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This essay explains the meaning of performance measures, importance of performance measurement in organizations within the public and private sector.
Performance measurement is the process of quantifying the efficiency and effectiveness of action. It is the periodic measurement of progress toward explicit short and long run objectives and the reporting of the results to the decision makers in an attempt to improve program performance (Neely et al, 1995).
Global competition and technological developments have combined forces to destabilize the environment, resulting in many threats as well as opportunities. To prosper in this environment companies have to be innovative, fast, effective and efficient to give these changes a chance to succeed, management has to develop a set of effective performance measurement that will guide and monitor the progress of the company. By finding out what has actually been happening, managers can determine with considerably certainty which direction the company heading towards.
Performance management systems should help employees understand their responsibilities and how their day-to-day work contributes toward meeting their agency’s strategic goals as well as providing a mechanism for giving employees candid, specific feedback on how well they are meeting their rater’s expectations.
The development of an effective measurement system is a crucial task for any organization exposed to tough competition. Effective measurement, however, must be an integral part of the management process. It is simply good management practice to find out how well programs are doing and to use this information for program planning, implementation, and improvement. In order to ensure that this relevance is maintained, organizations need a process in place to ensure that measures and measurement systems are reviewed and modified as the organization’s circumstances change. Measurement is difficult in organizations because it is not an exact science with hard rules and predictable interrelationships between variables (Brown, 2000). One of the critical reasons for this is the impact of so many variables on organization’s performance and hence difficulty in understanding interactions exists between those different variables.
Each framework has its own view of classifying and relating performance measures but effectiveness varies on how qualitative and quantitative perspectives are dealt with.
Performance measurements are used to assess the performance of a process or function of any organization. The development of an effective measurement system is a crucial task for an organization exposed to tough competition.
Furthermore, “what gets measured gets done” and “You get what you measure” suggest that implementing an appropriate performance measurement system will ensure that actions are aligned to strategies and objectives (Lynch and Cross, 1991). Increasingly, research evidence is demonstrating that companies that are managed using integrated balanced performance measurement systems outperform and have superior stock prices (Gates, 1999) to those that are not “measure managed”. No doubt, it is notable to say that organization’s objectives and severity of measures, varies, depending upon the people, culture and past experiences of the organization. Also, (Bititci, 1994); (Oliver et al, 1999); and (Robson, 2004) supported the fact that “looking into strategy first rather than actual output of the process” and; hence measures should be directly related to the firm’s manufacturing strategy and should be chosen from the company’s strategic objectives.
For an organization to be successful in performance measurement system, they need to know about the objectives of performance measurement system and has to be in place such as the effective internal and external communications which has to be simple and easy to use, timely and accurately feedback. Facilitate understanding of cause and effect relationships regarding performance (Kaplan and Norton, 1996, 2000; Martins, 2000) based on quantities that can be influenced, or controlled, by the user alone or in co-operation with others (Neely et al., 2000).
Intelligence for decision makers, not just compile data, consistency with time (Neely et al). Also, compensation rewards, and recognition with performance measurement system and transfers useful information to the appropriate department using performance measurements, everyone in an organization plays an important role in the operating process which also motivates everyone to put in their best effort, because they eventually get rewarded, either through bonuses, promotions or recognitions evaluating and rewarding managers and employees in reasonably objective and easily measures.
When choosing performance measurement, the measures should relate to the goals of the organization, all areas of the departments and at all levels for it to be balanced. It should be understood by all employees to enable easy application, reflect the management of key actions and activities, and balance long-term and short-term results.
There must be a system of feedback and review: in order for performance measurement to be useful in an organization, there must be a continuous cycle of comparison of actual results with the original plan. This means that decision-making process must be taking into consideration for example, if the target of an organization is service quality, there must be a mechanism to know the causes of those variances and know how to correct them. And if they do not meet up to the target, then there is no management control. Also, performance measure should be checked everything. In the results achieved, it is advisable to adjust the targets, either up ward or down ward, change the activities being measured or even modify the objectives. The information from the performance measures must be a stimulus to action. Furthermore, in deploying performance management system, organizations need to know learning system i.e. single-loop learning and double –loop learning. By determining single loop learning, organization needs to know what their business is and how about to improve their routine functions, i.e. running the business as well as it can be run today. For example, if profit is not achieved as expected, they need to take various paths to remedy into consideration, such as change in price, more advertising, improve levels of customer service etc. Such examples will help an organization to succeed. However, organization should not overlook double-loop learning because it enables mangers to adapt changes in its environment and primary driver of sustainable competitive.
