Introduction to

Performance
Management Systems
• Performance Measurement – is the process of collecting,
analyzing and/or reporting information regarding the
performance of an individual, group, organization, system or
component.

• Importance of Performance Measurement

It is essential because it helps individuals and organizations
stay accountable, make informed decisions, stay motivated,
allocate resources effectively, and continuously improve.
Performance Measurement System:
• A. Strategy Formulation and Implementation

Strategy Formulation means crafting a combination of strategies and

picking out the best one to achieve the organizational goals and
objectives and thereby reaching the vision of the organization. It
involves a number of steps which are performed in chronological
order.
• Strategy Implementation refers to the execution of the opted
strategy, i.e. it converts the chosen strategy into action, for the
realization of organizational goals and objectives
Following are the main differences between Strategy Formulation and Strategy
Implementation.
• B. Customer Perspective - refers to an approach that examines a
company from the viewpoint of the individuals who purchase and
utilize its products and services.

• C. Internal Business Process Perspective - managers identify the

processes that are most critical for achieving customer and
shareholder objectives. Companies typically develop their objectives
and measures for this perspective after formulating objectives and
measures for the financial and customer perspectives.
• D. Innovation and Learning Perspective - This perspective includes
employee training and corporate cultural attitudes related to both
individual and corporate self-improvement. In a knowledge-worker
organization, people — the only repository of knowledge — are the main
resource. In the current climate of rapid technological change, it is
becoming necessary for knowledge workers to be in a continuous
learning mode.
• E. Financial Perspective - the goal of a company is to ensure that it earns
a return on the investments made and manages key risks involved in
running the business. The goals can be achieved by satisfying the needs
of all players involved with the business, such as the shareholders,
customers, and suppliers.
• Overview on Traditional (Financial Outcome) Performance - The
traditional approach to performance is based on information and
techniques available in financial accounting, cost accounting,
management accounting. The traditional techniques used by
organizations are primarily financial measures such as contribution
margin, Return on Investment, Residual Income, net profit, and
Earnings Per Share.
Overview on Process Based (Strategic Outcome) Performance
Measurement System

Strategic performance management is defined as the methodology to

improve performance measurement, monitoring, and improvement to
achieve overall organizational objectives

SPM is an approach that makes an organization's strategic goals more

transparent to line executives and provides an ongoing mechanism to
monitor progress toward these goals through simple and intuitive
performance measures.
• References: