Performance Management: Grasp the Big-Picture Metrics
August 28, 2014
Determining the right measurements that will correctly gauge where an organization is positioned with respect to its vision, mission, and goals is the essence of effective performance management. Unfortunately, too many organizations fail in setting up the metrics and end up with a lot of data but no game plan.
Performance management is or should be a scientifically based, data-oriented system consisting of measurements and metrics, feedback, and positive reinforcement. When executed strategically and with an integrated approach, it raises organization effectiveness by improving the performance of the organization itself as well as the people and teams that work in it. Performance management can be applied to projects, departments, teams, individuals, and processes.
Performance management is often identified as a workplace initiative, but it can also apply to schools, churches, community events, sports teams, health settings, governmental agencies, social events, and political settings. It demands significant thought and planning, as well as follow-through. However, it offers direct financial benefits such as cost reductions, sales growth, organizational development, competitiveness, and flexibility.
It should also develop and challenge employees as an instrument of change management, affecting behavioral changes of personnel when a cultural shift in the organization is required.
Compliance to various internal and external guidelines and regulations also falls under performance management. It helps identify suppliers and personnel who need additional monitoring, training, or downsizing.
For a performance management program to be successful in any area, there needs to be executive and management commitment, funding, time investment, documentation, follow-up, and training. A program itself must be measured frequently to capture the progress and results of the effort.
Terms such as benchmarking, key performance indicators, balanced scorecards, and change may be components of the performance management process. But good PM sets the right metrics, identifies the “as is” baseline, communicates the “why” of those metrics, measures and communicates results, provides training and development, and adjusts to changes in objectives and goals, while making necessary adjustments along the process.Managing the Metrics In setting up measurements, it is important to consider some principles.
- What gets measured; what gets fixed
- Measurements should make a difference, but perhaps limited to a maximum of nine or less
- Measurements should support the organization and its efforts
- Measurements may change over time
- Measurements may be different based on the organization, departments, and personnel
- Measurements should be used for improvement, change, and compliance
- The process needs to be simple and focus on the most important measures
- Often, measurements do not produce the needed results, and that's when they need to be changed
- The question needs to be asked: “How will the organization use the measurements?”
- The measurements must be meaningful to the employees
- The processes, tasks, etc, that are being measured can actually be changed or improved
- Measurements should be timely so issues can be corrected quickly.The organization’s vision, mission, objectives, goals, and challenges play important roles in identifying and establishing performance metrics or measurement components. It is important to also consider core competencies, critical success factors, and the business model when developing the right metrics.
The vision of the organization is its future, and the mission includes the steps the organization need to take to reach that vision. Objectives are the organization’s broad statements of what it wants to accomplish. Goals are specific, time-bound tasks that support the objectives.
An organization’s core competency is the reason why customers buy its product or service, and critical success factors are skills and attributes of the organization and its personnel that enhance the customer experience. The business model is how the organization reaches its various customer segments.
Employees, departments, projects, supply chains, and business units must understand all of these in order to set challenging, productive, and focused measurements.
Unfortunately, some organizations use the “ICE” approach:
- Identify everything that is easy to measure and count
- Collect and report the data on everything that is easy to measure and count
- End up with a lot of data not knowing how to use it and no game plan in place.The chosen metrics should ensure the organization meets it vision and mission and confirm that everyone is working on the driving activities, projects, tasks, and goals. The measures should also support the core competency or competencies, critical success factors, and business model.
Metrics take the subjectivity out of staff evaluations, providing objective statistics and goals. Measurements, when they are effectively linked to the organization’s vision and mission, ought to identify areas of needed additional staff training to meet today’s business challenges for the company and those that it will face in the future.
Outcomes or results often fall into one of four business areas: 1) productivity/process, 2) profitability/resources, 3) customer satisfaction/service, and 4) employee retention/people.
Productivity includes shorter cycle times, a positive return on investment, and a leaner process. Profitability highlights the efficient use of resources. Key metrics often used by organizations include inventory goals, cost reductions, supplier on-time delivery and quality conformance levels, risk prevention, employee certifications, lead-time reductions, and purchase order turnaround.
Metrics may be quantitative or qualitative. They may also be set based on benchmarks or standards established by third-party organizations such as the Institute for Supply Management.
Performance management begins with organizational intelligence and selecting the right metrics to support the organization. It lets everyone know where they are on the road to success. Remember this: What gets measured, gets fixed.Top photo credit: artur84 at FreeDigitalPhotos.net
Marilyn Gettinger is owner and principal of New Directions Consulting Group, which works with organizations on improving their supply chains through process streamlining and reengineering. New Directions Consulting Group offers workshops to companies from 30 employees to multinational corporations. Marilyn teaches total quality management, supply chain management, and international trade at several post-secondary schools. She holds a C.P.M. and is a member of the Institute for Supply Management and the American Production and Inventory Control Society. She can be reached at (908) 709-0656 and firstname.lastname@example.org.