Why measure business performance?
You can't manage what you can't measure.
–Peter Drucker
Organizations measure their performance for numerous reasons. Here are just a few:
- Improvement: By tracking performance, companies can spot—and promptly address—problems such as declining customer loyalty, flattening profits, or defections of talented employees.
- Planning and forecasting: Performance measurement serves as a progress check—enabling organizations to determine whether they're meeting their goals and whether they need to revise their budgets and forecasts.
- Competition: When companies compare their performance against their rivals' and against industry benchmarks, they can identify weak areas and address them to sharpen their competitive edge.
- Reward: By knowing how much employees have excelled in achieving goals, managers can distribute performance-based incentives and rewards fairly to their direct reports.
- Regulatory and standards compliance: Many companies measure performance in order to comply with government regulations (such as antipollution laws) or international standards (for instance, ISO 9000).