Several years ago, United Parcel Service (UPS) believed that the Internet was going to change the parcel delivery market

Several years ago, United Parcel Service (UPS) believed that the Internet was going to change the parcel delivery market and would require UPS to become a more nimble and customer-focused organization. As a result, UPS replaced its old measurement system, which was 90% oriented toward financial performance, with a balanced scorecard. The scorecard emphasized four “point of arrival” measures, which were:

1. Customer satisfaction index—a measure of customer satisfaction.

2. Employee relations index—a measure of employee sentiment and morale.

3. Competitive position—delivery performance relative to competition.

4. Time in transit—the time from order entry to delivery.

a.  Why did UPS introduce a balanced scorecard and nonfinancial measures in
its new performance measurement system?

b.  Why do you think UPS included a factor measuring employee sentiment?


Answer:
a. UPS wanted a performance measurement system that would focus more on the underlying drivers, or levers, of financial success. It believed that focusing on the financial numbers by themselves would not reveal how financial objectives were to be achieved, especially with new demands coming from customers in the Internet age. The balanced scorecard provides information on how the financial targets are to be achieved. Using common measures throughout the organization also aligns the organization, while simultaneously communicating priorities. Apparently, UPS determined that its future success as an organization depended on “point of arrival” measures. These measures emphasized customer
performance to a much higher degree than would straight financial numbers.

b. The employee sentiment number is common in service businesses. The employees are the face of the company to the customer. If employees feel poorly about the organization, or if they feel that they don’t make a difference, then they are not likely to deliver premium service experiences to their customers. Just
think of the variety of fast food experiences you may have had in the past month. Sometimes, the service is excellent with a smile; at other times, it’s poor with a scowl. Measuring the improving employee morale is critical to organizations relying on front-line employees that deliver the customer experience.