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According to Rose (1995) performance measurement "is the language of progress" for any organization. Rose projects three key attributes for measuring performance; firstly, " it indicates where the organization is and where it is heading", secondly, "it functions as a guide to whether the organization is en route to achieving its goals", and thirdly "it is a powerful behavioral tool since it communicates to the employee". Rose further notes it indicates what is "important and what matters for the achievement of the organization's goal.
Furthermore based on previous literature once one has defined performance management, one must consider what the measurements of performance management are, which will be discussed below.
Measuring Performance Management
There are six fundamental measurements of performance management (REFERENCE); 1) the significance of performance both the absolute and widely interpreted, 2) what is possessed and carried off by the teams in the organization, 3) the importance of data integrity, 4) data assembling is embedded within the normal operations, 5) the capability to cause betterment and 6) associated to vital goals and key drivers of the organization. Once these measurements are in place, the benefits are copious for any organization.
Benefits of Performance Measures
Craig Stevens gives the Nine benefits of performance measures; 1) Satisfied customers. 2) Effective and satisfied employees, 3) continuous process improvement, 4) increased profits, 5) Enhanced reputation, 6) Innovation, 7) Effective management, 8) Enhanced capacity for individual cooperation, 9) enhance ability to recognize and reward extraordinary individual performance.
Bititci, Carrie and Turner (2002) gives the following reasons companies' need to measure business performance are to 1) monitor and control, 2) drive improvement, 3) maximize the effectiveness of improvement effort 4) achieve alignment with organizational goals and objectives 5) reward and to discipline.
According to Victor Dingus (1990)
"What make sports or work fun? Everyone Knows The Rules and Everyone Knows the Score."
According to Shycoff,D.B
"The principle purpose of performance measures is to gauge progress against stated program goals and objectives, presupposing that the strategic program objectives are known."
Why we measure performance?
Why measure performance? Many authorities on the subject have provided answers to this question.
Some of them are quoted below.
According to the The National Performance Review (NPR)
" Performance measurement yields many benefits for an organization. One benefit is that it provides a structured approach for focusing on a program's strategic plan, goals, and performance. Another benefit is that measurement provides a mechanism for reporting on program performance to upper management."
According to the The U.S. Department of Energy proposes
" Performance measurement improves the management and delivery of products and services. A recent opinion poll asked a group of adults what they thought the Federal government's top priority should be. Almost half wanted emphasis put on better management. In a world of diminishing resources, improving management of programs and services is critical"
According to the The General Services Administration's (GSA's)
" Measurement focuses attention on what is to be accomplished and compels organizations to concentrate time, resources, and energy on achievement of objectives. Measurement provides feedback on progress toward objectives. If the results differ from the objectives, organizations can analyze gaps in performance and make adjustments"
Wisner and Fawcett gives a nine-step process for developing a performance measurement system:
Defining the mission statement of the firm clearly.
Identify the strategic targets and objectives of the firm by using the mission statement (market share,quality,dependability, profitability,cost, flexibility,and innovation).
Develop an understanding of each of the operational area's functions in achieving the several strategic aims.
For each functional area, prepare global performance measurements that are capable of specifying the firm's total competitive position to top management.
Communicate performance goals and strategic objectives to lower levels in the organization. Establish more specific performance measures and its criteria at each level.
Ensure consistency with strategic objectives amongst the performance measures and criteria used at each level.
Ensure the compatibility of performance measures used in all functional areas.
Use the performance measurement system to identify competition, locate problem areas, assist the firm in updating strategic objectives and making tactical decisions to achieve these objectives, and supply feedback after the decisions are implemented.
Periodically reassess the appropriateness of the established performance measurement system in view of the current competitive environment.
In the end, it's of significant importance that the performance measurement systems practiced by employees in the organizations be revised and improved continually as the environment and economy alters. If they failed to establish,then the essential modifications can inhibit the ability of the organization to be an efficient and effective global competitor.
Simmons (2000) views business performance measurement as an instrument to balance five major stresses within a firm:
1. Balancing benefit, development and control
2. Balancing short-term outcomes against long-term capacities and growth chances
3. Balancing performance expectations of unlike constituencies
4. Balancing chances and attention
5. Balancing the needs of human behavior
A simple performance measurement framework
An effective performance measurement model will concentrate on the customer and measure the suitable things.
