Organizational Performance Management System Essay

In the pursuit of developing most appropriate organizational performance management system, many organizational performance management systems have emerged, making it difficult to choose the best organizational performance management system. The paper reviews the published literature on organizational performance management, and discusses the shift from traditional to new performance management system framework. Also, Balance Scorecard, which is one of the most commonly used approaches in measuring organizational performance, is discussed. Finally, five most important factors in designing organizational performance management are addressed. Introduction In increasingly competitive market, it is imperative that organizations design and implement an effective organizational performance management system to gauge their competitive advantage in the market. An Organization Performance Management System includes multiple activities that help in establishing the goals of the organization, and monitor the progress towards the target. It is used to make adjustments to accomplish goals more efficiently and effectively. Organizational Performance Management System can be best understood through considering the definitions of the words â€Å"performance† and â€Å"measurement† according to the Baldrige Criteria (NIST, 2001): Performance refers to output results from processes, products and services that permit evaluation and comparison relative to goals, standards, past results, and other organizations. Performance might be expressed in non-financial and financial terms. Measurement refers to numerical information that quantifies input, output, and performance dimensions of processes, products, services, and the overall organization (outcomes). Performance measures might be simple (derived from one measurement) or composite. Underlying performance management at both the organizational and employee levels is a set of performance measures. Performance measures with respect to organizational performance are an instrument to assess progress against stated program and organizational objectives. With respect to individual performances it is to assess progress against stated performances objectives, or â€Å"results to be achieved† for individual employees or teams of employees (Good & Carin, 2004). The objective of such system would be to increase the efficiency, effectiveness and performance at both organizational and employee level. The challenge for organizations today is how to match and align both organizational and individual performance measures with business strategy, structures and corporate culture, the type and number of measures to use and how to deploy the measures so that the results are used and acted upon. To address these challenges, organizations have been continually searching for an effective organizational performance management framework. Measuring organizational performance management has variety of uses. As per Vince Kellen (2003) those uses include monitoring and controlling activities, driving organizational improvement, maximizing the effectiveness of the improvement effort, achieving alignment with organizational goal and objectives, rewarding and disciplining. The Changing Role of Organizational Performance Measurement System How to create and measure organizational performance measurement system has been a persistent source of debate. Traditionally, organizational performance management system included measuring financial ratios, such as return on investments, cash flows, and cost of sales. Figure one below depicts traditional performance indicators, focused mostly on financial measures. Figure One Source: Frederico and Cavenaghi 2009 In the recent years the focus has been on measuring non-financial ratios, such as quality, customer satisfaction, safety and other stakeholders. Figure Two shows the new performance indicators, incorporating quality together with other financial indicators. Figure Two Source: Source: Frederico and Cavenaghi 2009 Furthermore, according to Shackleton (2007) financial measures prohibit the guidance and evaluation of an organization’s ability to create future value through investments in customers, suppliers, employees, processes, technology and innovation. Shacketon agues that the pressure for reporting on corporate performance today, has confronted the traditional managerial mindset of historical models for performance measurement, and has required them to be more innovative. Table one below illustrates the shift in the mindset and provides a comparison between traditional and more recent performance measurement systems. Table One TraditionalInnovative Based on cost/ efficiencyValue-based Performance orientedPerformance compatibility oriented Profit –orientedCustomer-oriented Short-term orientedLong-term oriented Prevalence of individual measuresPrevalence of team measures Prevalence of functional measuresPrevalence of transversal measures Comparison with standardImproving monitoring Aim at evaluatingAim at evaluating and involving Source: Shackleton, 2007 From the table it can be concluded that organizational performance management systems are moving towards relationship-oriented understanding of the whole organization progress. It is clear that financial indicators are not ignored, but treated as one piece of the puzzle in a more complex set of criteria’s in measuring organizational performance. Organizational Performance Measurement Approaches: Balance Scorecard Several approaches for measuring and managing organizational performance management system have evolved over time, including Balance Scorecard, Benchmarking, Business Process Reengineering, Continuous Improvement, ISO9000, Total Quality Management, Stakeholder Approach, and Performance Prism Approach amongst others. There is no single framework or model that will ensure success in implementing an organizational performance management system. Exploring all the approaches is beyond the scope of this review, hence Balance Scorecard is review at length since it most commonly used for measuring organizational performance. Balance Scorecard was developed by Robert S. Kaplan and David P. Norton in 1992. It was developed to remedy the weak and vague performance management strategies developed earlier that mostly concentrated on financial indicators.