Measuring Business

Performance
Lesson 4
 Organization Performance Measurement

What is organizational performance for businesses often refers to how well

an organization is doing in reaching its vision, mission and goals. Assessing
organizational performance is a vital aspect of strategic management.
Executives must know how well their organizations are performing to figure
out what strategic change if any, to make.
Now let us look at what is Organizational Performance Measurement.
The term Performance Measurement usually refers to the continuous
gathering of data from specific functional areas. It concerns with ongoing and
reporting of progress towards reaching organizational goals. It is made up of
an internal system that collates and reports on workflows, outputs and
outcomes.
But why do we measure organizational performance?
In the cycle of never-ending improvement, Performance Measurement plays
an important role in identifying opportunities for improvement, comparing
performance against both internal and external standards.
 Assessing Performance
Let us see now how to assess performance? While assessing performance, two
important considerations are performance measures and performance
referent. Performance measures are metrics long which organizations can be
gauged. A performance referent is a benchmark or standard use to make
sense of an organization standing, along a performance measure. The number
of performance measures and referents can be overwhelming so executives
need to choose a rich yet limited set of performance measures and referent to
focus on.
 Performance Measurement Framework

Now, let us look at a simple performance ,measurement framework. A good

Performance Measurement Framework will focus on the customer and measure
the right things.
Performance Measurement must be:
Meaningful
Unambiguous
Widely understood
Owned and managed by teams within the organization
based on a high level of data integrity such that data
collection is embedded within the normal procedures, able
to drive improvement linked to critical goals and key
drivers of the organization.
 Key Steps in Performance Measurement
Framework
Here are the four key steps in Performance Measurement
Framework:
1. Establish key goals – the strategic objectives of the organization
are converted into desired standards of performance.
2. Establish metrics – metrics are developed to compare the
desired performance with the actual achieved standards.
3. Understand performance – gaps are identified
4. Initiate improvement – in this improvement actions are initiated.
These steps are continuously implemented and received.
After this, let us look at some Organizational Performance
methods organizations use to measure performance.
 Organizational Performance Methods
Some of them are:
• Balance scorecard – a strategic planning framework that companies use to assign
priority to their products, projects, and services; communicate about their targets or
goals; and plan their routine activities. The scorecard enables companies to monitor and
measure the success of their strategies to determine how well they have performed.
• Benchmarking – a process where you measure your company’s success against other
similar companies to discover if there is a gap in performance. Studying other
companies can highlight what it takes to enhance your company’s efficiency and
become a bigger player in your industry.
• Business process reengineering – is the radical redesign of business processes to
achieve dramatic improvements in critical aspects like quality, output, cost, service and
speed. It aims cutting down enterprise costs and process redundancies on a very huge
scale.
• ISO 9000 – is defined as a set of international standards on quality
management and quality assurance to help companies effectively document
the quality system elements needed to maintain an efficient quality system.
They are not specific top any and can be applied to organizations of any size.
• Management by objectives – a management concept framework
popularized by management consultants based on a need to manage
business based on its needs and goals. MBO goals are tailored to meet the
needs of today’s fast-growing businesses and fast-paced work environments.
• Total Quality Management (TQM) – Total Quality Management (TQM) is the
continual process of detecting and reducing or eliminating errors in
manufacturing, streamlining supply chain management, improving customer
experience, and ensuring that employees are up to speed with training. TQM
aims to hold all parties involved in the production process accountable for the
overall quality of the final product or service.
 Summary (Key Points)
• What is Organizational Performance?
• What is Organizational Performance Measurement?
• Why Measure organization’s performance?
• How to assess performance?
• Performance Measurement Framework
• Four key steps to Performance Measurement Framework
• Organizational Performance Measurement methods