Performance Measurement

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Key Idea

Many organizations use a coordinated system, or framework, to measure business performance across their functions. The best performance measurement systems demonstrate balance.

• They assess a company's financial performance (such as revenues, expenses, and profits) and nonfinancial performance (for example, employee knowledge, information system availability, and quality of customer relationships).
• They draw on internal data (such as process quality) and external data (for example, third-party rankings of companies' product performance against competitors').
• They examine lagging (backward-looking) indicators and leading (forward-looking) indicators. For instance, sales figures show you what your company has achieved in the past, and thus are a lagging indicator. By contrast, customer-satisfaction ratings suggest how your customers may behave in the future; thus they constitute a leading indicator.
• They weigh both subjective (difficult to quantify) aspects of performance (such as customer satisfaction and employee capabilities) and objective (easy to quantify) aspects (for example, revenues and return on invested capital).