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Performance measurement

Measuring and managing the performance of your company entails you pulling away from your daily routine, standing back and assessing the bigger picture.  When you stand back and think about what your company does and how it does it, you can more easily determine how your company is operating, which allows you to address the shortfalls and any other problems that you identify in the process.

Performance measurement involves looking at both financial and non-financial factors that affect your company.  If you keep track of performance – within your teams, divisions and individual employees – you gain valuable feedback which will assist you with improvements, planning and forecasting, competition, rewards/incentives and compliance.

How do I measure Performance?

Companies measure their performance using different methods and criteria.  The most common way is to identify key business activities and measure them using specific performance metrics (measures), and then analysing the results.

For each kind of business activity there are numerous possible performance metrics, for example:

Key Activity Possible Performance Metrics
Sales % of customer visits or phone calls that generate sales  % increase in sales  over previous period or year% of customers retained for the  period

Balance as the key to a strong Performance Measurement System

By striking a balance in its performance measurement system, a company is able to compile a more comprehensive picture of how it’s doing. Obtaining a selection of information from many sources enables a manager, employee or executive to gain a holistic picture of the company and to learn from previous mistakes, which facilitates constant improvement. This is known as the “dashboard” approach – likened to looking at and gauging the many instruments on an aeroplane’s dashboard, such as the fuel gauge and altitude indicator.

A comprehensive picture for a company would include looking at a range of factors such as financial (revenue) and non-financial performance (employee knowledge), backward-looking (sales figures) and forward-looking indicators (customer satisfaction ratings).

An effective tool to assess performance is the Key Performance Indicator (KPI)

A Key Performance Indicator (KPI) is a measure reflecting how a company is doing in a specific aspect of its performance.  A KPI is one representation of a critical success factor (CSF) – a key activity needed to achieve a given strategic objective.  A KPI is therefore a quantifiable measure of how well you are performing an activity that is critical to the success of your business.

For example, a strategic objective for the company could be to increase customer satisfaction, and one CSF relating thereto would be to “reduce staff turnover” (customer’s prefer to deal with the same sales person).  A KPI would measure how well you are performing the task of reducing staff turnover.

What to do?

Step 1:  Decide what to measure and define your objectives.  A comprehensive business plan would assist you to identify your strategies and overall objectives.  You are then in a more favourable position to define your Critical Success Factors (CSF’s), and define the Performance Metrics.

Step 2:  Set targets, gather data and measure reliability of the data.

Step 3:  Interpret the performance data:  Compare actual results versus targets set, generate reports and analyse the data.

A strong Performance Management System offers many benefits

A Performance Management System enables managers to define and track performance on metrics for every strategic objective set by their division or company. In addition, it highlights how performance in one part of the company affects performance in another.  Using our customer satisfaction example – an improvement in order delivery time would result in an improvement in customer service.  The logistics staff (delivery of the order) and the customer service staff would then both be working towards achieving the same overall goal of the company, namely improved customer satisfaction.

By seeing these inter-relationships, companies can make more informed decisions such as increasing a budget, adding new staff, or introducing more efficient processes to improve performance instead of guessing what factors need to be addressed.

Please contact Arnold Scholtz at 021 840 1600 or arnold@asl.co.za for further assistance regarding this exciting matter.

Remember: “What gets measured, gets done!”

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