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EM June 2003 19 EM EM Feature INTRODUCTION The greatest challenge currently facing global environment, health, and safety (EH&S) managers is not defining strategy, but implementing it successfully. 1 Growing stakeholder de- mands for greater corporate governance and operational trans- parency, along with increasing market pressure to reduce costs and associated risks, have heightened this challenge. 2 As a re- sult, corporations are asking important questions about their existing performance management strategies: 1. Are we doing the right things? Is our EH&S strategy driven by key stakeholders (e.g., shareholders, customers, employees, suppliers, regulators, and the local community) and tightly aligned to the organization’s business strategy at all levels? 2. Are we doing the right things right? Are our EH&S initiatives and processes automated to achieve that strategy and in a timely fashion? 3. Are we ensuring sustainable performance? Does our company have the necessary systems, frame- work, technology, and culture in place to sustain an EH&S business advantage in the long term? Are our data accurate, timely, comparable, and cost-effective to collect? 3 As corporations struggle to find positive answers to these questions, they are forced to recognize the growing gap between strategy and execution. This gap exists because many corpora- tions still manage EH&S performance using ad hoc analytical tools, spreadsheets, local compliance reporting tools, and static (i.e., fixed or stationary) environmental management systems (EMSs)—tools that date back to a time when nonfinancial metrics and work processes typically received less scrutiny from corporate management, had less impact on a business’ bottom line, and carried less risk. 4,5 However, leading corporations are now adopting a new, proactive approach, called EH&S perfor- mance management (EPM), characterized as a dynamic tool that enables continuous change, activity, or progress. EPM aligns corporate strategies, processes, and measurements to drive accountability and informed decision-making across the board, from top-level management to the shop floor. EPM maps out a strategy and uses a Web-based infrastructure to implement and maintain it. 3 Combining Internet technologies with a perfor- mance management framework helps to align stakeholder-driven strategy with corporate strat- egy, internal processes, and learning objectives; provide a common platform for sharing best prac- tices and performance indicators by using existing data assets; provide easy reporting and analysis with automated alerts, benchmarking capabilities, and target-setting for nontechnical users; continuously monitor and improve key processes and tasks to sustain performance; and cascade metrics and tasks for multilevel performance management. This article considers the use of performance manage- ment frameworks, such as the balanced scorecard, to create a strategic focus for EH&S managers, and sum- marizes a six-step process to design and implement such an approach.

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Page 1: EMpubs.awma.org/gsearch/em/2003/6/peterson2.pdf · tured and creates its own competitive advantage. However, every organization also shares the need to grow, develop, and improve

EMJune 2003 19

EMEMFeature

INTRODUCTIONThe greatest challenge currently facing global environment,health, and safety (EH&S) managers is not defining strategy,but implementing it successfully.1 Growing stakeholder de-mands for greater corporate governance and operational trans-parency, along with increasing market pressure to reduce costsand associated risks, have heightened this challenge.2 As a re-sult, corporations are asking important questions about theirexisting performance management strategies:

1. Are we doing the right things? Is our EH&S strategydriven by key stakeholders (e.g., shareholders,customers, employees, suppliers, regulators, andthe local community) and tightly aligned to theorganization’s business strategy at all levels?

2. Are we doing the right things right? Are our EH&Sinitiatives and processes automated to achieve thatstrategy and in a timely fashion?

3. Are we ensuring sustainable performance? Doesour company have the necessary systems, frame-work, technology, and culture in place to sustain anEH&S business advantage in the long term? Are ourdata accurate, timely, comparable, and cost-effectiveto collect?3

As corporations struggle to find positive answers to thesequestions, they are forced to recognize the growing gap betweenstrategy and execution. This gap exists because many corpora-tions still manage EH&S performance using ad hoc analyticaltools, spreadsheets, local compliance reporting tools, and static(i.e., fixed or stationary) environmental management systems(EMSs)—tools that date back to a time when nonfinancialmetrics and work processes typically received less scrutiny fromcorporate management, had less impact on a business’ bottomline, and carried less risk.4,5 However, leading corporations arenow adopting a new, proactive approach, called EH&S perfor-mance management (EPM), characterized as a dynamic toolthat enables continuous change, activity, or progress. EPM alignscorporate strategies, processes, and measurements to driveaccountability and informed decision-making across the board,from top-level management to the shop floor. EPM maps out astrategy and uses a Web-based infrastructure to implement andmaintain it.3 Combining Internet technologies with a perfor-mance management framework helps to

• align stakeholder-driven strategy with corporate strat-egy, internal processes, and learning objectives;

• provide a common platform for sharing best prac-tices and performance indicators by using existingdata assets;

• provide easy reporting and analysis with automatedalerts, benchmarking capabilities, and target-settingfor nontechnical users;

• continuously monitor and improve key processes andtasks to sustain performance; and

• cascade metrics and tasks for multilevel performancemanagement.

