[Published in Southwest Indiana Business Fall 2001, Volume 2, Issue 4]

In business, performance measurement is like knowing the score of your favorite football or basketball team. We wouldn't enjoy going to a competitive athletic contest if the scoreboard did not work. So why do we try to run our business without the proper scoreboard?

Many companies do not have the proper methods (scoreboards) to determine if they are winning or loosing. They run the business by "gut feel" or "this is the way we always have done it." A key component of management is having the proper performance measures to know the "score" at all times. How can you know if you are getting better if you don't know where you have been?

Performance measures are more than financial. They should measure the health of the entire organization. Kaplan and Norton from Harvard Business School developed a methodology called the "Balanced Scorecard" for performance measures. They defined the balanced scorecard as a set of measures that give a complete view of the health of the organization at a glance. The balanced scorecard not only looks at financial success but also measures:

• Internal business process performance
• Customer perspective
• Organization learning and growth.

In addition, these measures must be linked to the overall vision or strategy of the organization.

How Should You Get Started?

1. Develop a Clear Vision/Strategy for the Organization
This is the most important part of the process. If you don't know where you want to go, how can you measure success? The vision should be clear and easy to understand by all members of the organization.

2. Determine Measures Required For Success and Linked to the Vision
What should you measure to ensure that you are moving toward your vision? To determine what the final measures need to be for your organization may take some time. You need to consider not only the immediate measures but also those measures required to help you achieve your vision. The measures need to be developed for all areas of the balanced scorecard. In addition to financial measures, there is a need for non-financial measures covering the areas of internal process performance, customer interface and learning and growth.

3. Collect/Prepare Data (Scorecard)
The next step is to collect the data and begin to monitor the performance measures. In some cases a method or process for collecting the performance data might need to be developed.

4. Develop Review Process
Once the data can be collected efficiently, it is necessary to develop a method for review. All the data should be reviewed on a routine basis. It will be necessary to determine the frequency of the review. Some data will lend itself to daily review, some to weekly review, some to monthly, and some to quarterly. You should start out reviewing information in shorter frequency and then lengthen the review cycle as trends in the data become evident.

5. Evaluate and Revise
Unless you are extremely lucky you will need to evaluate and revise your performance measures. The evaluation should include the following questions: Are they appropriate?; Do they measure what we want to measure?; Do the performance measures show the intended results?; Have we missed any measures?; etc. This is very important since we want to run the production operation using these measures. Therefore continuous review and revision is needed to keep pace with the operation. Over time some of the measures that were important in the initial stages of the process will become obsolete and new measures will need to be added. This is necessary in the continuous improvement process.

6. Move the Measures Throughout the Organization
The measures need to be developed for all levels of the organization. Once the top-level measures have been identified and adopted, it is time to implement measures for the remainder of the organization. These should follow the same pattern and should be linked to the department or organization measures they support. Each of the individual production department measures should support the overall corporate production measure e.g. If the overall measure is production efficiency with a goal of 10% improvement then each production department should have a measure and goal to support this. The chart shows how the measures should be linked within the organization to establish a consistent set of performance measures.

Written by Floyd McKeag, Manufacturing Consultant
Published in Southwestern Indiana Business, Fall 2001, Volume 2, Issue 4