Performance measurement is a subject area that most people within the organisation do not fully understand. To some, performance measurement means measuring people (performance appraisal), to some, measurement of processes and outcomes, and to others it is just a fad. I personally would associate myself with that group of people who view performance measurement as the measurement and continuous improvement of processes and outcomes.
In almost every organisation, defining what to measure is often seen as a daunting and boring task leading to many mistakes or no buy-in from senior management and other employees.
Avoiding one or more of the following mistakes, will help organisations define those measures that really matter and provide an insight into decision-making:
1. Senior management not communicating the strategy to people down the management hierarchy:
Making it clear to people what the organisation’s vision, mission, goals and strategies are in simple language will make it easier to select measures. By beginning with the end in mind, it becomes easier to define measures that are centred on the outcomes.
2. Using same measures as those used by other organisations in your industry:
Just because you are in the same industry or provide the same services/ products as Company B doesn’t mean that your performance measures are the same. The starting point is understand your own business, why you are in existence and who your stakeholders are. By asking your stakeholders what they expect from the business, this will help your organisation measure and improve those attributes.
3. Having too many Key Performance Indicators (KPIs):
Performance measurement is all about identifying those important attributes that are important to the future success of the organisation, collecting data on them, analysing and interpreting that data to aid better decision making. By having too many KPIs, there is a risk of spending a lot of time just gathering and gathering and storing and storing raw data and not processing it to find useful insights.
4. Focusing only on financial performance measures:
There is always this myth that only what is easy to measure or only that which can be quantified in monetary terms should me measured. Financial measures such as ROI, ROCE etc are important but there should also be a consideration of non-financial measures such as customer loyalty, customer satisfaction, brand strength etc.
Examples of questions that should be asked are, “On a scale of say 1-10, how satisfied are our customers with our product or service offering?” Or how strong is our brand image in our chosen market and what should we be doing to improve and strengthen its image? There should be a balance between measures of financial performance and measures of non-financial performance.
Other than the four mistakes above, what other mistakes have you experienced within your organisation when it comes to defining performance measures?