This article considers the use of performance manage-ment frameworks, such as the balanced scorecard, tocreate a strategic focus for EH&S managers, and sum-marizes a six-step process to design and implement suchan approach.

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More than 50% of large organizations now use such frame-works for strategy implementation across multiple businessfunctions, including EH&S.10 The most popular, the balancedscorecard, is a powerful tool that enables organizations to clarifytheir vision and strategy and ensure successful implementation.The balanced scorecard was developed in the early 1990s byDrs. Robert Kaplan (Harvard Business School) and David Norton(Balanced Scorecard Collaborative). Recognizing some of theweaknesses of previous management approaches, the balancedscorecard was designed to provide a clear definition of whatcompanies should measure in order to “balance” the financialperspective of work processes. The balanced scorecard is a man-agement system that provides feedback from both internal busi-ness processes and external outcomes to continuously improvestrategic performance and results. When fully deployed, the bal-anced scorecard transforms strategic planning from an academicexercise into the nerve center of an enterprise.11,12

A balanced scorecard framework is also forward-looking,in that it focuses not on lagging (outcome-based) metrics, buton leading (in-process or forward-looking) metrics. This holis-tic, integrated approach allows each business unit within anorganization to view and understand how their activities andthe activities of others relate to each other and to the overallbusiness strategy. A balanced scorecard helps clarify, consoli-date, and gain consensus on EH&S strategy and integrate EH&S-related measures into the overlying leadership framework.

Similar EPM frameworks (e.g., the performance prism) haveexpanded this concept to focus on stakeholder-driven strategy.10

This is especially relevant for shared or support service fieldssuch as EH&S. Figure 1 provides an example of a stakeholder-driven balanced performance measurement framework. Imple-menting a balanced, multiperspective approach to EH&Sperformance management helps develop measures that alignwith the overall corporate strategy and cascade them through-out the organization. In the scenario shown in Figure 1, thestakeholders function in a kind of “ecosystem,” where ignoringthe needs of any one stakeholder can be harmful.

THE EPM ENGINEWhile the potential is exciting, the promise of EPM has eludedmany early adopters. Corporations that have tried to imple-ment a balanced scorecard approach with existing tools havefound it difficult to improve EH&S performance and moveaway from basic measurement and reporting (i.e., simply docu-menting past events) toward sustainable performance man-agement. Corporations have learned, through trial and error,that for a balanced scorecard or similar approach to be success-ful, the right information technology must first be enabled.13

Simply stated, the EPM engine is the platform, or technology,that drives EPM. The EPM engine is a Web-based software plat-form that combines data validation and integration withprocess management, corporate reporting, and performance

This article considers the limitations of using a static EMS-based strategy for EH&S performance management; introducesthe balanced scorecard, a new dynamic EPM framework thathelps create a strategic focus for EH&S managers; and sum-marizes a proven six-step process for the design and imple-mentation of a balanced scorecard approach.

A NEW APPROACH TO EH&S STRATEGY EXECUTIONEMSs, such as Responsible Care and ISO 14000, have been invogue since the early 1990s. Management consultants aggres-sively promoted them as the way to systematize nonregulatoryperformance and, as a result, they have formed the core ofshort-term, budget-based EH&S planning and strategy. How-ever, EMSs focus on what should be done, rather than on howit should be done, and are seldom data-driven or based onindividual accountability.6 The limitations of EMSs are wellknown. According to a 2000 University of Sussex study,7 thereis no discernible link between management systems and per-formance. These systems are increasingly viewed as a startingpoint and not an integrated approach to strategy alignmentand implementation. Because key EMS or workflow processesand real-time data were never fully integrated, many of theseefforts simply became the “program de jour.”7 As a result, cor-porations have turned to measurement systems, which, in turn,have created their own set of challenges.3 Typical measure-ment systems often measure data for measurement sake, re-sulting in information overload. Equally problematic is thefact that the focus is all too often on lagging (outcome-based)or historical data.8 But “looking in the rear view mirror” doesnot tell you if past strategies will deliver stakeholder valueboth now and in the future.9 The upshot is that most EH&Smanagement systems are in crisis: information is wasted,effort is wasted, and the quality of the data is often suspect.4

