Why Measure Business Performance?

7 Feb

BPM image

This blog draws information from Kellen, V. 2001 Business Performance Measurement, At the Crossroads of Strategy, Decision-Making, Learning and Information Visualization and Kaplan, R and Norton, D. The Balanced Scorecard, Measures That Drive Performance. 1991 

The development of a framework for business performance measurement follows a process of 1. establishing the critical processes/customer requirements/strategic aims and goals of a company or sector of the business that will be measured. 2. The development of metric systems for the business and 3. The establishment of targets against which the results can be scored against. Kellen states “that when a business becomes large enough that a manger cannot control the behaviour of the business by themselves, then it is time to introduce performance measurement”[1].  The company must then proceed to justify the need for performance metrics, because why should a company measure business performance? Vince Kellens paper on BPM gives two accounts from academia in the field.

“Business performance measurement has a variety of uses. Bititci, Carrie and Turner (2002) list the following reasons companies measure business performance:

• To monitor and control

• To drive improvement

• To maximize the effectiveness of the improvement effort

• To achieve alignment with organizational goals and objectives

• To reward and to discipline

Simmons (2000) looks at business performance measurement as a tool to balance five major tensions within a firm:

1. Balancing profit, growth and control

2. Balancing short term results against long-term capabilities and growth opportunities

3. Balancing performance expectations of different constituencies

4. Balancing opportunities and attention

5. Balancing the motives of human behaviour”[2].

The difference of reason is quite evident between Bititci et al (2002) and Simmons (2000).Yet the implementation of a BPM is to yield similar results i.e. gaining control over the company, balancing departments within the business and to yield the overall result of increasing performance leading to increased profit/productivity. Bititci et al and Simmons utilisation of BPM are both correct as there is no wrong reason to examine the form of how your business performs and if you can remove a flaw and replace it with an advantageous gain then you are increasing the competitive advantage of your business.

There is a range of performance measurement indicators which companies use to improve areas of performance which have already been exemplified in this blog. The performance measure indicators are lagging measurement indicator, leading measurement indicator and strategic related indicators. Lagging indicators are the measurement of actions, sales and data recorded which have already taken place i.e. past performances, in the attempt to spot trends and occurrences which can be changed or modified to bring about benefits. Leading indicators are the measurement of future performances such as financial performance, customer satisfaction, customer growth, customer defection and other business related predictions which are expected to occur in the distant and near future. Strategic measurement indicator is a trend that came about after the revision of the Balanced Scorecard Framework by Kaplan and Norton in 2001 where the onus is about measuring the components that make up a business’s strategy and assessing their performance. The indicators all represent different forms through which a company can establish knowledge and insight into its internal workings providing them with the necessary knowledge to move forward as a business.

Determining the contribution of information systems to business performance becomes transparent through the use of indicators. Indicators enable management teams to determine the direct returns from IT therefore making measurements visible and beneficial to the BPM process. Applying Bititci et al and Simmons reasoning for undertaking BPM’s assists management in highlighting the fields where IS contributes to business performance, especially when you take individual facets of their reasoning and apply them to a form of information technology, then direct and indirect gains from IS/IT become measurable.

[1] – http://www.kellen.net/bpm.htm

[2] – http://www.kellen.net/bpm.htm

Kaplan, R and Norton, D. The Balanced Scorecard, Measures That Drive Performance. 1991 

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