The world-class enterprise knows, at any moment in time, its actual performance.
This means there is a system for Performance Management, by which the main parameters of enterprise's performance are identified and defined - measured - monitored - indexed - and diffused; the gap between actual performance and potential, ideal performance is detected, known and dynamically defined; systematic actions/initiatives addressed to improve overall enterprise's performance through the improvement of its main parameters are taken, on a regular and continual basis; improvement results are monitored, evaluated and critically assessed for possible deficiencies; further improvement actions are undertaken; and so on, in an endless search and striving for excellence.
Aiming at excellence is valuable and beneficial per se. It is the most precious asset in the balance sheet of the world-class enterprise.......
The road to excellence goes through a number of essential and conditional check-points, including (but not limited to):
- Measuring actual Performance. Or, ".....know where you are....", at any moment in time.
- Setting the gap. Or, "know where you can get....".
- Making it happen. "....get there....".
MEASURING ACTUAL PERFORMANCE.
This is the starting point of Performance Management. Nothing will happen in those enterprises that do not know where they stand. No real improvement can take place...
Because they stand in soft, loose ground, or even quicksand.... so that any attempt to improve will most probably make them sink even more...
Knowing the present level of performance by measuring it creates a solid launch pad and an associated tension from which subsequent improvement initiatives can get powered and take-off.
However, performance is a brilliant, but also very vague word. What is it, and how can one actually measure it? The only way to grasp it and then to measure it is to break it up in a number of significant components, that I call key performance components.
One can zoom-in as necessary: at macro level it is always possible to identify classes of performance (or categories of performance) such as Commercial Performance, Economical Performance, Operational Performance, e-Performance.... and even Cultural Performance.
Each class of performance can in turn be broken up in a number of key performance components, personalised to suit that enterprise.
For instance, under Commercial Performance, it is viable to identify many key performance components.
Some examples, in random order: Market Penetration/Market Share - Sales Force Effectiveness - Customer Loyalty - Acquisition of New Customers - Dealers/Wholesalers Performance - Brand Identity - Communication Effectiveness - Reputation/Image - etc.
Identifying key performance components is a delicate and rather hard task. It can only be carried out by enterprise's people, because they know their enterprise. Obviously they have to take into due consideration all sorts of external inputs and ideas.....
This tasks involves also the definition of the measuring criteria for the selected key performance components (other delicate issue).
Then it's a matter of measuring the chosen key performance components.
Things are rather straight-forward for mathematically measurable components. For instance, the Acquisition of New Customers component, over a defined period of time, can easily be measured through a mathematical expression.
Things are a bit tricky when we have to measure components such as Reputation, or Image.
These and similar immaterial or intangible components are rather difficult to measure.
Still, it is possible to measure them with a pretty high degree of accuracy by means of questionnaires and associated scoring tables.
Dedicated Questionnaires can be filled internally or externally, by enterprise's people, by their clients, by their suppliers, by members of the surrounding community....
For instance, a Company Climate Questionnaire is completed by all employees. An Enterprise Image Evaluation Questionnaire should be completed by employees, suppliers, clients, key members of the surrounding communities, etc.
When things are set up properly, the measuring operation outputs a numerical score.
This score is called key performance component indicator.
When measuring scales are "homogeneous" it is possible to associate to each key performance component an index.
Indices are the best tool to monitor performance over time.
A couple of example of indices:
Ims = Market Share Index = 100 x Sales ($)/Overall Market Value ($)
Ise = Sales (Turnover) per Employee Index ($) = total sales (turnover)/total number of employees
The power associated with indices becomes evident when key performance components are monitored over time and graphical representations are produced. Example:
Through graphic tools like histograms, control charts, and similar ones, situations start appearing crisp and clear. Trends can be analysed, projections can be made, plans of actions can be set.
Moreover, when all indices associated to the key performance indicators of a certain class of performance are known and made homogeneous, it is possible to produce (through some mathematical calculation) a class of performance index, a global index for that class.
So, there is a Commercial Performance Index, an Operational Performance Index, etc.
Now the astonishing power of indices can be displayed at full screen by means of a radar chart (also called spider chart).
An enterprise has identified 8 main classes of performance
There is an index attached to each class
All indices are homogeneous in a certain scale (for instance in a scale 0 - 5, where 0 corresponds to the worst possible level of performance and 5 to the best possible one)
Its performance radar chart will look like this:
Through a radar chart it is possible to see phenomena at a glance, in this case the picture of an enterprise's performance.
Finally, it is even possible to create an Enterprise Performance Index, representative of the overall performance status.
How many enterprises can boast an achievement of this nature?
REMARKS ON PERFORMANCE MEASUREMENT
- Mathematics are mathematics. Only a tool. Great care must be taken not to confuse a tool with its effects.
It is extremely important to keep an "aerial" perspective of the obtained scores and indices.
- In the world-class enterprise, the most important performance indices are those related to processes (Central Process, all Critical Processes, and many Support Processes)
- The world-class enterprise dedicates particular attention and care to identifying, measuring, and then improving its e-Performance, or performance of the overall web-based enterprise's activities (more »).
This require a specialised set of tools and techniques, but the global approach is identical as in the case of real-world performance. No distinction is made.
If the measuring ground work is done properly all the rest can happen.
When an enterprise knows about its performance at any moment in time, it is also ready to set improvement targets and get there. (more »)
this topic is now available in an e-course!!
The topic: Performance Measurement & Monitoring
is dealt with extensively in
Carlo Scodanibbio e-course
The essential toolbox for Performance measurement and monitoring in the SME
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