While no panacea, EPM is a significant improvement com-pared to both EMSs and measurement systems. Enabled byInternet technology, EPM is a management approach that con-tinuously aligns tasks, processes, and measures with businessstrategy. Rather than measuring past performance, andpotentially documenting failure, EPM is an inherently proac-tive, forward-looking approach to performance management.EPM enables companies to

• increase the speed, quality, and accuracy of decision-making;

• improve the quality of data and management reports;• create the necessary organizational alignment for

EH&S strategy execution; and• facilitate corporate transparency to internal and

external stakeholders.To track, monitor, and analyze performance metrics in near

real-time, EPM employs Web-based technology, in the form ofan EPM engine, which integrates, manages, and disseminatesperformance data among authorized users.

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measurement. It enables authorized users to manage real-timeperformance information via the Internet. By rolling up exist-ing data and process assets, the EPM engine integrates theentire EH&S function (e.g., data, systems, processes, and users)into one common, shared platform. The EPM engine not onlyhelps align and focus EH&S strategy, but also helps close thestrategy execution gap.14

First, an EPM engine provides users with a “digital dash-board.” Digital dashboards offer users a single interface throughwhich they can view performance information from a varietyof sources that have been chosen specifically for that user. Likethe meters, gauges, and warning lights on an automobile’sdashboard, a digital dashboard allows users to easily monitor,analyze, and forecast EH&S performance data, thereby enablingimproved corporate- and facility-level decision-making.15

Figure 2 shows an example of a digital dashboard.Second, an EPM engine manages work processes. Work pro-

cesses are sequences of linked activities, such as safety compli-ance or environmental data collection, which describe the waycertain information and tasks are processed. Developing asuccessful EPM system, therefore, requires knowledge of theprocesses that define how an organization operates. EPM usesa configurable workflow engine to transform previouslyindependent measurementsystems, such as an EMS orincident measurement sys-tem, into an integrated, flex-ible performance manage-ment system. This allowsusers more control and tocontinuously monitor,create, integrate, and im-prove data collection andprocesses-based tasks.

Finally, EPM shatters theparadigm of expensive dataintegration. For the first time,data from various systems, in-cluding legacy systems, Web-based forms, and workflows,are easily extracted, trans-formed, validated, and aggre-gated using a single interface

for common data storage and retrieval. The EPM engine acts asa layer that sits on top of other systems, thereby integratingdata from multiple sources easily and cost-effectively. This meansthat corporations do not have to buy or replace old legacy sys-tems or spend money and resources on maintaining systemswith antiquated coding.16

SIX STEPS TO DESIGNING ABALANCED EH&S SCORECARDFor a balanced EH&S performance scorecard to drive organi-zational change, it must maintain alignment with changingstakeholder and business needs. To accomplish this, an EPMengine should include two key functional capabilities:

1. The measurement system must clearly link objectivesthrough a chain of cause-and-effect relationships; and

2. It must support both lagging and leading metrics andcascade them throughout the organization. Leadingindicators should be tailored to a particular businessunit, process, or measure. Each facility and key indi-vidual should have objectives, measures, targets, andtasks that contribute to corporate strategic goals.11

With these capabilities in mind, corporations can begin todesign and implement their EH&S performance management

Figure 1. Balanced performance measurement framework.

Figure 2. Digital dashboard showing role-based objectives, measures, targets, and tasks.