Also the system must be owned and supported throughout the organization: it will not be effectively, if employees do not use performance measurement system. The implementation needs to be top-down so that those responsible for setting strategy can determine the objectives and develop appropriate top-level measures. However, where mangers set goals for the teams or individuals, they should ideally be involved with the system rather than have the measures imposed on them (Kaplan and Norton, 1996). The most important is that they are more likely to accept the targets and work towards achieving them. Being involved in the team of the organization is an important of improving the understanding of the strategic aims throughout the organization.
Public sector organizations around the world face unprecedented pressure to improve service quality while progressively lowering their costs. At the same time, they are expected to become more accountable, customer focused and responsive to stakeholder needs.
An example of private sector is Sainsbury’s; the principal measure of successful performance is profit. Public sector, on the other hand, has no such universal and widely accepted performance measure of success. For public sector organizations,an example of a public sector is the National Health Service, performance must be judged against the goals of their programs and whether the desired results and outcomes have been achieved. Success is often viewed from the distinct perspectives of various stakeholders, such as legislatures, regulators, other governmental bodies, vendors and suppliers, customers, and the general public.
Therefore, it is extremely important that the measures of performance used by a public organization be created with as much input and consultation from these constituencies as is feasible, so as to reach as much consensus as is possible regarding what is expected of the organization(Gore, 1997).
While a publicly owned corporation may ultimately be held accountable by its stockholders, and a public entity by the taxpayers, most of the best-in-class organizations place customer satisfaction above all else. "Customers are a source of goals," noted one partner representative, and many others weigh customer concerns heavily when developing strategic goals. The performance goals of an organization represent a shared responsibility among all its employees each of whom has a stake in the organization's success. A critical challenge for private and public organizations alike is ensuring that this shared responsibility does not become an unfulfilled responsibility. Accountability helps organizations meet this challenge (Gore, 1997).
The public sector is under intense pressure to improve its operations and deliver its products and services more efficiently and at the least cost to the taxpayer. Performance measurement is a useful tool in this regard, since it formalizes the process of tracking progress toward established goals and provides objective justifications for organizational and management decisions. Thus, performance measurement can help improve the quality and cost of government activities (Neely et al, 2000).
Performance measurement system gives room for improvement, were there is no measurement in organization, the organization will not identify their weakness, performance measurement system identify department that need attention and enable how improvement can be achieved in that department(Gore,1997).
Organizations use performance measurement system in different ways e.g. what Sainsbury’s will measure will be different from what National Health Service will measure. The reason why organization cannot use the same performance measurement system is because their organization strategic intent is not the same. The organization intent will be different from each another base on their sectors which lead to private and public sectors that is base on the question which say what makes a good performance measurement in private and public sectors.
Private and public sectors will have different strategic goal which will lead to different performance measurement. Most private sector target is profit making at the maximum level whilst public sector is providing of goods and service to the public before profit making. Funds in private sectors are provided by the owners and it shareholders with the view of returns and providing of goods or services whilst public sector is fund by tax payers which is managed by the government with the aim of providing quality service or goods for the public. Example of a private sector is Sainsbury’s supermarket whilst public sector is National Health Service. The types of measure, private and public sectors are interested in are finance consideration (profit), customers satisfaction, internal business operations, employee satisfaction, and shareholders satisfaction. Private sector priority in performance measure is profit which is the financial consideration. This measure can complement one another; a successful customer satisfaction measure can complement financial consideration because good customers’ satisfaction will encourage more customers which might increase profit. Employee satisfaction can also complement customer satisfaction when the employees of an organization are contended with the organization performance; this will reflect on their responsibility at work i.e. the employee putting in all their effort. Most organizations around the world face unprecedented pressure to improve service quality while progressively lower their cost. At the time, they are expected to become more accountable, customer focused and responsible to stakeholder needs (Gore 1997).
David Otley, (1999) ‘Performance management: a framework for management control systems research’, Management Accounting Research, Volume 10, Issue 4, December 1999.
David Otley,Management control and performance management: whence and whither? The British Accounting Review, Volume 35, Issue 4.
Kaplan, R.S and Norton, D.P. (1996), ‘‘Using the balance scorecard as a strategic management system’’, Harvard Business Review.
Mullins, J., (2002). Management and Organizational Behavior. 6th Edition. UK: Prentice Hall.
Al Gore, (1997) National Performance Review.
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