Building block model for ACCA PM. by Fitzgerald and Moon
Building block model for ACCA PM.
If you have studied the balanced scorecard for ACCA PM, you will have noticed a significant limitation: it tells you what to measure but says nothing about how to set targets or how to motivate people to achieve them. The building block model was created to fill precisely that gap.
Fitzgerald and Moon developed this framework after studying performance measurement challenges in service businesses—hotels, consultancies, healthcare providers, and professional firms—where output is intangible, quality depends on human interactions, and traditional financial metrics miss what truly drives success. For ACCA PM candidates, this framework sits alongside the balanced scorecard in Syllabus Section E and appears regularly in both MCQ and constructed-response questions.
This guide breaks down all three building blocks with exam-focused detail, walks through a worked scenario, and highlights the specific mistakes the examiner has flagged. If you are also revising bottleneck resource decisions, see our companion guide on the throughput accounting ratio.
What Is the Building Block Model?
The building block model is a performance measurement framework introduced by Fitzgerald and Moon (1996). Its fundamental insight is that measuring performance in service organisations requires three interconnected components—not just a list of metrics, but a complete system that connects measurement to target-setting to motivation.
The three building blocks are:
- Dimensions: What aspects of performance should be measured? (Six dimensions, split into Results and Determinants)
- Standards: How should targets be set for each dimension? (Three criteria: ownership, achievability, equity)
- Rewards: How should staff be motivated to achieve those targets? (Three criteria: clarity, motivation, controllability)
The model's strength is that it addresses performance measurement as a system. You can have perfect dimensions, but if standards are imposed without consultation (no ownership) or rewards are unclear, the system fails. Equally, generous rewards tied to the wrong dimensions will drive dysfunctional behaviour. All three blocks must work together.
Building Block 1: Dimensions of Performance
The first building block identifies six dimensions of performance that service organisations should measure. Critically, these are split into two categories that have a cause-and-effect relationship:
Results (Downstream Dimensions)
These measure outcomes—the end results of the organisation's activities. They are backward-looking and tell you what has already happened.
- Competitiveness: How well the organisation performs relative to its competitors. Measured through relative market share, sales growth rate, number of new customers acquired, and win rates on competitive tenders.
- Financial Performance: Traditional financial metrics including profitability, revenue growth, liquidity ratios, and return on capital employed. These are the ultimate measures of whether the organisation is financially sustainable.
Determinants (Upstream Dimensions)
These measure the drivers of future results. They are forward-looking and explain why results are what they are. If determinants deteriorate, results will eventually follow.
- Quality of Service: The reliability, responsiveness, aesthetics, and courtesy of the service delivered. In a hotel, this might include room cleanliness ratings, response time to guest requests, and complaint resolution speed. In a consultancy, it could be report accuracy and client feedback scores.
- Flexibility: The organisation's ability to adapt to changing demands. Volume flexibility (handling demand peaks without service degradation), delivery speed flexibility (adjusting timelines), and specification flexibility (customising services to individual client needs).
- Resource Utilisation: How efficiently the organisation uses its people, equipment, and capacity. Staff utilisation rates, room occupancy percentages, equipment uptime, and capacity usage ratios all fall here.
- Innovation: The organisation's ability to develop new services, improve existing processes, and adapt to market changes. Measured through the number of new services launched, percentage of revenue from services introduced in the last two years, and investment in research and development.
