Performance Measurement Approach Adopted At Ethiopian Airlines

The report presented here with focuses on the amendments that the CEO needs to follow in enhancing
the use of the BSC that is already in place within the airline for the past three years. The BSC is adopted
to help managers and co-workers monitor their performance both in financial and non-financial terms.

The following is the organizational structure of Ethiopian Airlines as of writing this report.

2. Performance Measurement Approach at Ethiopian Airlines Ethiopian Airlines uses the Balanced Score
Card approach to measure its performance. The Airline uses the BSC as a strategic and communication
tool to align the vision and strategy of the organization to the overall business activities and to monitor
performance as compared to the set goals.

The BSC helps to measure the drivers to achieve the strategic objectives of the airline; by aligning the
strategy with the daily activities, where all involved are duly communicated and are aware of what is
expected in their future performance.

The BSC maps the Airlines’ strategic objectives in four perspectives: financial, internal processes,
customers, and learning and growth; and specific metrics are attached to each perspective. The
balanced score card enables the stakeholders involved to view the activities as internal and external to
the airline, as a financial and non-financial metric; and for comparison of past and future performance.
My BSC for the current fiscal is attached in the Appendix During the annual assembly the CEO
communicates the strategic objectives to all employees and the targets are cascaded from EVPs all the
way to individual level.

Management employees prepare BSC in consultation with their immediate supervisor and agree on
targets and measurements; non-management staff will have ISCs with the KPIs clearly stated.

The BSC as a performance measurement approach in the Airline can be considered as the control system
to monitor the execution of plans and if the targets set are not in line with the plan, the airline will be
able to review during the mid-year assessment and seek means of improving the overall performance.

As stated in B2S4p117 performance management “is associated with an approach to creating a shared
vision of the purpose and aims of the organization, helping each employee understand and recognize
their part in contributing to them, and in so doing, manage and enhance the performance of the
individual and the organization. ”In this regard the Airline endeavors to help each employee
understands the objectives and ‘ensures’ necessary tools are provided so that the performance of
employees may not be hindered.
3. Identifying Stakeholders at Ethiopian Airlines

“Stakeholders – any group or individual who can affect or is affected by the achievements of the firm’s
objectives (Freeman); or constituents who have a legitimate claim on the firm (Hill & Jones).”

The performance measurement approach used by Ethiopian Airlines is the Balanced Score Card; and
very few of the stakeholders were involved during the process of development of the performance
measurement system. The following system map shows the stakeholders of Ethiopian Airlines. Despite
the numerous sets of stakeholders, the airline (in fact the Kaplan and Norton model – BSC) focuses on
employees, shareholders and customers, which the model is presented as a simple form of the actual
complex real-life situation if the wider environment is considered.

Fig.3 System Map of Stakeholders at Ethiopian Airlines

I have tried to include as many stakeholders as possible in

Fig3. The environment and process stake holders

(B1S18p147) are of particular interest in the identification of stakeholders of Ethiopian airlines. The BSC
being a strategic and performance measurement tool, stakeholders that define the critical elements of
strategy need to be identified. Atkinson et al. identified five stakeholder groups and categorized them as
environmental stakeholders, which is comprised of customers, owners and the community; and
process stakeholders comprised of employees and suppliers.

According to Atkinson et al., the environmental stakeholders “defines the organization’s external
environment that, in turn, defines the critical elements of its strategy; “and the process stakeholders
“work within the environment defined by the external stakeholders to plan, design, implement and
operate the processes that make and deliver the organization’s products or services.”

The following are the key stakeholders that constitute the development of the BSC at Ethiopian Airlines:

Government/Owner

The Airline is a government owned commercial organization and the activities of the airline are
somehow geared with the objectives of the national government. The business being capital intensive,
and prone to various environmental situations (STEEP), the government’s stake is so high. The country
being very poor, the economic viability of the airline is given priority, i.e. the airline has to be profitable.
Hence, the financial perspective of the BSC is of high importance to the government, and in fact the BSC
of the airline is designed like theory Z of Halifax PLC (A) (B2S17p64).