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framework. Every organization is unique in the way it is struc-tured and creates its own competitive advantage. However,every organization also shares the need to grow, develop, andimprove their business. The following six steps outline a provenprocess for designing and implementing a balanced EH&Sperformance scorecard in any organization:

1. Assess business and stakeholder needs2. Refine EH&S strategy and objectives and create a

cause-and-effect strategy map3. Develop/refine performance measures4. Select initiatives and key work processes5. Unleash the EPM engine6. Cascade metrics ownership

Step 1: Assess Business and Stakeholder NeedsCorporate vision and mission statements have historicallyformed the basis for performance management frameworks.However, a more effective approach for designing an EH&Sscorecard is to start with stakeholder needs. This includes lis-tening to and understanding the expectations of key groups,such as customers, suppliers, regulators, and employees. Inhis article, Metrics Will Matter, Richard MacLean writes, “EH&Smanagers may be winning the battle to efficiently sort data,but losing the strategic war to gain competitive advantage fortheir companies. Financial metrics matter because they arecomparable, consistent, credible (timely), and relevant to vari-ous stakeholder needs. The vast majority of EH&S metrics pro-vide essentially none of these elements.”17 Step 1 in our designprocess concerns situation and needs assessment. Companiesshould begin by asking the following questions:

• What do key internal and external stakeholders ex-pect from us now and in the future?

• What EH&S strategies do we need to meet stakeholderexpectations?

• What processes do we need to support these strategies?• What are the most important EH&S objectives for

our organization to achieve?• What “driver” results are critical to achieve these

objectives (i.e., process efficiency, supplier focus)?• Which objectives may af-

fect performance of theseresults (i.e., leadership,training)?15

The answers to these questionswill be the foundation for a stake-holder-driven strategy and will setan agenda for action. These an-swers help determine the contri-bution that EH&S makes to thebottom line and the financial im-pact that EH&S decision-makinghas on the organization as a whole.

Step 2: Refine EH&S Strategy and Objectives andCreate a Cause-and-Effect Strategy Map

The next step is to refine corporate EH&S strategy and objec-tives. This includes

• aligning the stakeholder requirements identified inStep 1 with the corporate mission and strategicthemes;

• determining strategic objectives from various key per-spectives (e.g., what internal processes must be bestin class?); and

• developing a cause-and-effect chain, or strategy map,linking objectives from a balanced perspective.

Strategic themes are classes of activity that drive EH&S ob-jectives across multiple perspectives within an organization, suchas reduced incident rates or reduced energy expenses, and helpcreate value over different time horizons. For example, a com-pany may have a one- or two-year timeframe for achievingoperational excellence, but a three- or five-year timeframe forachieving innovation.11 Collectively, these strategic themes al-low the company to improve and sustain overall performance.Figure 3 shows an example of EH&S objectives that might sup-port the reduction of solid waste from a financial perspective.In this case, reducing the packaging weight specification forsuppliers becomes an EH&S objective. This both meets a keystakeholder need and improves financial performance throughreduced cost. The gains from these objectives are projected acrosstargeted levels of improvement. Benchmarking with industryleaders will enable managers to select objectives based on bestpractices and will provide a clear indication of the gaps betweencurrent and future objectives.

Once a company’s objectives have been identified, theycan be mapped to reveal cause-and-effect relationships. EH&Sstrategy maps identify performance relationships among keyareas, such as stakeholder satisfaction, productivity, employeetraining, and financial performance.11 These analyses helpidentify the issues that have potentially the greatest impacton performance and generate a specific metric for trackingprogress. Figure 4 shows an example of a strategy map linkingwaste reduction training to internal waste reduction processes.

Figure 3. Strategic objectives across balanced perspectives.

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It highlights how EH&S initiatives and processes such as wastereduction can be mapped directly against client satisfactionand cost-reduction strategies.

Companies should also evaluate existing measures and pro-cesses against these objectives. A complete balanced scorecardfor EH&S would likely include performance metrics in each offour perspectives—stakeholders, financial, learning, and pro-cess—reflecting the role that EH&S measures have in support-ing corporate strategies and investments.

Step 3: Develop/Refine Performance MeasuresWith key objectives and strategies identified, corporations areready to select and refine the metrics that drive performanceand accountability. Metrics are the critical measures of successfor any function or business unit within an organization andshould be selected with an emphasis on forward-looking, real-time data, benchmarking, and the sharing of lessons-learnedto drive performance improvement. The strategy map willshow that some measures do not align with the new strate-gies, while others have strong linkage.

To develop and refine new performance metrics, compa-nies should again begin by asking themselves several keyquestions, including

• What are the key business processes?;• What are the key inputs to our organization?;

• What key products and services do we produce?;• Who are the key customers and stakeholders?; and• What are the desired outcomes for a specific business

area?A mix (balance) of leading (in-process or forward-looking)

and lagging (outcome-based) metrics is essential. Figure 5 showsa proactive approach to performance management that hasbeen applied to injury and illness management. While a reac-tive approach would typically examine only lagging metrics(e.g., past incidents or near misses), a proactive approach shouldexamine leading metrics (e.g., average time from incident in-vestigation to corrective action closure).18

Step 4: Select Initiatives and Key Work ProcessesCorporations must next focus on identifying and automatingthe key process that will have the most impact on the strate-gic objectives.13 Prioritizing processes for the purposes ofstreamlining, automation, and monitoring should be basedon the following criteria:

• resources required;• impact on strategy;• number of objectives addressed;• time to implement;• number of people involved; and• knowledge and training required.

Figure 4. Strategy map linking objectives.

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Once the processes have been prioritized, business pro-cess management (BPM) technology becomes the key enablerto allow processes to be prototyped, deployed, and optimizedquickly and cost-effectively. BPM is an emerging layer ofsoftware that helps companies execute the key concepts ofbusiness process optimization to improve and sustain per-formance. Unlike the static reengineering efforts of the past,Web-based BPM technology automates workflow-driven tasks,such as global incident management, auditing, compliancetracking, product stewardship, and inspections. It convertskey processes from passive to proactive processes by servingworkflow-driven activities and information to the appropri-ate managers and ensuring that steps are completed in se-quence and on schedule.19

BPM software allows different users to be given differentroles in the work process. For example, users who are respon-sible for completing a task within the process are designatedthe role of “task owner,” while users who are responsible formanaging the process are designated as “process owners.” Theroles are configurable and can be determined by the companyand set by the systems administrator. By using BPM softwareto associate, or assign, each step with the individual respon-sible for that particular task, tasks can be monitored for qual-ity and completeness. Task owners receive instructions andinput forms via e-mailed alerts. They can then modify orcreate new forms, reports, workflows, and metrics for continu-ous improvement—no recoding or IT support is required.Figure 6 shows a configurable workflow engine that allowsnontechnical users to easily prototype, automate, and man-age role-based tasks.

Metrics and process owners can also receive e-mail andworkflow driven tasks and functions based on their prede-termined role. With the proper entitlements (i.e., permissionsset by a systems administrator), the tasks and scorecards ofother team members can be shared. These real-time scorecards

can be easily configuredto an individual user’sneeds and also allow forbenchmarking analysis.For example, users canselect metrics that affecttheir role and comparethem with internal andexternal benchmarks.Users can also run reportsthat verify that the datahas been verified andvalidated.14

Step 5: Unleash theEPM Engine

After aligning EH&S strat-egy, metrics, and associated business processes, an EPM en-gine allows users to view data, gather more information abouta process, or take action by assigning responsibility, due dates,and data input forms for each step. Industry-specific key per-formance indicator (KPI) templates and balanced EH&Sscorecard models help accelerate implementation times andcan be automatically populated with data from existing enter-prise and EH&S systems. Users can also view single central-ized management reports of outstanding issues, necessaryactions, or tasks. The core capabilities and components of a best-of-breed EPM engine are outlined in Figure 7. These include adigital dashboard, which organizes and presents information inan easy-to-read format and provides target setting, trending, taskmanagement, and drillable metrics capabilities (i.e., the capabil-ity to retrieve data from the source to the validation log); knowl-edge management (i.e., the management of information); andcollaboration components, which help disseminate externalregulatory or internal best-practice information.

Step 6: Cascade Metrics OwnershipGlobal organizations are typically composed of many differ-ent businesses and facilities dispersed in various geographiclocations, each with very different EH&S strategies. Each facil-ity should have its own scorecard that links to the objectivesof the business unit and the overall corporate strategy. In thefinal step of scorecard design, the digital dashboard is used tocascade, or stagger, metrics ownership horizontally and verti-cally across complex organizations. This enables organizationsto work together and share ownership or responsibility forperformance data. A digital dashboard helps corporationsachieve this with drill-down capabilities, automated alerts, ande-mail notifications.

An enterprise metric (i.e., a metric that is relevant acrossmultiple facilities or business units) and process owner isselected for each process. A cascading metric (i.e., a metric

Figure 5. Leading and lagging indicators for injury and illness management.

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EMJune 2003 25

that will be shared throughout an organization) will have mul-tiple managers and facilities that will share in the failure orsuccess of any set targets. These owners help determine thecascading structure and communicate strategy.20

To support the cascading process, the enterprise metric owner• determines which business units and facility managers

own the submetrics that contribute to the success ofthe cascading metric;

• identifies each manager’s specific contributions tomeeting set targets;

• monitors interpretation and feedback procedures (e.g.,monthly metrics meetings and reports); and

Figure 6. EH&S business process management.

Figure 7. Core capabilities and components of an EPM engine.

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• reviews corrective action and continuous improve-ment plans.

Each manager will have access to his or her own digitaldashboard to manage priorities according to the corporatescorecard and monitor tasks and performance. Figure 8 showshow individual division or business unit scorecards supportmultilevel performance management.

CLOSING THE GAP BETWEENSTRATEGY AND EXECUTIONCorporations can continue to track performance and makenecessary improvements once a balanced EH&S scorecard hasbeen deployed. To track performance, companies must con-tinually address the following questions:

• Are EH&S objectives translated from the top organi-zational strategy to accountable staff and across func-tional lines?

• Are key metrics tied to the organization’s strategicobjectives?

• Are metric owners held accountable if metrics under-perform their goals?

• Are all the key metrics accessible or delivered to own-ers and managers on the required periodic basis?

• Is the status of metric vs. goals quickly and easilydiscernable by each owner?

• Can managers easily determine if existing initiativesare on schedule?

Applying a phased implementationplan will help reduce implementationand technology risks and enable organi-zations to learn how to effectively assignmetric accountability and determinemonitoring, interpretation, and feedbackprocedures. This process will enable us-ers to analyze results, identify areas ofsystem deficiency, correct any workflowissues, and begin the process of rollingout new metrics. Other common pitfallsto avoid include a lack of commitmentfrom senior management; a solution thatis geared toward the needs of senior man-agement only (i.e., does not reflect theneeds of plants/facilities); and a develop-ment process that is too long.

Business leaders have succeeded by“just doing it,” that is, improving andautomating what they are doing, whilethey are doing it, and optimizing the pro-cess in subsequent phases. Flexibility andan initial, unwavering commitment tochange are critical for success.3

CONCLUSIONToday, sustainable performance is not derived from strategy,but rather from execution. Given the accelerating pace ofchange, leaders must achieve success by first creating a strat-egy-focused map to plan the journey. A map that is based ona balanced EH&S scorecard approach will help embed long-term strategy into the measurement system; transform strat-egy into an effective communication tool; and provide abalanced perspective to translate strategy into clear, execut-able objectives.

To translate EH&S strategy into action, a corporationshould consider a Web-based EPM engine to integrate, man-age, and deliver information quickly and cost-effectively.By leveraging existing data and process assets, a Web-basedEPM engine provides a common platform for reporting,multilevel metrics-based management, and improved workprocesses. The engine must be flexible enough to continu-ally re-align strategy as new stakeholder and business needsevolve and to scale to meet the increasing size, scope, andcomplexity of data management needs. Even as businessesare sold, bought, and reorganized, the integrity of the datamust be maintained.

In the end, measurable results and business process devel-opment drive continuous improvement by changing organi-zational behavior. A properly executed and balanced EH&Sscorecard approach will help every employee at every level inthe organization understand the EH&S strategy and how to

Figure 8. Cascading metrics support multilevel performance management.

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About the AuthorGreg R. Peterson is vice president of sales and marketing at EcosTechnologies. He holds B.S. and M.S. degrees in environmentalscience from the Indiana University of Pennsylvania. Peterson is apast chair of the Environmental Committee for the PennsylvaniaChamber of Business and Industry in Pittsburgh, and has held lead-ership positions in the Pittsburgh High Technology Council, KatzBusiness Alliance for the Katz Graduate School of Business at theUniversity of Pittsburgh, and the Air & Waste Management Asso-ciation. He can be reached via e-mail at [email protected].

support it. A real-time performance management solution laysthe foundation that guides management toward productivityimprovements, operational efficiency, risk reduction, andsustainable performance.21

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