Implementing Performance Measures
Determining what to measure can take considerable effort, but it will probably be less than one-third of the total effort required to implement an efficient and effective measurement system. Data collection and processing systems will have to be implemented to produce the measures; everyone will have to be trained in using the systems and measures; and as the measures are used, some problems are sure to be identified that will require changes to the system.
Perhaps the greatest challenge faced when implementing performance measurement systems is changing an organisation’s culture. Using performance measures requires managers and employees to change the way they think and act. For most people, this is relatively easy, but for some, changing old beliefs and habits is very difficult.
Overcoming such problems requires strong leadership to provide appropriate direction and support. The best measurement system in the world will yield few benefits if the right knowledge, skills, abilities, and values are not developed in a company. An organisation doesn’t just interface with a measurement system; it is part of the system.
Developing and implementing effective measurement systems requires leadership, commitment, and hard work. Some investment is required, but it is small relative to the key benefits of a well-designed and implemented measurement system:
- The ability to determine if sales and profit problems are caused by strategies, operations, or both;
- Early identification of problems and opportunities;
- Increased productivity, quality, and customer service;
- A clear understanding of what drives financial and operational performance so resources can be allocated to the areas of greatest return; and
- A cohesive organisation working toward common goals.
Cascading Performance Measures
Corporate level measures are very important, but they aren’t going to have much impact unless they are cascaded all the way down to front-line employees. The case for cascading is simple: Do you want 10% of your employees working toward company objectives or 100%?
With some exceptions, such as market share, what you measure at the top is what must be measured at all levels. However, the specific measures will change with every functional and organisational level because managers doing different jobs need different information to make different decisions.
The same methodologies used to develop measures at the corporate level can be used to cascade the measures down to front-line managers, supervisors, and employees. However, as you go down the organisation chart, the focus is on operations or processes. Strategy is incorporated into operational measures by giving more weight to the measures that are strategically important. This communicates strategy to all employees by translating it into operational terms – at the individual level.
Key Questions to be answered by Performance Measurement Systems
No matter what approach you use to develop performance measures, bear in mind that the objective is not to have a measurement system in itself, but to empower business improvement, and to do so, to enable managers at all levels to answer ten key questions:-
- Are we satisfying our customers?
- Are we satisfying our shareholders?
- Are we satisfying our other stakeholders?
- What is happening to our customer base?
- Is our company strategy working?
- Are our individual strategies being properly executed?
- Are we serving our customers and stakeholders effectively?
- Are we operating efficiently?
- Are stakeholders contributing what they should?
- Are we developing the abilities we need to execute our strategies?
If all of your managers can readily answer those questions about their areas of responsibility and support their answers with objective numbers, your company has the performance measures it needs. If they can’t, some of the “good” decisions they are making are undoubtedly not very effective – and they may even be harmful.