There are five significant steps in a performance measurement and improvement model - the strategic aims of the organization are turned into suitable measures of performance, metrics are built up to compare the suitable performance with the effective attained standards, gaps are discovered, and improvement activities are started. These steps are continuously carried out and reexamined:
Focus on a few key goals that are critical to the success of the organization or business, and ensure
They are SMART, i.e:
According to Gould, L (1993)
"You have to measure things that are basic. If it's not simple, not easily understood, nor easily tracked, then don't bother measuring it because nobody will ever use it."
The performance measurement revolution - why now?
Bob Eccles(In 1991) anticipated that "within the Incoming five yrs, all companies will have to redesign however it evaluates its business performance". Given the current levels of activity in the area, it Comes out that Bob Eccles' assertion was average, even if his time scale was Compacted. The question that this raises, however, is why now? If the Restrictions of conventional financial measures have been known for some time, then how come a lot of people become so concerned and interested in business performance measurement so recently?
It's not possible to respond to this question definitively, but proves and evidences suggest that there are seven main reasons that are 1) Rising competition, 2) The ever-changing nature of work, 3) Particular improvement initiatives, 4) National and International awards, 5) Changing external necessitates, 6) Power of information technology
It is widely accepted that business performance and its measurement are a multi-faceted concept and Therefore it's not unexpected that over again the query of how business performance can best be measured has been taken on by a variety of people from various disciplines.
There are also significant bodies of literature which explore how important Concepts like customer satisfaction (Parasuraman et al., 1990); employee satisfaction (Beer et al., 1978); innovation (House and Price, 1991); and productivity (Sumanth, 1985) could be measured and assessed. So among the difficulties facing people for entering into this area is, which of the 1000s of potential measures they could acquire, should they adopt?
How to decide which performance measures to adopt?
As already indicated, the issue of which performance measures a given business should acquire is a quite topical and complex thing. Several authors have proposed that measures should be educed from strategy (Keegan et al., 1989). Several authors have suggested performance measurement frameworks which prescribe which attributes of performance organizations should need supervising (Fitzgerald et al., 1991; Kaplan and Norton, 1996). Others have followed another stance and formulated audits which assist organizations to discover the strengths and weaknesses of their measurement systems in terms of "gaps" and "false alarms" (Dixon et al., 1990). While still Other people have admitted the statement that measures have to be derived from strategy and therefore attempted to document processes designed to assist management teams determine and choose which measures are suitable for their organization (Neely et al., 1996).
According to Professor Sir Andrew Likierman(London business School)
"As someone working on ways to improve organizational performance measures, I know how important it is to look for guidance and the best of what others have done. Those looking to improve their choice and use of key performance indicators will find thought provoking ideas and valuable examples of good practice."
Many authors put emphasis on the importance of evaluating the performance measure in order to achieve competitiveness.
Several authors have emphasized the importance for all major businesses of assessing and altering performance measures in order to accommodate to the quickly changing and extremely competitive business surroundings (Eccles, 1991; Kennerley and Neely, 2002). To this end Dixon et al. (1990) formulated the Performance Measurement Questionnaire that is a collection of questions that should help managers discover the improvement requires of their organization, find out to which extent the present performance measures support betterments and establish an agenda for performance measures improvements. Also Medori and Steeple (2000) suggested a model comprising of a performance measurement grid and a checklist for auditing existing performance measures in order to discover the measures no longer applicable or valuable for the company ("false alarms") and the measures that are not being assessed by the company but are all important for the company's success ("gaps"). Another technique for the evaluation and revision of performance measures has been suggested by Tangen (2004). The technique, called "the Performance measurement progression map", is constituted as a flowchart and comprises of nine steps divided into three phases. Phase A concentrates on determining an appropriate and important/useful set of measures; Phase B is concerned with how each individual performance measure is organized, while Phase C includes the actual execution of the outcomes from the previous two phases
Business performance measurement is on the radar screen of business concern managers and academic scholars likewise From 1994, fresh articles and reports about the topic have been coming out at a rate of one every five hours of every working day (Neely, 2002). Online searches on the topic discloses that more than 12 million internet sites dedicated to Business Performance Measure.(Marr and Neely, 2001). Like in several emerging research areas developments are fast and rapid. Past years have seen the development of fresh approaches of performance measurement, such that as activity-based costing (Kaplan and Cooper, 1997) and shareholder value (Rappaport, 1986).