What happened — backward-looking
- Competitiveness — market share, sales growth
- Financial Performance — profitability, ROI, liquidity
What drives results — forward-looking
- Quality of Service — reliability, responsiveness, courtesy
- Flexibility — volume, delivery speed, specification
- Resource Utilisation — productivity, capacity usage
- Innovation — new services, process improvements
Determinants drive Results. If quality, flexibility, resource utilisation, or innovation decline, competitiveness and financial performance will eventually follow.
| Dimension | Category | What It Measures | Example KPIs |
|---|---|---|---|
| Competitiveness | Result | Market position relative to competitors | Relative market share, sales growth rate, new customer acquisitions |
| Financial Performance | Result | Financial health and profitability | Net profit margin, ROCE, revenue per employee, liquidity ratios |
| Quality of Service | Determinant | Service reliability and customer experience | Customer satisfaction score, complaint rate, first-contact resolution rate |
| Flexibility | Determinant | Ability to adapt to changing demands | Capacity to handle demand surges, turnaround time for custom requests |
| Resource Utilisation | Determinant | Efficiency of resource deployment | Staff utilisation rate, room/seat occupancy, revenue per available unit |
| Innovation | Determinant | Capacity for improvement and new offerings | New services launched per year, % revenue from new services, R&D spend ratio |
Building Block 2: Standards
Once you know what to measure (dimensions), you need to know how to set targets for each dimension. This is where the building block model diverges most significantly from the balanced scorecard, which offers no guidance on target-setting.
Fitzgerald and Moon argue that effective standards must satisfy three criteria:
Ownership
Targets should be agreed upon with the managers who are responsible for achieving them—not imposed from above. Managers who participate in setting their own targets are more likely to accept them as fair, feel committed to achieving them, and understand the reasoning behind them. Top-down targets imposed without consultation breed resentment and encourage gaming behaviour, where managers manipulate figures to appear compliant rather than genuinely improving performance.
Achievability
Targets must be challenging but realistic. If standards are set too high, managers become demotivated because they believe the target is impossible regardless of their effort. If standards are set too low, there is no incentive to improve. The ideal target stretches performance without being demoralising. In practice, this means targets should be informed by historical performance data, industry benchmarks, and an honest assessment of current capabilities.
Equity
Targets should be fair and consistent across comparable divisions, departments, or individuals. If one hotel in a chain is set a much tougher occupancy target than another hotel of similar size and location, the manager of the first hotel will rightly perceive the system as unfair. Perceived inequity destroys motivation and trust in the performance measurement system. Standards should account for differences in circumstances (location, market conditions, resource availability) rather than applying a single blanket target.
| Standards Criterion | Meaning | What Happens Without It | Exam Application |
|---|---|---|---|
| Ownership | Targets agreed with responsible managers through participation | Resentment, gaming, manipulation of reported figures | If the scenario mentions targets imposed by head office, recommend participative target-setting |
| Achievability | Targets are challenging but realistic given current capabilities | Demotivation (too hard) or complacency (too easy) | If the scenario shows staff failing targets repeatedly, question whether targets are achievable |
| Equity | Targets are fair and comparable across similar units | Perceived unfairness, loss of trust, inter-divisional conflict | If the scenario compares two divisions with different targets, evaluate whether the difference is justified |
Building Block 3: Rewards
The final building block addresses how to motivate employees to achieve the standards set for each dimension. This is the behavioural component that makes the building block model particularly relevant for service organisations, where employee attitude and effort directly affect the customer experience.
Effective rewards must satisfy three criteria:
Clarity
Employees must understand exactly how the reward system works. Which behaviours are rewarded? How is performance assessed? What is the link between hitting a target and receiving a reward? If the system is opaque or overly complex, employees cannot adjust their behaviour to earn rewards. The reward scheme should be communicated clearly and consistently. Too many KPIs with unclear weightings create confusion rather than motivation.
Motivation
Rewards must be sufficiently attractive to influence behaviour. This goes beyond financial bonuses—recognition, career development opportunities, additional responsibilities, and public acknowledgement can all serve as motivators. The key is that the reward must be valued by the employee. A bonus scheme where the maximum payout is trivial relative to the effort required will not change behaviour. Equally, non-financial rewards such as flexible working or training opportunities may motivate some employees more effectively than cash.
