After completing this chapter, you should be able to: understand the various purposes of performance measurement systems and the role of these systems in enhancing customer value and shareholder value; understand why conventional financial measures are not sufficient for managing an organisation; describe the characteristics of contemporary approaches to performance measurement;. | Chapter 14 Contemporary approaches to measuring and managing performance The purposes of performance measurement Communicate the strategy and plans of the business and align employee’s goals Track performance against targets Identify problem areas Evaluate subordinates’ performance and as a basis of rewards Guide senior managers in developing future strategies and operations Problems with conventional performance measures They are not actionable Financial measures emphasise only one perspective Financial performance measures provide limited guidance for future actions May encourage actions which decrease shareholder and customer value Contemporary performance measurement systems Include non-financial and financial measures Have a strategic orientation—directly measure areas that provide competitive advantage Use external benchmarks Emphasis continuous improvement Non-financial measures for operational control Non-financial measures reflect the drivers of future financial . | Chapter 14 Contemporary approaches to measuring and managing performance The purposes of performance measurement Communicate the strategy and plans of the business and align employee’s goals Track performance against targets Identify problem areas Evaluate subordinates’ performance and as a basis of rewards Guide senior managers in developing future strategies and operations Problems with conventional performance measures They are not actionable Financial measures emphasise only one perspective Financial performance measures provide limited guidance for future actions May encourage actions which decrease shareholder and customer value Contemporary performance measurement systems Include non-financial and financial measures Have a strategic orientation—directly measure areas that provide competitive advantage Use external benchmarks Emphasis continuous improvement Non-financial measures for operational control Non-financial measures reflect the drivers of future financial performance More actionable More understandable and easier to relate to Non-financial measures Customer satisfaction Measured by survey administered to customers Defect measures Measurement of faults in a product that occur during manufacturing process Support a high quality strategy Quality Periodic inspections or testing of products continued Non-financial measures Productivity The ratio of outputs produced per unit of input continued Non-financial measures Stock status Accident report/safety reports Multiskilling Machine down time Number of hours, or percentage of total production hours that machines are unable to operate Delivery on time Problems with non-financial performance measures Wide choice of non-financial measures available Their development can be ad-hoc and undirected Managers must necessarily make trade-offs Some measures lack integrity Some measures not easily translated into financial outcomes Measuring performance with a balanced scorecard A .