Customers

The customers are the very reason that the airline exists and how the airline is perceived by the
customers really matters. Customers of the airline need a reliable and safe transportation and the
service must be at par with competitors’ level of service; with respect to on-time performance, quality,
and loss or damage of passenger goods.
Therefore, the customers are at the heat of the performance management as the airline must serve its
targeted customers to meet the measures in the financial perspective

Employees

This group of stakeholders are the ones that are at the center of the BSC of the organization; and in the
BSC the Internal Process perspective and the Learning and Growth perspective directly affects and they
in turn affect those perspectives. The other perspectives being mutually interdependent will also be
affected. In the internal process perspective the employee knowledge of the business process and the
understanding of it help to provide a quality service as perceived by the customers and drive them to
excel in the things they do. The internal process also affects the financial perspective in such a way that
the cost incurred to provide quality service comes into factor, where employees are not aware of a cost-
effective method of handling a given task. The learning and growth perspective directly affects the
employees as they need to be trained both on the way of handling their task and in upholding the
corporate culture. The employees drive the business, and as described in B2S14p92, the business
process will have greater impact on customer satisfaction.

4. Evaluation of the BSC at Ethiopian Airlines

Atkinson et al., “argue that organisations exist to serve the objectives of their owners or sponsors. If the
organisation is commercial, this objective is likely to be increasing shareholder wealth.” Ethiopian
Airlines being a commercial entity aims to make profit from its operations and as has discussed above
the primary driver is profit and is aimed at increasing the wealth of the owner – the government.

The Airline from the onset recognized that the BSC would help to manage and measure its performance.
The BSC perspectives address both the primary and secondary objectives of the organization. “The
primary objectives are defined by an organization’s owners or funders. What the organization expects
from and gives to each stakeholder group are secondary objectives.”

If we evaluate the contribution that the BSC makes through the management of stakeholders interest
using Atkinson et al.’s model it can be seen that all the perspectives of the BSC model addresses the
objectives at different levels and lays down the activities in a measureable and tangible manner, thereby
enabling managers view the perspective simultaneously in a coherent manner.

Arguably, at Ethiopian Airlines the BSC has created some change in the culture where achievement has
become a driver to do more and be recognized. Employees focus on key target areas and monitor trends
that might have an adverse effect on the future operation of the organization in general. The attitude
change in stakeholders is also worth mentioning that the BSC serves its purpose of being a system of
measurement and instilling attitude and cultural change. The objectives of the government –
profitability; and that of the CEO – creating ‘Africa’s World Class Airline’ are not in line; and probably
that could be the reason that the motto, which Ethiopian Airlines used in the beginning of the BSC
implementation with the Vision 2010 strategy, changed to ‘The New Spirit of Africa’. Though the
assumed cascading of the BSC is supposed to start from ‘Africa’s World Class Airline’ it starts from the
way of making the airline profitable. All activities are geared in attaining the goals of the financial
perspective of the BSC. Though the BSC is at its infancy at Ethiopian Airlines, the performance review
made every six month is so long that some things might go wrong irreversibly. At Halifax the
performance is monitored monthly and 75% of the data was available within the company. At Ethiopian
Airlines, the data collection task is arduous and cumbersome, which makes the monitoring task
unpleasant. Furthermore, as the data to be analyzed is too much the probability of making error
increase and the inaccuracy of data creates resentment.

During performance measurement, only the financial perspective is considered. For example my last
year performance evaluation was based on the revenue target that was given, which was 5% less from
the target. Factors (internal/external) that could have affected the performance are not taken into
account. In the long run this will affect the performance of the employees.

Strengths and weaknesses of the BSC at Ethiopian Airlines

Strengths

Individual performance will relate directly to the Airline’s strategic goals, and values, thereby creating
significant impact on productivity and profitability.