The latest trend in performance management is incorporated of a result-focus(Pulakos, 2008). Organizations progressively focus on attaining results, not just drive towards efficient and effective behaviors. Employees should strive to attain results that contribute to the achievement of organizational objectives and goals. Therefore it's essential to evaluate both the results employees attain as well as how they worked to achieve these, and so their job behavior (Pulakos, 2009)
According to Marvin T. Howell
"It is unbelievable that a world-class organization exists without a metric-based management system. Metrics allow organizations to know where they are, review and evaluate the need for improvement,constantly improve, and then examine processes to ensure that they are working effectively and are under control and produce the desired levels of quality."
An Essential condition to accomplish superior performance standards is being capable to effectively assess and monitor company's performance. As a matter of fact, the truthfulness of some renowned sayings like "What gets measured gets attention" or "What you measure is what you get" is widely accepted both among academics and practitioners (Eccles, 1991; Kaplan and Norton, 1992). Consequently performance measurement systems are viewed as a way to acquire competitive advantages and endlessly respond and adjust to external changes.
Thus performance management constitutes of how organizations put across expectations and drive behavior to accomplish and achieve organization's goals; it is also how organizations discover Uneffective performers for development programs or some other personnel activities (Pulakos, 2009). Performance management is a system, thus comprising of specific principles and steps, which interact and work collectively in an interdependent direction to Attain defined objectives. However, there's no exact or correct way on how to set performance management systems, because for each one of organization has different Demands,needs, structures and models and the organization must value all those, hence its design and execution varies from organization to organization.
Performance measures and indicators must be intentionally linked up to the organization's vision and strategy. The system must efficaciously tie up the vision and strategy with indicators, which find out its achievement a thus require its managing.(Papula, 2008).
Performance measurement (PM) techniques historically developed as a means of monitoring and maintaining organizational control (Nanni, Dixon, & Vollmann, 1990), which is the process of ensuring that an organization pursues strategies that lead to the achievement of overall goals and objectives.Traditional models of PM largely evolved within the large industrial firms of the 1920s (Johnson & Kaplan, 1987), focusing on the achievement of a limited number of key financial measures (for example, earnings per share (EPS), and return on investment (ROI)). However, more recently, evidence from a selection of research disciplines including Management Accounting, Operations Management and Strategy has highlighted increasing dissatisfaction with traditional forms of PM.
Financial and Nonfinancial Measures:
Financial performance measures are used to offer financial information to the managers and additional users, also to assess effectiveness and efficiency. According to Illner and larcker,2003) the finacial measures that can be used commonly are return on investment(ROI),return on capital employed (ROC), return on assets (ROA) and earnings per share.The use of financial measures are important but a lot of researchers indicate that they have a restricted scope.
For example, Ittner and Larcker, (1998); Neely, (1999); Kaplan and Norton, (1996): (2001); and Banker et al, (2000) reason out that there is agreement about the limits of financial measures such as, they're too financially oriented, intrinsic looking, historical and concentrating on inputs not outputs, and are used temporarily. Limitation in financial measure suggests that ,for acquiring success in today's competitive environment,financial measure should be elaborated to integrate the evaluation of an organizations's intangible and intellectual assets such as competent employees,responsive procedures,loyal customers in order to reflect the assets and capabilities(Kaplan and Atkinson, 1998). These measures can be categorized as non-financial performance measures. Moreover, Kaplan and Norton (1996) indicate that measuring only financial measures could damage an organization's capacities and they urge that the best way of assessing and evaluating performance,is to use the combination of both financial and non financial measures.
Kaplan and Norton proposed a strategic performance management tool called Balance Scorecard it proposes that organization need to be viewed from four perspectives, that is financial, customers , learning and innovation, internal business processes and to develop metrics, compile data and examine it according to each of these perspectives.
Turney and Anderson (1989) argue that the financial measures have largely failed to adapt to the new competitive environment where continuous improvement in the design, manufacturing and marketing of a product/ service is key to success. Additionally, Emmanuel and Otley (1985) stated that organizational success depends not only on the achievement of financial measures, but also on how well the organization adapts to the environment within which it exists. Effective performance can be achieved if the organization responds and adapts to its environment demands appropriately.
