ORGANIZATIONAL PERFORMANCE comprises the actual output or results of an organization as measured against its intended outputs (or goals and objectives).
Specialists in many fields are concerned with organizational performance including strategic planners, operations, finance, legal, and organizational development.
In recent years, many organizations have attempted to manage organizational performance using the balanced scorecard methodology where performance is tracked and measured in multiple dimensions such as:
- financial performance (e.g. shareholder return) - customer service - social responsibility (e.g. corporate citizenship, community outreach) - employee stewardship
Performance measurement is the use of statistical evidence to determine progress toward specific defined organizational objectives.
There are many types of measurements. In school, exams are graded to establish the academic abilities; in sports, time is clocked in split seconds to verify the athletic abilities. Similarly in teams and organizations, there are various tools and measurements to determine how well it performs. Gamble, Strickland and Thompson (2007, p. 99) provide a comprehensive method for measuring performance of organizations. How well each company performs is dependent on the strategic plan. Some of the measurements include basic financial ratios such as debt-to-equity ratio and if the levels are an issue with creditworthiness.
The daunting task of measuring performance for organizations across industries and eras, declaring the top performers, and finding the common drivers of their success did not occur to anyone until around 1982, when Tom Peters and Bob Waterman got down to work researching and writing In Search of Excellence. This publishing sensation challenged industrial managers’ actions and attitudes, and inspired researchers and scholars to further pursue the theory of high performance – the holy grail of any competitive business organisation. This task becomes more complex as corporations diversify into multiple industries. A researcher must take this into consideration when conducting a comparative analysis of companies.
Several performance measurement systems are in use today, and each has its own group of supporters. For example, the Balanced Scorecard (Kaplan and Norton, 1993, 1996, 2001), Performance Prism (Neely, 2002), and the Cambridge Performance Measurement Process (Neely, 1996) are designed for business-wide implementation; and the approaches of the TPM Process (Jones and Schilling, 2000), 7-step TPM Process (Zigon, 1999), and Total Measurement Development Method (TMDM) (Tarkenton Productivity Group, 2000) are specific for team-based structures. With continued research efforts and the test of time, the best-of-breed theories that help organizations structure and implement its performance measurement system should emerge.
Although the Balanced Scorecard has become very popular, there is no single version of the model that has been universally accepted. The diversity and unique requirements of different enterprises suggest that no one-size-fits-all approach will ever do the job. Gamble, Strickland and Thompson (2007, p.31) list ten financial objectives and nine strategic objectives involved with a balanced scorecard.
Challenges in Performance Measurement
The traditional control-oriented performance measurement system in the industrial era is losing its relevance in today’s fast changing environment where organisations are re-shaped into flat multi-functional hierarchies. Performance measurement will get tougher with globalisation and increasing complexity of organisations’ business models, teams’ roles and responsibilities.
Diversity of organizations and professionals
A huge variety of organisations exist today. For example, there are government, education, financial services, manufacturing, retail, non-profit, food and beverage. Then, there are sub-industries. In financial services, we can break down into the banks, insurance, exchange and so on. And in each, we can for example break down a bank into deposit, loan, credit card, investment departments. In deposit department, we have savings, current and fixed accounts. This break down goes on until we have an individual that performs a task that is unique. If the bank example has 10,000 staff, are we going to have 10,000 different performance measurements? It will be a challenge for an organisation to keep track of the huge diversity of skilled professionals and ensure alignment to its mission and values.
Intangible and non-financial measurements
Traditionally, accountants play a major role in measuring an organisation’s success. Unfortunately, annual reports do not allow managers to monitor the progress to build capabilities and acquire the intangible assets needed for future growth. Non-financial measurements will be required to link a company’s long term strategy with its short term actions.