How, when, where and by whom should organisational, managerial, product and service performance be measured?

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Samit Patel                 Management Principles - ENVS1130                 

Organisational and Managerial Performance

How, when, where and by whom should organisational, managerial, product and service performance be measured?

Organisational and managerial performance can be measured in a variety of ways. All methods of measuring performance can be guided by a set of common requirements as stated by Pettinger1. For and organisation and its managers, it is essential that “clarity and purpose of direction” is present. The importance here is that without this element, the measurement of an organisation’s performance is meaningless. There is nothing to measure because the meaning of “success” within the organisation has not been defined. A second prerequisite for the effective measurement of successful performance is an adequate level of resources. These may include staff (and related training facilities), information systems and investment. The expertise required to analyse performance results is an obvious requirement. This leads us to the third requirement, an understanding of the market and environment in which the organisation operates. This again is vital because the measurement of performance is usually in done in terms of a specific market or industry. These three fundamentals lead the way for various measure of performance to be carried out with a sense of direction. Performance measurement itself can be divided into a range of areas.

Organisational Performance

Organisational performance is by and large measured quantitavely. This is done using various indicators. In his book “Introduction to Management” Pettinger highlights the following components of performance measurement. In terms of an organisation, I would specify these particular components from the range stated by Pettinger.

Firstly, the profitability of the organisation is an evident indicator of its success. This is a specific, quantitative measure and is simple to calculate and can be evaluated in a straightforward manner. Profit ratios can be presented in reports and this is commonly done due to its simplicity. A profit ratio is defined as follows:

Profit ratio = (Net profit / Total Sales)*100

This figure can be made readily available to analysts and managers for them to assess the success of the organisation. The use of this indicator is related to when it would be most necessary. For example, seasonal products and services such as holidays and antifreeze will have their profitability assessed in the build-up to periods of high demand and also following such periods.

Market standing and position is also an indicator of the success of an organisation. This can be measured using intelligence information gathered on leading competitors as well as performing market research. The organisations position in the market in relation to its desired position at a particular point in time is clearly a way of evaluating its progression towards it long-term goals. This research should be conducted throughout the industry in order to obtain a clear picture of the organisations market standing. Quantitavely, an organisation’s market position could be measured using concentration ratios similar to those used in economic theory. For example, a five-firm concentration ratio measures the proportion of total sales in a market made up by the total of the five firms with the largest sales. In terms of a single organisation, an equivalent ratio would be:

Market share = (Total Revenue / Total Industry Revenue)*100

The market share indicator would typically be calculated every six to twelve months using information gathered by finance departments. In the longer term, (for example some firms have a “five-year plan”) market share would indicate the success of the organisation more generally and would be viewed by potential investors to be a key indicator.

Pettinger also mentions “resource utilisation” as an important component of measuring organisational performance. A successful organisation will be efficient in its production of goods and/or services. Wastage would be viewed as a sign of inefficiency. Economic analysis can be used to evaluate to efficiency of a firm. Productive efficiency (i.e.: when a firm produces at the lowest average cost) and allocative efficiency (i.e.: when a firm produces where price is equated to marginal cost) are two points that firms may wish to aim for. However, this again depends on the firm’s long-term objectives as well as the share of the market which it occupies. As you can see, many of the performance measuring components are related to each other.

Organisational culture is a good way to gauge the level of motivation and morale in a firm. The relationships within a firm are important to its functioning and these interactions (for example, between departments or between regional sites) need to be well oiled to ensure the long-term success of an organisation. Such qualitative measures are commonly conducted using a mixture of in-house research in the form of questionnaires and also external observers such as management consultants. It is important that these types of measure are regularly and consistently executed in order to avoid inefficiencies.

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Managerial Performance

Managerial performance measurement is instantly recognised as dissimilar to organisational performance measurement due to its less quantitative nature. It tends to be based more on value judgements and is therefore less straightforward to execute.

Managerial performance can be measured at different levels and across different departments. It includes assessing the strengths and weaknesses of managers and will also aim to gauge the effort put in by the managers to iron out the creases in their performance.  

A clear link to managers is the staff that work beneath them. The efficiency, morale and productivity of ...

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