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Performance |

Performance

Performance component in Brief

The performance component examines 1) the measurement and monitoring of performance, 2) performance management processes, and 3) various ways to analyse performance. Given that performance is crucial to how organizations achieve their goals1, performance measurement is a step towards demonstrating that an organization is on the right path to achieving its targets. Nevertheless, organizations are often fairly limited in what they measure – quite often the measurements are financially oriented as such data is readily available from a data warehouse or other sources2. However, measurements based on innovation, customers and employees are becoming more common as information systems become more mature3. Therefore, in this study the measurement subcomponent concentrates on how balanced the measures are, and how costly it is to collect the data for the measurements.

Performance management encompasses all the processes that are used to manage an organization’s performance. These are usually strategic and tactical planning, budgeting, reporting, forecasting, consolidation, and risk management2. However, these all are part of the broader performance management process that is used to drive an organization to achieve its goals and objectives. Even though every organization performs some of these processes in one way or another, they are often done separately from each other using incompatible technologies4. Alignment between the different processes and procedures is important because the ultimate purpose of performance management is to transform strategies into results5. Yet, less than a third of organizations have closely integrated performance management processes5. As a result, the maturity of performance management processes and their interdependence is discussed in this subcomponent.

In order to make better decisions and to take the correct steps, organizations use analytics6. In addition to traditional reporting, the management needs to know why the data is what it is, what the organization should do in the future, and how it can best optimize certain factors affecting performance. In the companies studied here, one executive pointed out that only 10-20 % of time is spent on analytics and the  rest is spent on traditional reporting and other performance management processes2. However, every case company believed that they were adopting analytics and forecasting more frequently in their operations in order to obtain more accurate information, and to deduce why some things actually happened, and what are the future trends.

Key capabilities and management practices

  • Measure and monitor performance at strategic level
  • Use of formal strategic planning and management
  • Expand the focus of performance management beyond finance
  • Define, use and monitor Key Performance Indicators
  • Derive KPIs from organization’s strategic goals
  • Align performance measurement with strategic goals
  • Use relative performance goals that are frequently refined
  • Assess key metrics periodically
  • Compatre objectives to competitors
  • Visualize data via dashboards and scorecards
  • Use a performance-based component in bonus or compensation plan
  • Use performance management system for risk management
  • Make sure performance metrics are balanced
  • Use analytics for improved performance and added value
  • Combine performance management processes together

See also other components

Maturity levels for Performance component

Level 1 Level 2 Level 3 Level 4 Level 5
No defined measures; PM measurement system not in use; at strategic level performance is not measured and monitored; no formal strategic planning or management; fixed management reports in use Performance measurement is financially focused; departmental level measurements; historical metrics; PM not done at the individual level; no common strategic measures; first KPIs are being built;  budgeting; planning; consolidation; strategy monitoring and execution KPIs that are derived from organization’s strategic goals; performance measurement is aligned with strategic goals; visualization of data via dashboards and scorecards; KPI scorecards; performance-based component in bonus or compensation plan; risk management Role in individual level increases; performance-based compensation program; metrics are in balance; improved performance and added value from analytics; KPIs are focused frequently; stakeholder scorecards; metrics refines existing metrics; rolling forecasting; strategic planning and analysis Relative performance goals; objectives are compared to competitors; metrics are used comprehensively; key metrics are assessed periodically; analysis and optimization; processes are integrated together; combination of processes such as rolling forecasting and budgeting; strategy scorecard

References

  1. Lönnqvist, 2004
  2. Aho, 2011
  3. Salleh et al., 2010
  4. Coveney, 2003
  5. Axson, 2007
  6. Davenport et al., 2010

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