Measuring

Performance
Guia Mae B. Lopez
DO WE NEED MEASURES?

All organizations use and rely on performance measures to

manage their performance. The only difference is that some are
more formalized, more explicit and more developed. In
contrast, others are less well developed, more informal and
more implicit. When businesses issue quarterly reports to their
shareholders, they are reporting their performance against
formalized explicit measures
Implicitly or explicitly, we use performance measures every day.
Wherever we look, we are confronted by performance
measures and comparisons. Like it or not, we cannot get away
from them. We need them to manage our everyday lives.
However, as some measures are more important than others,
we need to know which measures to use and which ones to
ignore, and how best to use these measures to create an
effective performance measurement system.
DEVELOPING A PERFORMANCE MEASUREMENT SYSTEM

A performance measurement system as the process (or

processes) of setting goals, developing a set of performance
measures, collecting, analyzing, reporting, interpreting,
reviewing and acting on performance data. That is a closed-loop
control system comprising both feedback and feedforward
control loops
To effectively manage the performance of our organization, we
should be managing its value streams and business processes.
We explained the anatomy of an organization and suggested
that we need to understand how each of our value streams
competes in its market, going on to configure the underlying
business processes to optimize the performance of each value
stream.
Examined the anatomy and behavior of a business process and
concluded that performance measures need to reflect the purpose
of the process, as well as the flow of work through the process.
COMMUNICATING WITH MEASURES
In this section I will cover how to design effective performance
measurement reports that engage people in a conversation around
performance. I can safely say that there are as many
performance reports as there are organizations that use performance
measures. However, at the most fundamental level they use a mixture of:

Data, in the form of tables. Color coding, such as the traffic light
system, to draw attention to specific areas of opportunity or
problem. Time series reports, to show trends as they develop over
time.
The choice of which format to adopt is entirely up to the preferences of the organisation.
However, I would strongly recommend that a single format for reporting and displaying
performance information should be used throughout the company. This is akin to using the same language to
communicate throughout the organisation. When different parts of the organization adopt their own language to
communicate performance information, miscommunications can arise.

FIGURE 5.1 Colour-coded table showing performance against target


target. Figures 5.1 and 5.2 depict the same performance
information in two alternative forms, tabular and graphical.
FIGURE 5.2 Graph showing performance against target
Figures 5.3–5.5 show examples of different
performance reports using the same
reporting format. This is a company
operating in the process sector and on the
shop floor the use of statistical process
control (SPC) is widespread.
FIGURE 5.3 Laminate gauge
The problems with the delivery performance have been
attributed to raw material supply problems.
Such annotations are immensely powerful for helping us to
understand the underlying problems and adopt a more
proactive management of processes and overall
organisational performance.
There are other more sophisticated graphs and
charts one can use, but the general rule should be
to keep things as simple as possible. In the above
examples we have focused on reporting
performance against an internally set target (i.e.,
feedback control). Sometimes this is not enough,
as exemplified below.
There is sufficient data available, more
sophisticated techniques, such as box charts,
can provide valuable information on how
your own organization's performance
compares with what is happening in the
broader market.
Similar to previous charts, such box charts can also be
organised in a time series to illustrate the dynamics of
performance over time, as illustrated in Figure 5.8.
Can be created quite simply without a lot of data, even though they
would be better with objective data. The management team, the
marketing function or the sales team should have an idea where they
are in comparison with their competitors. If your company cannot do
this then I suggest there is a need for urgent action!

Another option is to ask the customers. Some
companies even commission independent surveys of
their customers, often using students from local
universities or colleges. Such surveys produce an
opportunity to develop a more intimate
understanding of customers' thinking processes.
The objective here is to have control over the performance of
the organization but also engage as many people as we can in
the conversation about performance. Remember, when it
comes to performance measurement, less is more. Focus on a
few indicators, where possible use graphs and charts to
illustrate trends. Use colors in a
meaningful way to draw attention to key areas. Annotate
graphs and charts to enable constructive conversation about
performance. Also, in your performance reports don't forget to
position your organization's performance against its
competitors or the market.
Scorecards, Dashboards and War-rooms

FIGURE 5.11 Example scorecard: Engineer-to-order

value stream
 The three columns represent End-of-Contract, End-of-Warranty and Overall Performance.
The report is issued at the end of each month. In the first (i.e., leftmost) column, the
profitability and customer satisfaction results of each completed contract are reported. In the
2×2 matrix at the top of the scorecard, the horizontal axis reports the input vs. output margin
(i.e., the margin planned at the start versus the actual margin realized at the end of the
contract). The vertical line in the middle represents the planned margin.
Scorecards work well, enabling conversations between managers in meetings, they tend
to be produced just in time for a meeting rather than being available in real time. Whilst it is
possible to produce large versions of these scorecards and display them in public areas or meeting
rooms, they become dormant and meaningless if they are not updated and used regularly.

FIGURE 5.11 Example scorecard: Engineer-to-order value stream

 The main advantage of electronic dashboards is that they
can integrate with other business systems – data loggers and
programmable production line controllers, enterprise and
accounting systems, customer and supplier portals –
providing automatic real-time updating and replication
capability across multiple sites and locations. However, they
present two significant disadvantages. First, unless they are
supported with large electronic displays that are replicated
at key locations across the business, they get buried, hidden
in computers and are only looked at when required. Second,
even if they are made accessible and visible through large
electronic displays positioned at key locations across the
business, the information flow tends to be one way not
interactive.
One of the most effective ways of communicating performance
information and engaging people in a conversation about the
performance of the organization is through the use of war- rooms
or strategy/performance walls. Conceptually, these are large rooms
or walls upon which company strategy and performance
information is displayed, reviewed and continuously
updated.
In this company the weekly management meetings are held in front
of this wall. Meetings start by reviewing the gossip and updating
the SWOT area, if required. The updated performance information
(bottom right) is then reviewed in the context of the strategy map
and SWOT information.
In another company a similar structure was employed but with a slightly different layout, using six-
monthly milestones to underpin the company's strategic progress
Creating effective visual performance measurement
and management systems
Many organizations make use of visual management approaches but rarely are they integrated. They are most
commonly found in operational areas of organizations, particularly if they have been using lean management
tools and techniques. As part of the lean management toolkit the 5S3 approach, in particular, encourages visual
management techniques to create awareness and engage people in issues around operational performance.
However, the adoption of visual management approaches for strategic management is less common. Although
there are a number of strategic management approaches that lend themselves to visualization, such as strategy
maps and Hoshin Kanri planning (see Chapter 2), they are rarely used in practice for visual management.
Strategy maps are often used by senior management teams in workshops and boardrooms, but they are rarely
used for communicating strategy and priorities.
Reference:
Bititci, U. S. (2016). Managing Business Performance: The Science and The
Art (1st ed.). Wiley.