Controllability
Employees should only be assessed and rewarded for factors they can influence. Holding a hotel manager responsible for occupancy rates during a pandemic—a factor entirely outside their control—is demotivating and unfair. The controllability principle means separating controllable performance (service quality, staff management, operational efficiency) from uncontrollable external factors (economic conditions, competitor actions, regulatory changes). Where external factors are significant, standards and rewards should be adjusted accordingly.
| Rewards Criterion | Meaning | What Happens Without It | Exam Application |
|---|---|---|---|
| Clarity | Staff understand exactly what is rewarded and how | Confusion, inconsistent behaviour, disengagement | If the scenario describes staff unaware of bonus criteria, recommend clearer communication |
| Motivation | Rewards are sufficiently attractive to influence behaviour | Apathy, no behavioural change, targets ignored | If the scenario mentions low staff engagement despite a bonus scheme, question whether rewards are meaningful |
| Controllability | Staff judged only on factors within their control | Perceived unfairness, demotivation, blame culture | If the scenario penalises managers for external factors (e.g., economic downturn), recommend separating controllable from uncontrollable variances |
What to measure
Results: Competitiveness, Financial Performance
Determinants: Quality, Flexibility, Resource Utilisation, Innovation
How to set targets
Ownership — agreed, not imposed
Achievability — stretching but realistic
Equity — fair across comparable units
How to motivate staff
Clarity — understood by all
Motivation — attractive enough to change behaviour
Controllability — only for factors staff can influence
How the Three Building Blocks Work Together
The power of the building block model lies in the interdependence of its three components. Each block supports the others, and weakness in any one block undermines the entire system.
Consider a law firm that identifies "client satisfaction" as a key quality dimension. They set a target of 90% satisfaction rating on post-engagement surveys (Standard). They then offer a quarterly bonus to partners whose teams achieve the target (Reward). For this system to work:
- The dimension must be relevant—client satisfaction genuinely drives repeat business and referrals (it does).
- The standard must be owned (partners helped set the 90% target), achievable (historical average is 85%, so 90% is stretching but realistic), and equitable (all practice areas use the same survey methodology).
- The reward must be clear (partners know exactly which survey feeds the calculation), motivating (the bonus is meaningful relative to base compensation), and controllable (partners can influence satisfaction through responsiveness, quality of advice, and client relationship management).
If any element breaks down—say the 90% target was imposed by head office without consultation (no ownership)—partners may game the system by only sending surveys to satisfied clients, or may disengage entirely because they view the target as arbitrary. The dimension is right, but the standard fails.
Building Block Model vs Balanced Scorecard
This comparison appears frequently in ACCA PM exams. Blog 2 in our series covered the balanced scorecard in full detail. Here we focus on the key differences that the examiner expects you to articulate.
| Feature | Building Block Model | Balanced Scorecard |
|---|---|---|
| Creators | Fitzgerald & Moon (1996) | Kaplan & Norton (1992) |
| Designed for | Service organisations specifically | All organisation types |
| Structure | 3 blocks: Dimensions, Standards, Rewards | 4 perspectives: Financial, Customer, Internal Process, Learning & Growth |
| What to measure | ✅ 6 dimensions (Results + Determinants) | ✅ 4 perspectives |
| How to set targets | ✅ Standards block (ownership, achievability, equity) | ❌ Not addressed |
| How to motivate staff | ✅ Rewards block (clarity, motivation, controllability) | ❌ Not addressed |
| Cause-and-effect chain | ✅ Results driven by Determinants | ✅ Learning → Process → Customer → Financial |
| Behavioural considerations | ✅ Explicit (Standards + Rewards) | ❌ Not explicit |
| Best used when | Service company scenario with staff motivation or target-setting issues | Any organisation needing a holistic performance measurement framework |
Advantages of the Building Block Model
- Addresses behavioural factors: Unlike the BSC, the building block model explicitly considers how targets should be set and how staff should be motivated. This makes it a more complete performance management system, not just a performance measurement system.
- Tailored for services: The six dimensions—particularly quality, flexibility, and innovation—capture the intangible factors that drive success in service organisations far better than traditional financial metrics.
