This article affirms the need for a performance measurement, but claims that the current information being provided to managers is obsolete and in some instances dysfunctional to the goals of an organization. The authors describe the types of information managers need to achieve an organizations goals, how to implement such a system, and a case that was successful.

Performance measures must be current and relevant in order to be useful to a dynamic business environment. Static measures often outlive their usefulness, such as direct labor efficiency. The alignment between vision, strategy, programs, measurement, and rewards must be maintained at all times.

Key steps in designing an effective performance measurement system include:

        1. Identifying a vision and strategic goals.

        2. Translating goals into specific subgoals.

        3. Profiling existing systems.

        4. Defining appropriate measures.

The illustration below was designed to show how measures are aligned with goals.

The questions management must ask to design a world-class performance measurement system:

        1. What should we measure?

        2. When should we measure?

        3. What are the links between measures at different levels?

        4. How can we balance between conflicting goals?

        5. How can we develop organizational tension and learning needs to be addressed?

This varies from company to company and from one level of management to the next. Top management needs summarized comprehensive information, while lower levels of management need operational measures on a frequent basis. In designing a performance measurement system, there needs to be a small number of measures that are in line with organizational goals.

Frequency of measurement depends on the nature of the information. Most operational measurements need to be measured on a daily basis, such as downtime and deviations from schedule. Measures such as setup times and delivery time can be measured on a weekly basis. Other measures such as customer returns, customers lost/gained can be measured on a monthly or annual basis.

Links Between Measures at Different Levels and Departments

The use of a Balanced Scorecard gives managers a comprehensive and timely evaluation of business performance. The four key and linked business perspectives that the Balanced Scorecard focuses on are the shareholder, customer, internal, and innovation as indicated in the following graphic.

The development of a Balanced Scorecard has four steps of identifying vision and goals:

        1. Translating vision into strategic goals.

        2. Communication the vision and linking strategies, performance measures, and rewards.

        3. Integrating business and financial plans.

        4. Providing feedback and learning.

Financial success can be measured by profit, cash flow, return on investment, market share, and earnings per share.

How should the company appear to its customers? The company must translate the vision into specific measures of quality, cost, and customer satisfaction.

In order to satisfy shareholder's and customers, a company must excel in the business process. Tools and techniques to assist in this goal are ABC, ABM, JIT, TQM, reengineering, and measures such as percent of defects and warranty costs.

In order to achieve its goal, a company must sustain the ability to change and improve. The company must continuously improve its processes and develop new products through learning and innovation.

Organizational Tension and Learning.

Organizational tension is created by the gap between an organization's desired future and its present position. If the organization is continuously learning and tension exists, the result will be organizational improvements.

Change is almost always met with resistance, therefore when an organization decides to implement a new measurement system it would be wise to communicate the need for change and involve the workers. The authors list three phases of implementation that most organizations go through when attempting to improve performance measures:

        1. Phase 1 - This phase involves tinkering with existing cost accounting systems. 
            The organization usually finds that an improved cost accounting system does not fix
            problems of poor performance measures.

        2. Phase 2 - This phase involves cutting the Gordian Knot. The separation of performance
            measures from cost accounting measures. This involves separating internal and external
            accounting.

        3. Phase 3 - This phase involves changing strategies, actions, and measures. 
            The organization shifts focus of attitude and behavior.

Conclusion  

There is a real need for change among the current performance measurement systems. Performance measures are critical for the continued success of an organization.

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