  By entrenching performance prism, DHL has significantly improved its effectiveness in measuring performance rather than relying on conventional data. In summary, one can argue that the implementation of the performance prism has significantly enhanced the firm’s performance and competitiveness in the distribution industry. However, in enhancing the value of performance measurement and control systems, DHL should take into account the following issues.

1. DHL should continuously review the extent to which the internal stakeholders, specifically employees, are focused on implementing the different facets of the performance prism. The rationale of this is underlined by the fact that success of the performance prism in measuring and controlling performance depends on the input of its employees.
2. The firm should also train its employees on how to optimize the performance prism in enhancing its success in making the requisite control and adjustments.

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