Designing performance indicators

Published on November 29, 2022   14 min
Hello, I'm Pietro Micheli. I'm a Professor of business performance and innovation at Warwick Business School in the UK. I'd like to welcome you to this talk on performance management. The title today is designing performance indicators.
Organizations have mission, vision, and value statements, or statements of purpose. These then inform the strategy of the organization, so what the organization is trying to achieve and how, and then this informs the performance measurement system, which normally consists of indicators, targets and rewards. We want to have aspirations that are converted into something that is more tangible, and then broad statements that become more specific, but they are, nonetheless, aligned. This alignment is very important because we want informed decisions, behaviors, and actions. These then feed back into what measurement systems we use, the strategy that we have, and our main purposes. Today, we're going to look at a key component of performance measurement systems, performance indicators.
There are many reasons for measuring performance. We introduced performance indicators because we want to clarify and communicate our strategy. We may also want to use those indicators to try to understand whether the strategies have been implemented and whether we are achieving the main objectives that we set out to achieve. Indicators are there to influence what we do because we want to assess or evaluate how people have been performing. We also want to perhaps introduce recognition systems or rewards. This topic is quite important, we'll deal with it separately in one of the next talks. One of the points that is also very important is that performance indicators are there to support the way we make decisions. So decisions that are more evidence-based, and they are more data-based. They compliment the fact that we may have previous experience, background or intuition, and so on. But performance indicators should be there to provide data, that we can use to make better decisions. Those better decisions would then encourage improvement and trigger learning. This can be done, for example, by the fact that we have processes that we manage in a better way, so they're more efficient and effective. Indicators can also give us a sense of whether and how to allocate resources in a project. If we measure performance consistently across different units or between different types of firms, then we can also benchmark that is we can compare ourselves with others. Then finally, indicators give us performance information that can reinforce transparency or accountability, within or between organizations. What we're going to do next is to look at a tool that we can use in practice to develop and use performance indicators.