Several different researchers have provided an empirical evidence that there is a long term positive impact of non-financial performance measures on the organization's financial performance(Anderson and Lanen, 1999; and Banker et al, 2000). Fitzgerald, Norton and Kaplan state that the non financial measures provide the information that is focused on the drivers of success and can be utilized to design integrated evaluation systems
According to Fisher (1995) the three main reasons for the emergence of measures are: Conventional financial performance measures limitations, the growth of new technology and other initiatives and also the competitive pressures . According to Neely (2000) the performance measures revolution is due to the numerous reasons, such as changing organizational roles, growing competition, the power of information technology and the changing external needs and demands.It shows that only financial measures do not show the clearer picture of organizational performance. Most of the non financial performance measures studies are relevant to manufacturing but very few studies can include the service firms.Several studies (Fitzgerald et al, 1991; Kaplan and Norton, 2001; Hussain, et al 2002; Lorenzo, 2008) have emphasized that to achieve performance excellence there is a need to use multidimensional performance measures in an organization.
The numerous literary argument has been brought up referring that the determination of non-financial performance measures are the leading indicators of financial performance. Ittner and Larcker (1998) argued that the improvements in various non-financial areas such as , quality, customer satisfaction and innovation would affect future financial performance.
Overall, academic research indicates that non-financial performance measures are relevant for predicting and forecasting future financial performance (Maines et al., 2002). Furthermore, there's the aspect that nonfinancial measures are better predictors of the company's long-run performance, and that they sustain managers in monitoring company's progress towards objectives that's has been set by the company. (Kaplan and Norton, 1996; Banker et al., 2000). Management accounting studies have focused on the relationship between performance measures (Atkinson et al., 1997).
Financial measures of performance are used to gauge organizational performance, some organizations have gone through the unfavorable consequences of trusting entirely on these measures. Conventional financial measures are better at measure that what are the consequences of yesterday's actions instead of proposing tomorrow's performance. Consequently, it is better that managers not only trust on one set of measures to provide a well-defined performance target. To be effective, performance yardsticks should continuously develop in order to properly measure the performance and focus resources on motivating personnel and also for continuous improvement.
The use of performance measures is split into two main subdivisions.
The measures come from strategy, the initial purpose for which they had better be put is that of assessing and evaluating the success of the implementation of that strategy (Vitale and Mavrinac, 1995; Kaplan and Norton, 1996).
The information and feedback from the measures should be applied to challenge the suppositions and examine the validity of the strategy (Eccles and Pyburn, 1992; Kaplan and Norton, 1996; Feurer and Chaharbaghi, 1995).
In fact, authors have indicated that they should be used for both functions (Grady, 1991; Feurer and Chaharbaghi, 1995; Kaplan and Norton 1996). Therefore, assessing and evaluating the implementation of strategy'' and challenging the strategic assumptions'' are the two important subdivisions for the purpose of the performance measures.
The significance of using current performance measures like quality service, customer satisfaction, come from the highly competitive financial industry, mostly the banking sector (Hussain, 2002).
A useful way of categorizing performance measures is provided by Fitzgerald, et al., (1992). They refer to two categories of performance measures. First are results-oriented performance measures which focus on competitiveness and financial performance. Second are performance measures which are viewed as determinants of competitive success. These latter performance measures are subdivided into quality of service/Products, flexibility, resource utilization, and innovation.
The factors which give rise to a specific corporate structure are mostly external, while those which prescribe the measures of performance are mostly internal. Corporate strategy evolved in response to external factors whereas performance measures, which focussed largely on the cost of outputs and ratio analysis, persisted largely unchanged until the rise to prominence of the quality movement. The quality movement came in emphasis on no monetary measures like customer satisfaction, product quality, time to delivery (Zairi & Letza, 1994). Quality concerns, which at the beginning concentrated on manufacturing, gradually changed their emphasis to complete all the areas of business activity, and culminated in an external customer-oriented focus. The emergence of management advances such as Total Quality Management and Continuous Improvement has resulted in a progressively more widespread and vital and critical use of performance measures.
It's challenging and difficult for the researchers to build upon a body of knowledge produced by past researchers because contributions are spread out in literature over different disciplines. Academic disciplines often function in Functioning silos but those go against the efforts to incorporate knowledge in order to Make a cohesive aspect and understanding of organizations (Neely et al., 2002). Marketing researchers could finish up with their marketing measurement framework and HR researchers could develop an isolated HR scorecard. Consequently a different challenge the Area of BPM faces in the future is the Conception and creation of a body of knowledge that reflects the theoretical bases of BPM as an autonomous and independent research field.
A lot of this body of work centers on the subject of planning and then designing measures and measurement systems. Once the systems have been designed, nevertheless, they've to be implemented, and then they've to be applied to carry off the business on an ongoing basis. These two topics - the implementation and execution of measurement systems and utilizing them to carry off business performance - both seem to be areas in which further research effort or inquiry is required.