Performance Measurement

Lesson Twelve

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 8-2

Learning Objective 1

Explain the Strategic

Performance.

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Strategic Performance

• Feedback is having the

outcomes of work
communicated to the
employee, work group, or Improvement on
Performance thru
company. feedback
• For an individual employee, I agree!
performance measures create
a link between their own
behavior and the
organization's goals.
• For the organization or its
work unit's performance
measurement is the link
between decisions and
organizational goals.
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 8-4

Learning Objective 2

Explain the use of Non-

Financial Performance

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 8-5

Non- Financial Performance

• Financial performance measures,

especially those that come from the
company’s accounting systems, are
commonly used to evaluate employee Financial suffer
performance. for several flaws
I agree!
• They are easily quantifiable and can
motivate employees to improve the
company’s accounting profits.

• Many shareholders focus on financial

measures, such as accounting profit,
which the business press reports as
they are announced.
• Therefore, financial measures are very
good at getting managers’ attention.
• .
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 8-6
Flaws in Using Financial
Performance

1. They are not useful in identifying

operational problems
2. Financial measures are typically reported
on a monthly, quarterly, or annual basis.
They do not tell you how you are doing in
real time.
3. Many people in the organization do not see
how their work translates into financial
results.

6
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 8-7

Example

•• For
For example,
example, consider
consider the
the case
case of
of aa desk
desk
clerk
clerk at
at aa hotel
hotel who
who can
can have
have anan important
important
effect
effect on
on customer
customer satisfaction
satisfaction and,
and, as
as aa
result,
result, repeat
repeat business.
business.
•• Measuring
Measuring the the clerk’s
clerk’s performance
performance in in
terms
terms of of customer
customer satisfaction
satisfaction would
would bebe
meaningful.
meaningful. (Many
(Many hotel
hotel chains
chains
satisfaction/survey
satisfaction/survey forms
forms inin the
the rooms.)
rooms.)

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 8-8

Example

•• On
On the
the other
other hand,
hand, itit would
would bebe difficult
difficult to
to
measure
measure the the effect
effect of
of the
the clerk’s
clerk’s performance
performance
on
on the
the hotel’s
hotel’s profits
profits because
because profits
profits are
are
affected
affected byby many
many factors
factors outside
outside the
the clerk’s
clerk’s
control.
control.
•• Furthermore,
Furthermore, the the clerk
clerk might
might notnot even
even
understand
understand how how profits
profits areare earned
earned or or
calculated.
calculated. Therefore,
Therefore, itit makes
makes sense
sense to to
reward
reward the
the clerk
clerk directly
directly for
for creating
creating customer
customer
satisfaction
satisfaction rather
rather than
than for
for any
any effect
effect onon
profits
profits to
to local
local managers.
managers.
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 8-9

Learning Objective 3

Identify Responsibilities to
the Level of Organization

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 Responsibilities according to the Level of
8-10

Organization
• Two Factors in Performance Measurement
[Link] leads all organization members to focus on
the organization’s objectives and reflects
how individuals or units contribute to those
objectives
[Link] is designed to reflect the decision authority
delegated to local managers.

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 8-11

•• Training,
Training, evaluation
evaluation and
and motivation
motivation of
of local
local
managers-Decentralization
managers-Decentralization allows
allows
managers
managers to to receive
receive on-the-job
on-the-job training
training in
in
decision
decision making.
making.
•• Top
Top management
management can can observe
observe the
the
outcome
outcome ofof local
local managers’
managers’ decisions
decisions andand
evaluate
evaluate their
their potential
potential for
for advancement.
advancement.

