Why Is Performance Measurement Important?
Performance measurement is essential for fostering organisational improvement. The significance of having an effective performance measurement process has only grown as businesses large and small realise that long-term success depends on reaching goals with limited failure in today's highly competitive business world.
The importance of performance measurement isn't always easy to justify, but it's necessary for performance improvement in the long run. Effective performance measurement helps companies identify their strengths and weaknesses, top high performers, areas for improvement, and helps set benchmarks with historical data.
The Balanced Scorecard Method
In 1992, Robert S. Kaplan and David P. Norton set out to revamp the traditional performance measurement framework.
They a ran a one-year long study with 12 different companies and developed a ‘balanced scorecard’. The scorecard was a group of measures that gave organisational leaders a quick yet thorough view of company goals and progress.
The balanced scorecard contains financial measures that show the results of things that have already occurred. It is also balanced with operational measures such as customer satisfaction, internal processes, and the company's innovative and development activities that help predict future organisational financial performance.
The main benefit of the balanced scorecard is it forces business leaders to look at business performance through several different lenses, so they don't end up relying too heavily upon one area. The scorecard helps organisations answer four basic questions:
- The Financial Perspective: How do we look to shareholders?
- The Internal Business Perspective: What must we excel at?
- The Innovation and Learning Perspective: Can we continue to improve and create change?
- The Customer Perspective: How do our customers see us?
To make the most out of the balanced scorecard, organisations should incorporate the method into their strategic planning process. Leaders should clearly express goals for time, quality, performance and service and turn these goals into specific performance measures.
Performance Management Systems
Performance management systems are becoming increasingly popular in our technological age. New tools and software are introduced into the business world nearly every day to make measuring performance simple and straightforward.
For example, Samewave is a social performance management software that helps companies take the guesswork out of measuring performance. The program eliminates the need for lengthy performance review meetings and tracks performance on a regular basis automatically.
Samewave uses a method called Promise-Based Management, driven by the powerful concept of Social Discipline. Team members make promises to one another in a transparent environment, so everyone knows who is responsible for what.
Furthermore, Samewave drives performance improvement by allowing companies to collaborate more, improve productivity and generate automated performance reports. Try it out for free today.
Align Your Performance Measurement Strategies With Your Organisational Objectives
When any team is developing a performance measurement framework, they must make sure they have clear, defined goals across the organisation. Plan out what you want to accomplish before you decide what individual performance goals you will measure.
For example, if you want to grow your sales quota during the next year, measure the volume and quantity of sales your sales team members make. Does it make sense to measure how many hours they spend at the office (as long as they aren't missing important meetings, etc.) if it doesn't line up with the end goal? Many employees also appreciate a work smarter rather than harder approach, increasing employee engagement and job satisfaction.
It's also important to measure factors outside of financial objectives. Make sure to incorporate internal, operational processes into your performance measurement system. For example, include how many new programs or processes an individual team member or group has implemented.
Did someone come up with a new process to qualify leads faster? Did an employee create a mentorship program for new hires to get them trained faster, improving effectiveness? Make sure you have space to record these performance successes. It will keep your teams engaged and feeling appreciated for the hard work they do, even if it doesn't immediately affect the company's bottom line.
Common Performance Measurement Areas
If you are trying to decide what competencies or area you should focus on measuring, keep the focus on your customer, your products and services, and your internal team. Each department will have different performance measures, but the following are common across most organisations:
- Customer satisfaction rates
- Customer to staff ratio
- Employee turnover rate
- Employee engagement and satisfaction rates
- Return on investment
Implement a Thoughtful and Intentional Performance Measurement Framework for Your Business
Now that you know how important having a good performance measurement system for meeting your strategic objectives and goals, create a plan for measuring and improving performance in your organisation.
Performance measurement helps teams know if what they are doing is working and if they need to make changes. In today’s competitive landscape, there is a real need for transparency and communication about business practices. Use tools that promote accountability and transparency and incorporate them into your company culture to boost performance.
Even if you formally measure performance on an annual basis, track performance regularly with tools such as performance management software that help leaders monitor trends over time, recognise improved performance and make decisions based on facts. Regular monitoring of overall performance helps leaders distinguish what they think appears to be happening from what is actually happening with clear evidence.