- Results-Determinants distinction: Separating backward-looking results from forward-looking determinants helps managers identify where to intervene. If financial results are declining, the model directs attention to the determinant dimensions to find the root cause.
- Prevents dysfunctional behaviour: The Standards and Rewards blocks, when properly applied, reduce the risk of gaming, short-termism, and measure fixation that plague poorly designed performance systems.
- Comprehensive framework: By combining what to measure, how to set targets, and how to motivate, the model provides a complete toolkit that managers can apply without needing to bolt on separate motivation theories.
Disadvantages and Limitations
- Designed for services only: The model was specifically developed for service organisations. While its principles can be adapted for manufacturing or mixed businesses, it does not translate as cleanly as the more universal balanced scorecard.
- Complexity of implementation: Designing standards that are simultaneously owned, achievable, and equitable across all dimensions and all departments is demanding. In practice, achieving perfect equity between divisions with different market conditions is extremely difficult.
- Subjectivity in determinant measures: Quality of service, flexibility, and innovation are inherently harder to quantify than financial performance. Selecting appropriate KPIs for these dimensions involves judgement, and poorly chosen measures can distort performance assessments.
- Does not specify exact KPIs: The model provides a framework for thinking about performance measurement, but it does not prescribe specific measures for each dimension. Managers must still decide which KPIs to use—and may choose poorly.
- Potential tension between dimensions: Maximising resource utilisation may conflict with maintaining flexibility. Running at full capacity (high utilisation) leaves no slack to handle unexpected demand surges (low flexibility). The model acknowledges multiple dimensions but does not resolve trade-offs between them.
Worked Example: Building Block Model for an Accountancy Firm
Let us apply the full building block model to a scenario similar to those that appear in ACCA PM exams.
Precision Partners is a mid-sized accountancy firm offering audit, tax advisory, and consultancy services. The firm has experienced declining client retention over the past two years, with key clients moving to competitors who offer faster turnaround times and more innovative advisory services. Staff utilisation rates are high at 92%, but employee satisfaction surveys show declining morale. Senior management sets annual revenue targets for each department without consulting department heads, and the bonus scheme is based solely on billable hours—regardless of client satisfaction or service quality. Staff turnover has risen to 28%.
Here is how you would apply all three building blocks to Precision Partners. Notice how each block connects to specific problems identified in the scenario.
Block 1: Dimensions — What to Measure
| Dimension | Category | Suggested KPI for Precision Partners | Justification |
|---|---|---|---|
| Competitiveness | Result | Client retention rate (%); number of new client wins per quarter | Directly addresses declining client retention—the firm's core problem |
| Financial Performance | Result | Revenue per partner; profit margin per service line | Tracks financial health at a granular level—reveals which service lines are underperforming |
| Quality of Service | Determinant | Post-engagement client satisfaction score (1–10); error rate in audit reports | Clients are leaving—measuring service quality identifies whether the service itself is the problem, not just price or speed |
| Flexibility | Determinant | Average turnaround time for client deliverables; ability to accommodate urgent requests within 48 hours | Competitors win on faster turnaround—flexibility is a critical competitive weakness |
| Resource Utilisation | Determinant | Staff utilisation rate (%); ratio of billable to non-billable hours | Already at 92%—potentially too high, leaving no capacity for flexibility or innovation. Over-utilisation may be causing the problems |
| Innovation | Determinant | Number of new advisory service offerings per year; % of revenue from services launched in past 24 months | Competitors offer more innovative advisory services—innovation is a stated reason clients are leaving |
Block 2: Standards — How Targets Should Be Set
| Current Problem at Precision Partners | Standards Criterion Violated | Recommended Improvement |
|---|---|---|
| Revenue targets set by senior management without consulting department heads | Ownership — targets are imposed, not agreed | Involve department heads in annual target-setting process. Use participative budgeting so managers feel committed to the targets they helped create. |
| Declining morale suggests staff feel overwhelmed by 92% utilisation demands | Achievability — current performance expectations may be unsustainable | Review utilisation targets downward to 85% to create capacity for flexibility and innovation. Set quality and innovation targets alongside volume targets. |
