Performance Measurement can be best understood through considering the definitions of the words ‘performance’ and ‘measurement’ according to the Baldrige Criteria:

  • Performance refers to output results and their outcomes obtained from processes, products, and services that permit evaluation and comparison relative to goals, standards, past results, and other organisations. Performance can be expressed in non-financial and financial terms.

  • Measurement refers to numerical information that quantifies input, output, and performance dimensions of processes, products, services, and the overall organisation (outcomes). Performance measures might be simple (derived from one measurement) or composite.

The challenge for organisations today is how to match and align performance measures with business strategy, structures and corporate culture, the type and number of measures to use, the balance between the merits and costs of introducing these measures, and how to deploy the measures so that the results are used and acted upon.

One of more popular method is: the Balanced Scorecard, the PMA presented evidence that 39% of FTSE 100 companies were actively using the scorecard, and other researchers have reported that between 40% and 60% of Fortune 1000 companies have attempted to implement the Balanced Scorecard. With the movement away from financially based measurement systems only gaining momentum in the early 1990’s this represents a significant change in organisational practices in such a short space of time.

Challenges associated with the Performance Measurement approach? 

Five common features of out-dated performance measurements systems were:

  • Dominant financial or other backward-looking indicators
  • Failure to measure all the factors that create value
  • Little account taken of asset creation and growth
  • Poor measurement of innovation, learning and change
  • A concentration on immediate rather than long-term goals

The focus in performance measurement is now on achieving a balanced framework that addresses the issues described above. Examples of these new frameworks are Kaplan and Norton’s Balanced Scorecard, Skandia’s navigator model and the Performance Prism. Others recommend that the results sections of business excellence models should be used to generate a balanced set of performance measures.

Challenges associated with designing an effective Performance Measurement System: 

  • How to measure non-financial performance
  • What measures to choose and why
  • How to use them – what to do with the results
  • Who should be responsible for using the results
  • How and to whom, to communicate the results
  • The resources needed to consider the above and design and deploy the measurement system

There are other major requirements that an organisation needs to consider before an effective performance measurement system can be designed or installed.

All measures need to be chosen to support the attainment of specific performance or behaviour identified by the organisation’s leaders as important or necessary to work towards the organisational goals.

This being the case, there must be clearly defined goals/objectives and strategies chosen to reach them before measures can be chosen to support their attainment. Similarly the key processes, drivers of performance, and the core competencies required by employees need to be identified before effective performance measurement can be achieved.

The importance of performance measurement has increased with the realisation that to be successful in the long-term requires meeting all stakeholders’ needs including customers, consumers, employees, suppliers, local community stakeholders, and shareholders.

While the importance of performance measurement is difficult to quantify it is evident that in virtually all texts, research, and case studies on organisational improvement, that performance measurement plays a central role. It is worth noting that performance measurement is a requirement for benchmarking and business excellence.

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