Norrin Radd

Performance

Performance management is a big topic in today's highly competitive, global market, where being first to the market and keeping costs at the bare minimum can mean the difference between success and failure

Before any discussion about performance improvement can be meaningful, one must understand what is meant by "performance." In the most general sense, of course, performance refers to the degree to which a business achieves its goals and objectives. At the highest level, across industries, most companies measure performance through revenue, margin, net profit, earnings per share and other financial metrics. However, in addition to setting the corporate or divisional goals, the organization must determine how it is going to achieve those goals, thus setting further goals and objectives tied to the division, department and even individual levels. These goals are tied more directly to operational activities which, if achieved, result in successful attainment of the organization's financial goals.

It becomes clear, then, that while financial performance measures are fairly consistent across companies and industries, operational performance metrics vary greatly, not only among industries, but even over time for a given company, as it devises new goals and new means for achieving those goals.

Performance management, in its broadest form, involves setting performance goals and managing and measuring an organization against those goals. While methodologies vary from industry to industry, and across companies, the basic steps are consistent. Performance goals are established through planning activities and communicated throughout the organization. Performance metrics are developed for each level and function within the organization. The organization will often enable the achievement of goals by making changes to the way the organization operates. Data is collected and analyzed from each function to measure its progress against the goals, and adjustments are made to activities and policies as warranted. Finally, the results of the exercise are fed back into the planning activities, and new goals are set.

At its core, performance management is really concerned with performance improvement. Otherwise, what's the point? Thus, performance management involves setting clear, achievable performance goals, creating an environment that supports the achievement of those goals, measuring progress against the goals, and using the information collected to set new goals. While specific steps and verbiage varies among performance management methodologies and systems, this cycle is at the heart of all of them.

The Balanced Scorecard

One of the most favored methods for business performance management is the Balanced Scorecard. Developed by Robert S. Kaplan, Marvin Bower Professor of Leadership Development at Harvard Business School, it has gained wide acceptance in the business world — with over 50% of the Fortune 1000 Companies using some version according to a 2002 Bain & Co. survey (Gumbus, 2002). The method has helped many companies improve process performance, as well as financial performance, customer service and the ability of the company to learn and grow (Kaplan, 2007).

The Balanced Scorecard recognizes that financial measures are inadequate as the basis for actionable performance improvement plans, and adds to the financial measures, performance metrics for customer service, process execution and organizational agility. Thus, strategic goals are translated into all four areas of performance; enabling an organization to develop clear goals from top management all the way down to the shop floor and within all support divisions.

- eNotes