Targets ways of improving on providing seamless, consistently high-quality service that address
customer issue, enabling to create successful relationship.

Creates opportunity for the employees to continually develop and grow as employees and leaders of the
Airline.

Redundant and tasks that do not add value are removed

Easy to understand the relationships of each perspective

Weaknesses

Usually data is not readily available

Data collection is arduous and de-motivating

Employees contribution to the achievement of the objectives for the airline is cannot be measured, only
the effect of their activity can be measured

Team work is thwarted as each employee focuses on individual BSC

The financial perspective is given priority that dwarfs the other perspectives

5. Identification and Evaluation of Complementary Processes Acquiring Information and Communication

Technology As discussed above the data collection and the task associated with it takes ample time, the
use of ICT will ease the task and in doing so the errors made will decrease significantly. Creation of a
database for the required information enables each employee to access pertinent information in
relation to his task or the objectives one intends to achieve. In addition a data base has to be created for
the measures, targets and initiatives that are to be taken and implemented. The data base helps to
easily access information and thereby associate tasks to employees, having in mind the objectives of the
organization; and progress can easily be checked and can be used as a tool for tracking changes. In
Halifax’s case 75% of the information was available and the implementation of the BSC was not a big
challenge as faced by Ethiopian Airlines.

Consultancy service

Ethiopian Airlines implementing the BSC as it was recommended by the consultants it hired. The way to
go about was not clear, even after three years the BSC of some of the divisions is not prepared on a
timely manner. For example the commercial division does not have BSC for the current fiscal year; staffs
under that division were forced to prepare their own so that they may have a guidance and deliverables
to work on. Ethiopian Airlines can draw lessons from Halifax, as Halifax took over two years to design
and implement; and in fact they were making changes till 1999. The consultant that will be hired needs
to have the thorough understanding of the national and corporate culture and train the senior
management on the principles of the BSC. The consultants need to have their own office where they can
monitor the development of the BSC and its implementation from the top management to lower level
supervisor.

Training and Development

The employees of the Airline need to be current with the way the business is being dealt in the airline
industry and continuous training and improvement is mandatory to stay in business with the ever
changing environment and achieve the Airline’s objectives. To help the airline focus on specific training
needs, benchmarking would help to keep in pace with competitors and ‘best-in-class’ performers. The
benchmarking could be on processes or result areas. As discussed in the case study of Britannia Airways
(B2S15p133) a lesson can be drawn on the way to go about. A very good example of South West Airline
for refuelling an aircraft in 12minutes, which Southwest adopted from Formula 1, can also, be practiced

(B2S15p134). Currently, the airline is implementing ACE (Achieving Competitive Excellence) in its
Maintenance and Engineering Division. ACE is an operating system used by United Technology
Companies is focused on increasing efficiency and reducing waste. Since the start of ACE at maintenance
and Engineering Division, other divisions are also trying to implement and internal benchmarking is
taking shape.

In Finance division, Ethiopian Airlines is learning best practice from its fierce competitor Emirates
Airlines. Process re-engineering can also be implemented at Ethiopian Airlines to avoid unnecessary
non-value adding steps from the work flow.

For example it sometimes takes six months to get compensation for lost baggage compensation;
because of too long and redundant processes. Performance related pay As discussed above the BSC has
contributed in creating a culture of achievement and employees are striving to achieve to their level
best. If their achievement is rewarded in a commensurable way, employees’ effort could increase and
their performance as a result can be positively affected. This can be related to equity theory (B1S14
p139) which states that rewards motivate employees provided they are perceived equitable and fair;
and according to expectancy theory motivation of an employees can be influenced by the
commensurability the task they perform and the reward they got; and comparable reward with other
colleagues; and the perception of rewards received by others.

6. Conclusion

The airline is yet to benefit from the implementation of the BSC as a performance management system.
The BSC at Ethiopian Airlines has a gap but follows what every performance management system need
to follow – an approach of creating a shared vision among the employees and management where the
objectives are clearly defined and employees know the targets and the measurements attached to those
targets. The BSC is helping the managers to understand the inter-relationships of the perspectives which
eventually results in improved decision making and problem solving, and in the process the airline will
be “looking-and moving-forward instead of backward.”B2S14p95.

Hence, the BSC as a performance management system has contributed a lot in “creating a shared vision
of the purpose and aims of the organization, helping each employee understand and recognize their
part in contributing to them, and in so doing, manage and enhance the performance of the individual
and the organization.” The BSC should not be considered as a panacea for the ailments which the
company has, but as far as the performance measurement is concerned.

Though the BSC is in the right track of serving its purpose as a performance management tool, the
practice is far from being perfect.

7. Recommendations

The airline without having delivered necessary training to perform the given task in a better way the
targets are being stretched in order to maximize profit; and staff are also forced to handle multiple tasks
in an effort to increase productivity, and after the desired productivity is reached another stretch will
follow and some of the staff become redundant, which results in lay-off. The very staff who helped
increase the productivity sometimes becomes victims.

Chairman and CEO of Milliken & Co., emphasized on the role played by continuous improvement in
customer perspective and internal business process perspective, which implies that the internal
measures which a company takes have great impact on the satisfaction of customers B2S14p92.
Similarly the airline needs to work on internal business processes and customer perspectives. As people
are the primary resources in achieving the organizational goals Ethiopian Airlines needs customized
training and development that are provided by aviation experts or the regulatory body – IATA.

According to Kaplan and Norton “the measures are designed to pull people toward the overall vision.
Senior managers may know what the end result should be, but they cannot tell employees exactly how
to achieve that result, if only because the conditions in which employees operate are constantly
changing.” Here, the need for employee empowerment is called for. Employees are not empowered
enough to fully utilize their skill and creative talents and the airline benefits thereof.
The need for an information technology should be given priority. As in some cases of measurement, the
data needed for analysis already exists and sometimes in a refined form, but what will be required are
the discipline and the management dedication and capability to analyse the information; this calls for
intensive training in data analysis or use of information technology at all levels of the management
hierarchy. As in the case of Halifax PLC, the data was available and it any member was able to access it
from any computer. (B2S17p67)

As discussed above the leaders of the organization set the vision and communicate to the employees
and targets and measures are placed in each perspective so that the performance of the organization is
measured; but the vision changes and the employees have a moving target which will be difficult to hit.
Hence, the leadership of the airline needs to be focused in the implementation of the strategy where
the processes are aligned with the objectives which the airline needs to achieve.

Ethiopian Airlines operates in different cultures and the attitudes and values attached to the work ethics
are different in all localities. The BSC that has been initially conceived by head office located in Ethiopia
and with Ethiopian mentality is being forced to be implemented with the same condition elsewhere,
even in highly developed countries in Europe and the USA, which is too restrictive in the way employees
use their creativity and the means of contributing to the progress of the airline. The BSC for head office
and for the field offices, though have a common goal need to have variations with the local cultures and
way of doing things or the level of economic or technological development. In the case of Halifax the
district manager and the branch manager had different sets of management practices. (B2S17pp69-70)
Furthermore, the perspectives used are being followed as dogma, which could have been amended for
revenue generating divisions and support offices. The support office instead of having the financial
perspective, they can have ‘efficiency and effectiveness perspective’. Hence, a lot has to be done in the
implementation of the BSC.

The airline operates in environments where the business process needs the involvement of the
community in one way or another, as its revenue is generated from these communities. The BSC
developed by Ethiopian airlines, though follows the basic framework laid down by Kaplan Norton, and
needs to devise a way where other key stakeholders can be addressed – the community and suppliers.

Finally, though the BSC is workable performance measurement approach for the airline, it needs to
address the contribution made by employees and suppliers; and the role of the community in which the
airline operates needs to be addressed.