As a business owner or department head, you no doubt know the importance of performance measurement and most likely track KPIs on a regular basis. But do you wonder if you’re measuring what’s important to your business or organization? Do you know that what you’re measuring matters? And are you able to make a difference with the data you gather from those measurements?
These are questions that decision-makers should be asking themselves on a regular basis, whether they are new to the idea of measurement or looking to revamp their metrics and incorporate learnings that make a positive impact.
When we assess an organization’s performance measurement system as it relates to overall strategy, execution, and performance management, we typically find a disconnected set of goals, measures, initiatives, monitoring methods, and management review. So let’s begin by examining the performance measurement fundamentals that ensure lasting success.
No work gets done in an organization without a business process to deliver it, therefore measuring what matters always begins by examining the business processes that produce desired performance and aligning performance measurement with performance goals.
When examining performance measures begin by first thinking about the Supplier-Input-Process-Output-Customer (SIPOC) of the business process model.
There are a limited number of characteristics that can be measured, and the choice of those measures should be driven by a business process purpose within the overall business system and enterprise need. This same group of measures applies to any process no matter the type, whether it is manufacturing or administrative, physical or intellectual. In these different industries and businesses, process priorities are likely different, which informs the best measures to be selected from the larger measurement pool for driving performance improvement.
To take this concept into tangible specifics, here are 6 performance measurement fundamentals that every measure must have to be fully effective:
1. A business process.
All work within an organization is defined through business processes that connect to deliver a necessary purpose.
2. A product or service produced by the process.
Every business process should produce a product or service that adds value for the organization.
3. A customer specification for that product or service.
Every process has a customer and that customer has a requirement for the product or service they are receiving.
4. Criteria applied to process performance.
Every performance measure is defined through the criteria for performance evaluation and the formula that represents those criteria.
5. A procedure to define and collect data.
The performance criteria must include a standard method for data collection and compilation.
6. A performance report that communicates results.
Results should be communicated through a standard format on a consistent basis with context that fully represents the goal measurement and desired intention. Performance measurement should never mislead the reader into making a conclusion that is in conflict or incorrect when compared to a full review to the data.
These 6 performance measurement fundamentals set the stage for an effective and long lasting measurement system. Every measure should have a specific purpose for furthering organization performance. By broadly assessing the most essential process elements and then aligning performance measures with strategic purpose and intent, the organization leader can drive best in class performance that provides sustainable competitive advantage