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Topics Covered
- Stakeholders
- Organizations
- Customers
- Finances
- Management
- Business processes
- Learning and growth
- Scorecards
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Talk Citation
Micheli, P. (2023, January 31). Developing and implementing a performance measurement system [Video file]. In The Business & Management Collection, Henry Stewart Talks. Retrieved October 11, 2024, from https://doi.org/10.69645/NYNV4908.Export Citation (RIS)
Publication History
Other Talks in the Series: Introduction to Performance Management
Transcript
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0:00
Welcome to the second talk
on performance management.
I'm Pietro Micheli,
Professor of Business
Performance and Innovation
at Warwick Business
School in the UK.
The topic of the
second talk is about
how to develop and implement
a performance
measurement system.
0:18
As we mentioned in
the first talk,
organizations have
three key elements
that need to be aligned.
Their aspirations, often
expressed as mission,
vision, and value
statements, the strategy,
which is a coherent set
of choices that enables
the organization to achieve
the goals that are
set to achieve,
and then finally, a performance
measurement system,
which is what we are
going to look into today,
which typically comprises of
indicators, targets, and rewards.
These elements need
to be connected
because they move from
aspirational to tangible,
but also from something
that is rather
broad to something
more specific.
As we mentioned in
the first talk,
it's important that
these elements
lead to certain
types of decisions,
attitudes, behaviors,
and actions.
We're going to focus
on the element
there in the middle called
the performance
measurement system.
1:12
A performance
measurement system,
which in practice could be
a scorecard or presented
as a dashboard,
often consists of four
interrelated elements.
The first element is indicators.
Those indicators
individually need
to be sufficiently robust.
In the next talk,
we're going to talk about
specific indicators and I'm
going to show you examples.
But for now, robust
indicators mean
indicators that give us
information that is relevant,
that is accurate,
and that is precise.
We then have
performance targets.
Levels of performance that we
want to or have to achieve.
It's important to remember
that some of these
targets may be
imposed on us for
contractual reasons,
certification reasons,
or regulation,
sometimes these targets may
be introduced by ourselves,
and so we may want to
increase performance
or increase employee motivation,
and so on and so forth.
What is important
here to remember is
that we talk about performance
measurement systems,
not just a list of
indicators and targets.
The third characteristic
if you want,
of performance measurement
systems, or PMS,
is the fact that they
need to combine.
It's important that we have
this combination because, at
the organizational level,
we want to try to understand
the performance of the
whole organization.
Then down to business
unit levels, or teams,
or individuals, we want to
have indicators and targets.
They give us a sense of the
performance of such levels.
Very often instead, we tend
to measure what is
easy to measure,
and so that combination is
not necessarily as strong.
Sometimes, we also forget
to think that some
of those indicators and
targets may be in conflict.
A simple example is if
you think about sales,
of course, you can measure the
volume of something being sold.
But if your salespeople are
only measured
according to volume,
is likely that
they will decrease
the price of what
they're selling,
and so that would then impact
the margins that the
company makes on the sales.
Volume and margin tend to be
often seen in combination
or should be seen
in combination,
otherwise, we may have
detrimental effects.
The fourth element
that is important
to consider when we
talk about performance
measurement systems
is the fact that we need to have
an infrastructure
and resources that
enable us to do
the measurement and
management of performance,
so acquiring, collating,
sorting, and so on
of information.
That infrastructure can
be an information system,
an enterprise resource
planning system,
or your P, and so on,
but also the capability that
people need to
develop to do this,
and we're going to see this in
more detail in the next talks.
Overall, a performance
measurement system
has got three main aims.
The first one is
to acquire data,
so we need to get data that is
relevant to what it is
that we're interested in,
enables us to analyze such data,
and also represent it in
the form of information,
and so what it is that it's important
for us to then make decisions.
The most commonly used performance
measurement system is the balanced scorecard.