Performance Measurement VS Performance Management
As an entrepreneur, I know how important it is to see what works at your business and what doesn’t. Business is unpredictable, and something that won’t change is change itself. You need to constantly measure your business performance so you know what’s successful and what is not, and start doing something to manage it. Today, I’m going to talk about the difference between performance measurement and performance management, and how it can help a business to success. Performance Measurement Vs Performance Management As you may be aware, performance measurement and performance management are two essential concepts that helped organizations to monitor and make developmental decisions. Now, these concepts offer complementary roles, and it is easy to mistake them for each other. However, they are not the same. Here are the vital things you need to know about the two. What is Performance Measurement? Performance measurement measures performance. It can be defined as the tool by which an organization monitors essential aspects of its programs, systems, and processes. It is the process of collecting, analyzing, and reporting information regarding the performance of an individual, team, or organization by comparing it to the set goals and objectives. These are the quantitative indicators you put in place to track the progress of your strategy. It can relate to short term objectives (e.g., cost control) or long term measures (e.g., customer satisfaction). The measures include 1. Financial measures, It’s about measuring and tracking progress in essential areas of company performance. It provide you with a general picture of the
overall health of the business. [e.g. Operating Cash Flow,Working Capital,Accounts Receivable Turnover etc] 2. Customer measures, and this is about Customer satisfaction or best understood in terms of customer experience that include a customer’s perceptions, interactions and thoughts about your business. [e.g. Overall Satisfaction Measure, Loyalty Measurement, Intentions to Repurchase Measurements and more] 3. Process measures, One of the example is sales process. Let’s look into it because it’s one of the most important process you’re responsible for. The risk is high because the money and time invested is significant. [e.g. Number of transactions/ sales opportunities (#), win rate , average sale price and many more ] 4. People measures.are more difficult to define, gather, and understand. And many companies are treating their people measures as nice-to know information, with no real business consequences, that is because many still do not understand the potential power of people metrics e.g. o
Teamwork—the level of coordination and cooperation between business units, departments, and work groups
o
Management—the effectiveness of senior leadership
o
Supervision—the effectiveness of immediate supervisors
Since there’s just a little consensus about how to use performance measures, performance measurement technique that incorporates expected goals, purposes, or outputs emerged. This technique also proscribes methods for choosing and using the appropriate measures of their application. The popular technique is the Key Performance Indicator (KPI). KPI is a measurable value that demonstrates how effectively a company is achieving key business objectives. What is Performance Management? Performance management is the forward-looking process used to set goals and regularly check progress toward achieving those goals. It can focus on the performance of an individual, team, organization, or the process to manage particular tasks. When done well, performance management is an essential tool
that helps employees to realize their full potential. Generally, Human Resource facilities can get the most out of the workforce. Knowing how to implement effective performance management can be challenging, especially when overseeing today's multi-generational workforce. Six of the techniques that organizations can use to manage and develop talented individuals include performance appraisals, 360-degree feedback, Management by Objectives (MBO), performance management frameworks, reward and recognition programs, personal development plans, and Objectives and Key Results (OKR). OKR is famous for its notable effectiveness in Intel and Google. But generally, it connects company, team, and personal goals to results by having all team members and leaders work together as one. Now, let’s take a look at how Intel implemented OKR around 40 years ago, to develop focus, alignment and accountability in various teams across the company, and successfully turned around a losing competition over Motorola, and regain the leading position in microprocessor business. Intel Corporate Objective Establish the 8086 as the highest performance 16-bit microprocessor family, as measured by Q2 1980 KR1 Develop and publish five benchmarks showing superior 8086 family performance (Application) KR2 Repackage the entire 8086 family of products (Marketing) KR3 Get the 8Mhz part into production (Engineering, Manufacturing) KR4 Sample the arithmetic coprocessor no later than June 15 (Engineering) Difference and Importance of Performance Measurement and Performance Management While performance measurement answers the question of “How do you track the progress of the strategy you've put in place?" performance management answers the question of "How do you manage the strategy you’ve put in place?” You can also say performance measurement checks if costs have fallen
or increased. However, performance management deals strictly with controlling (increase) costs. Performance measurements are quite significant, but they are not enough. They offer you possible ways to track your progress. Still, they don't provide you with a process of doing anything about your results. This is where performance management comes in. It offers you ways to do something about your measures as you proceed. KPI VS OKR If everything is a priority, then nothing is a priority. In other words, the letter K in the two acronyms, meaning key, means few most important options. While you can refer to your KPI as the dashboard in your car telling you if you still have enough oil, how much fuel you've got left, and so on. OKR is more like your navigation software. So in cases where your KPI (Performance Measurement) indicates your gas is running out, OKR (Performance Management) gets you to the nearest gas station.
