An Overview of Organizational Performance Management

• Performance dashboards. Dashboards are visual aids that act as an ‘organizational magnifying glass.’ They communicate strategic objectives, enabling managers at all levels to measure, monitor and manage the activities needed to achieve operational and strategic goals. Dashboards are often color-coded to allow quick identification of problems. [1] Despite their popularity, performance management cannot be delivered by dashboard technology alone. Dashboards should therefore be closely linked to strategic objectives and wider performance measurement processes.
• The Balanced Scorecard. Developed by Kaplan and Norton in the 1990s, the Balanced Scorecard framework changed the face of contemporary organizational performance management. It introduces four measures as an alternative to assessing performance exclusively through financial measures. [2] The framework helps to translate organizational strategy into action, as well as providing a future-looking view of performance.
• Key performance indicators (KPIs). KPIs are an integral aspect of many dashboards and scorecards. Closely related to an organization’s strategic objectives, KPIs are financial and non-financial measures of performance that are used to measure progress toward long-term goals.
• The European Foundation for Quality Management (EFQM) Excellence Model. Created in 1988, this model was developed to identify components of organizational performance and set appropriate performance standards. The model is built upon five enablers.[3] For each enabling factor, organizations create specific measures to allow performance to be reported accurately. Each enabler can then motivate organizational excellence and encourage success in four key areas. [4]
• Six Sigma. Originally developed by Motorola in the 1980s, Six Sigma is a methodology that uses data and statistical analysis to improve an organization’s performance by identifying and eliminating defects and errors in key processes. Six Sigma is a results-orientated approach to organizational performance management that aims to achieve continuous improvement.
• Activity Based Costing (ABC). Reliable financial information has always been an essential component of assessing organizational performance. ABC is a sophisticated technique that accurately determines the total cost of providing a product or service. ABC does have its limitations, as it focuses purely on financial performance, is internally orientated and only produces historical cost information, and so is of limited relevance to future strategic decision-making.
• Performance Prism. [5] Developed by the Cranfield School of Management in 2002, this model proposes five interlinked measures of organizational performance represented as a prism. [6] The model highlights the complexity of modern performance management systems and offers a multidimensional perspective of performance.
• Triple Bottom Line (TBL). [7] Coined in 1994, TBL describes an expansion of traditional financial performance measures to include ecological and social performance. The TBL is made up of three core elements of ‘people, planet and profit,’ and provides a means of measuring progress towards corporate social responsibility and sustainability goals.

Bringing Performance Management to Life

Although organizations may use a variety of tools and techniques to measure performance, a number of best practice processes must take place in order to achieve improvements in performance. These activities can be described as the performance measurement cycle:

Select and Define

At the outset, it is important to clearly articulate the key questions that need to be answered about organizational performance. Performance measures should be derived from an organization’s strategy, and be closely related to the outcomes and outputs required to achieve strategic aims. Specific performance measures should be developed for each outcome or output that clearly signal its performance; e.g. number of sales above £10,000.

Collect

The process of gathering performance data is critical to the overall integrity of the performance management process. It is important that performance data is gathered and reported consistently across an organization so that it is fit for purpose. For example, performance data can be recorded in standardized Excel or Access templates, or via a more sophisticated online data tracking tool.

Store

Data storage is an important consideration, as all stakeholders need to be able to access information quickly and easily. For example, most business intelligence systems allow users to extract and interrogate data, therefore it is important that the data collection and storage system meets organizational needs and does not present barriers of access or unnecessary complexity.

Analyze

This aspect of the performance management cycle turns the gathered data into useful information that can be used to inform strategic decision-making. For example, a range of statistical analysis techniques can be used to identify trends and inter-relationships, and highlight underperformance.[8]

Present

This phase involves communicating the right information to the audience(s) that matter within an organization. Performance information should be presented clearly and consistently. Some organizations use dashboards or scorecards to present performance information in a visual format. Using illustrative graphs and charts rather than tables of data helps to communicate information clearly to a number of parties. For example:

• Stakeholders and investors can understand progress and identify key trends.
• Operational managers can quickly identify important areas.
• Employees can easily determine the health of the organization.

Interpret

This involves understanding key messages and drawing conclusions about the level of performance. This might involve identifying: [9]

• areas of success
• sources of success (e.g. particular operational processes)
• challenges
• sources of challenges
• lessons learned
• requirements for more information

Take Action

Although an organization may have a sophisticated system designed to capture, measure and analyze performance data, the ability to translate this information into proactive management of performance is essential. This can be achieved by:

• identifying and prioritizing the operational areas and processes within them that require improvement
• determining appropriate levels of improvement (this can be done by setting targets that are benchmarked against previous performance both internally and by competitors)
• identifying the specific actions that will enable improvements, and determining accountability for them
• establishing clear timescales within which improvements should be realized

Conclusion

Effective performance management is a cornerstone of organizational success, as it allows senior leaders to pinpoint where operations are performing well, and, more critically, where improvements are needed. Although there are many tools, frameworks and techniques available to help organizations measure performance, it is important to remember that improvements cannot be achieved by measurement alone. Creating a culture of accountability will ultimately help organizations move beyond the basics of performance measurement toward proactive performance management and continuous improvements.

Find Out More

The book, Essential Tools: Organizational Development and Performance: Tools Models and Approaches for Managers and Consultants by Mark Burtonshaw-Gunn and Malik Salameh offers an introduction to organizational performance management and considers some of the essential ‘tools of the trade’.

Wayne Eckerson’s book Performance Dashboards: Measuring, Monitoring and Managing Your Business, provides a useful overview of performance dashboards and how they can be used to support organizational performance measurement.