| All departments face the same revenue targets regardless of market conditions for each service line | Equity — blanket targets ignore differences between service lines | Differentiate targets by service line. Tax advisory in a period of regulatory change may have more growth opportunity than audit in a mature market. Adjust targets to reflect these differences. |
Block 3: Rewards — How to Motivate Staff
| Current Problem at Precision Partners | Rewards Criterion Violated | Recommended Improvement |
|---|---|---|
| Bonus scheme based solely on billable hours | Clarity — while the current metric is clear, it signals that only volume matters, not quality or innovation | Redesign the bonus to include client satisfaction scores and innovation contributions alongside billable hours. Communicate the new criteria clearly to all staff. |
| Staff turnover at 28% despite high utilisation—suggests staff are working hard but not feeling rewarded appropriately | Motivation — rewards do not adequately recognise effort or align with what staff value | Introduce non-financial rewards: career development pathways, training budgets, recognition programmes for innovative client solutions. Consider flexible working arrangements to address burnout. |
| Bonuses tied to billable hours, which are partly driven by client demand (external factor) rather than solely by individual effort | Controllability — staff rewarded for a metric partly outside their control | Supplement billable hours with controllable metrics such as client feedback scores, adherence to quality standards, and personal development goals achieved. These are within the individual's control. |
This worked example demonstrates how all three building blocks interconnect. The Dimensions analysis reveals that high resource utilisation is undermining flexibility and innovation (the root causes). The Standards analysis shows that imposed, one-size-fits-all targets contribute to low morale. The Rewards analysis reveals that a billable-hours-only bonus scheme drives volume at the expense of quality and innovation—precisely the behaviours causing clients to leave. A complete answer covers all three blocks and links them to the scenario.
ACCA PM Examiner Insights: What Students Get Wrong
- Only discussing Dimensions: The most frequent error. Students describe the six dimensions in detail but completely ignore Standards and Rewards. The building block model has three blocks—you must address all three for full marks.
- Confusing building blocks with balanced scorecard perspectives: The six dimensions are not the same as the four BSC perspectives. Do not mix the terminology. Competitiveness is a dimension, not a perspective. Learning & Growth is a BSC perspective, not a building block dimension.
- Generic answers not linked to the scenario: As with the balanced scorecard, listing textbook definitions without applying them to the specific company described earns minimal marks. Every KPI and every recommendation must reference the scenario.
- Not explaining Results vs Determinants: Students list all six dimensions as a flat list. The examiner expects you to classify them into Results and Determinants and explain why the distinction matters—determinants are the actionable levers that drive future results.
- Ignoring dysfunctional behaviour: When a question describes staff gaming targets or focusing on easily measured metrics while ignoring harder-to-measure dimensions, this is a cue to discuss the Standards and Rewards blocks. Students who miss this cue lose significant marks.
For a broader perspective on how to avoid losing marks across all PM topics, see our comprehensive guide on 10 fatal ACCA PM mistakes that destroy student dreams.
How to Answer Building Block Model Questions in ACCA PM
Building block model questions typically fall into three formats. Here is how to approach each one:
Type 1: "Apply the building block model to the scenario"
This is the most comprehensive format and requires you to address all three blocks. Structure your answer with three clear sections—Dimensions, Standards, Rewards—each with scenario-specific content. For Dimensions, suggest at least one KPI per dimension and explain why it is relevant. For Standards, identify whether current targets meet the ownership, achievability, and equity criteria. For Rewards, evaluate the existing reward system against clarity, motivation, and controllability. Budget your time across all three blocks rather than spending everything on Dimensions.
Type 2: "Identify appropriate performance measures using the building block model"
This format focuses primarily on the Dimensions block. Classify your suggested measures into Results and Determinants. For each measure, include a brief justification explaining why it matters for this specific company. Even when the question focuses on dimensions, a brief mention of how standards and rewards should support these measures demonstrates higher-level understanding and can earn additional marks.
