What Are the Different Methods for Measuring Economic Performance?

Performance measurement refers to the degree to which a certain organizational entity (such as an organization, a process, a team, or an individual) achieves their mission, purpose, goal, action steps, or desired standards in terms of quality and quantity.

Performance measurement

Right!

Performance measurement refers to the degree to which a certain organizational entity (such as an organization, a process, a team, or an individual) achieves their mission, purpose, goal, action steps, or desired standards in terms of quality and quantity.

Chinese name

Performance measurement

Foreign name

Performance Measures

Evaluation aspects

Quality and quantity

assess target

Organizational entity

Trap

Empiricism

Four traps

In enterprise performance management, performance measurement plays a pivotal role: when used properly, it can become a booster that greatly improves organizational performance, and if not used properly, it can become a stumbling block to organizational change and performance improvement.

Effective use of performance measurement methods can provide timely feedback on the state of business operations. Based on these feedbacks, we can judge whether the company is moving towards its own organizational goals, whether employees need training, how to optimize the process of reorganization, and so on.

As a reflection of the results of business operations, performance measurement provides a practical basis for the improvement direction of the business.

At the same time, improper use of performance measurement may also cause negative factors such as cracking down on organizational morale, reducing team efficiency, and impeding quality improvement. There are four most common pitfalls in business performance measurement:

Empiricism: Emphasizing history but neglecting the future

The basis of results management is historical information, which shows today's results. Such results are often caused by yesterday's management decisions. However, there is often no reference and predictive value for how today's decisions affect future results.

In this age of competition and change, companies can no longer predict the future based on past experience.

Improvement and improvement begin with the identification and measurement of key services, products, processes and support systems that have a significant impact on results. However, if we adopt the method of standing by the ground and judging simply from past experience, just as the driver only looks at the rear-view mirror, the company will sooner or later fall into the mire of performance decline.

Range misalignment: emphasis on the inside but the outside

Many companies design performance indicators that focus on meeting internal needs. Managers are satisfied with the command-control model, tracking every job and every minute of the working day, and the design of performance indicators is also limited to certain internal functional departments: finance, human resources, information technology, and so on.

This method of performance measurement ignores the needs of customers, and high-quality service providers need to measure customers from the outside. This requires companies to first clarify what is most important to customers, then consider how to provide customers with products and services, and then implement them into specific product production and service provision personnel. The design of performance indicators for managers and corresponding functional departments should also be based on the driving factors behind this "customer-server-producer" chain.

Improved: Focus on the individual but light on the structure

Just as important as choosing metrics is the use of measuring information. In many organizations, team members resist precise measures of ratios, cycle times, and customer satisfaction, because this detailed information exposes their work and makes them the direct bearers of performance responsibility.

A large amount of evidence shows that 85% to 90% of errors in enterprises come from organizational structure, systems and processes, but most managers are still accustomed to finding problems from people rather than structures and processes.

Differing Knowledge: Do More

Performance measurement is only an indicator reporting system. No matter how advanced the measurement system is, the measurement results can only tell the status of enterprise performance.

Improved performance depends on organizing relevant people to analyze and improve key processes and support systems. Performance indicators have identified the crux of the problem for the company. Therefore, it is more important for the company to take measures to improve these problems. If performance measurement does not lead to performance improvement measures, the work previously done is completely wasteful.

Performance measurement is a basic tool for improving corporate performance. Choosing the right tool is undoubtedly important. It is also important to know how to use the tool correctly. The two together determine the ultimate effect of corporate performance management.