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 8-12

Lower Level Management

Responsibility

Customer
Customer Satisfaction
Satisfaction

Product
Product Quality
Quality

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Middle Level Management

Responsibility

Operating
Operating System
System

Coordination
Coordination and
and Improvement
Improvement
of
of Activities
Activities

Redesigning
Redesigning Products
Products and
and Process
Process

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 Nonfinancial Performance Measurement for
8-14

Middle Management
• The following are some of the nonfinancial performance
measures that organizations use to evaluate middle
managers’ performance:
1. Amount of unwanted employee turnover.
2. Frequency of meeting customer delivery requirements.
3. Employee development performance, such as quality and
amount of training
4. Success in dealing with business partners, such as quality
of supplier relations and frequency with which orders are
miscommunicated to suppliers.

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 8-15

Top Level Management

Responsibility to

Stakeholders
Stakeholders

Community
Community

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 Nonfinancial Performance Measurement for
8-16

Middle Management
• The following are some of the nonfinancial performance
measures that organizations use to evaluate middle
managers’ performance:
1. Amount of unwanted employee turnover.
2. Frequency of meeting customer delivery requirements.
3. Employee development performance, such as quality and
amount of training
4. Success in dealing with business partners, such as quality
of supplier relations and frequency with which orders are
miscommunicated to suppliers.

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 8-17

Balanced Scorecard

•• One
One structured
structured approach
approach to to implementing
implementing
aa system
system with
with multiple
multiple measures
measures is is the
the
balanced
balanced scorecard,
scorecard, which
which isis aa set
set ofof
performance
performance targets
targets andand results
results that
that
shows
shows how how well
well an
an organization
organization hashas
performed
performed in in meeting
meeting its
its objectives
objectives relating
relating
to
to its
its stakeholders.
stakeholders.

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 8-18

Middle Level Management

Responsibility

Operating
Operating System
System

Coordination
Coordination and
and Improvement
Improvement
of
of Activities
Activities

Redesigning
Redesigning Products
Products and
and Process
Process

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 8-19

Learning Objective 4

Explain Balanced
Scorecard

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 8-20

Balanced Scorecard

•• ItIt is
is aa management
management tool tool that
that recognizes
recognizes
organizational
organizational responsibility
responsibility to
to different
different stakeholder
stakeholder
groups,
groups, suchsuch as
as employees,
employees, suppliers,
suppliers, customers,
customers,
business
business partners,
partners, the
the community,
community, and
and
shareholders.
shareholders.
•• Often
Often different
different stakeholders
stakeholders have
have different
different needs
needs or
or
desires
desires that
that the
the managers
managers ofof the
the organization
organization must
must
balance.
balance.

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 8-21

Purpose Balanced Scorecard

• The purpose of a balanced scorecard is

to measure how well the organization is
doing in view of those competing
stakeholder concerns.

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 8-22

Balanced Scorecard

Learning Internal
Financial & Business
Growth Process

Identify what
drives Customer
organization Four Views or
success Perspective

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 8-23

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 8-24

Learning Objective 5

Explain the Methods in

Effective Performance
Measurement System

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 8-25

Continuous Improvement

• Continuous improvement
is a philosophy that
many organizations are
utilizing to meet their
responsibilities and
evaluate performance.
• It means continuously
reevaluating and
improving the efficiency
of the organization’s
activities.

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 8-26

Search to Continuous Improvement

1. Improve the activities in which the

organization engages through
documentation and understanding.
2. Eliminate activities that are non-value
added, and
3. Improve the efficiency of activities that are
value-added.

26
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 8-27

Strategic Performance

Benchmarking involves the search for

and implementation of the best way to
do something as practiced in other
organizations or in other parts of one’s Let talk about our
own organization. best practices
I agree!
Using benchmarking, managers identify
an activity that needs to be improved,
find who is the most efficient in
performing that activity (sometimes in
one’s own organization), carefully study
the process of the one who is most
efficient, and then adopt (and adapt)
that efficient process to their own
organization.

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Guidelines in Benchmarking

1. Do not benchmark everything at the best-in-

the-business level. No company can be the
best at everything.
2. Benchmark only best-in-class processes
and activities that are of the most
importance to the company strategically.
3. Look for internal, regional, or industry
benchmarks for less important support
activities.

28
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 8-29

End of Module 9

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