Type 3: "Evaluate the company's current performance measurement system"
This format asks you to critique an existing system using the building block model as your analytical framework. Identify which dimensions are currently measured and which are missing. Assess whether current targets meet the standards criteria. Evaluate whether the reward system drives the right behaviours. This type of question often contains deliberate flaws—imposed targets, rewards tied to easily manipulated metrics, missing determinant measures—that you are expected to identify and recommend improvements for.
- ✅ Address ALL THREE building blocks—not just Dimensions
- ✅ Classify dimensions into Results (competitiveness, financial) and Determinants (quality, flexibility, resource utilisation, innovation)
- ✅ Explain the Results-Determinants relationship: determinants drive future results
- ✅ Tailor every KPI and recommendation to the specific scenario
- ✅ For Standards, assess ownership, achievability, and equity of current or proposed targets
- ✅ For Rewards, evaluate clarity, motivation, and controllability
- ✅ Identify tensions between dimensions (e.g., utilisation vs flexibility) where the scenario supports it
- ✅ Discuss dysfunctional behaviour risks if the question describes gaming or measure fixation
- ✅ Do not confuse building block terminology with balanced scorecard terminology
Dysfunctional Behaviour and the Building Block Model
One of the building block model's most exam-relevant applications is explaining dysfunctional behaviour—situations where staff manipulate or game the performance measurement system rather than genuinely improving performance. This topic connects directly to the Standards and Rewards blocks.
Dysfunctional behaviour arises when:
- Targets lack ownership: Managers who did not participate in setting targets feel no commitment to achieving them legitimately. They may manipulate reported figures, delay expenditure to meet short-term financial targets, or shift costs between periods.
- Targets are unachievable: When staff believe a target is impossible, they stop trying to reach it. Alternatively, they may take unethical shortcuts to appear compliant—for example, a call centre reducing average call handling time by hanging up on complex queries rather than resolving them.
- Rewards lack controllability: When bonuses depend on factors outside the employee's control, staff feel the system is a lottery rather than a meritocracy. This breeds cynicism and disengagement.
- Measure fixation: When rewards are tied to a narrow set of metrics, staff focus exclusively on those metrics while ignoring everything else. In the Precision Partners scenario, rewarding only billable hours causes staff to maximise hours billed while neglecting client satisfaction, innovation, and their own professional development.
In the ACCA PM exam, if the scenario describes any of these behaviours, the building block model provides the analytical framework to diagnose the problem (which Standards or Rewards criterion is violated?) and recommend solutions (how should standards or rewards be redesigned?). This connects naturally to the broader topic of transfer pricing in ACCA PM, where dysfunctional behaviour often arises from divisional targets that incentivise sub-optimal decisions for the organisation as a whole.
How the Building Block Model Connects to Other PM Topics
- Balanced scorecard: The balanced scorecard and building block model are companion frameworks. The BSC excels at identifying what to measure across four perspectives; the building block model adds how to set targets and how to motivate. In a comprehensive exam answer, you might recommend the BSC for the measurement framework and borrow the Standards and Rewards principles from the building block model for implementation guidance.
- Throughput accounting: In a manufacturing or mixed-service scenario, resource utilisation as a building block dimension connects to throughput accounting concepts. Understanding how bottleneck resources constrain output helps you set more realistic utilisation standards.
- Transfer pricing: The controllability principle in the Rewards block directly relates to transfer pricing questions. Divisional managers should not be rewarded or penalised for financial results distorted by transfer pricing policies they did not set.
- Big data analytics: Modern service organisations use big data analytics to track determinant dimensions in real time—customer sentiment analysis for quality, demand forecasting for flexibility, and productivity dashboards for resource utilisation.
- Budgeting and variance analysis: The ownership criterion in Standards connects directly to participative budgeting. If managers participate in setting their budgets (ownership), they are more likely to be motivated by budget-related performance targets.
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