Business Performance Indicator Systems - Essay Example

Essay: Business Performance Indicator Systems In order to measure the performance of the businesses, companies need totranslate their outcomes in to a set of measurable performance indicators. Business performance indicators can be defined as the qualitative or quantitative variables that give a reliable means to measure a target, goal or achievement. In addition, they also reflect that changes that are connected to an intervention and help in assessing the performance of an organization against the stated outcome. The regular measurement of performance indicators helps companies in determining if they were successful in achieving the desired targets and goals. Business performance indicators help businesses to manage their performances, which “adds value to the businesses by focusing on how an organization develops, implements and monitors the strategic plans” (Taticchi, 2010, p.243). Therefore Business Performance Indicator Systems have successfully grown and have gained popularity in the recent years (Neely, 2002). A common business performance indicator system helps businesses to set target periodically and provide feedback to managers on progress towards those goals. The business performance Indicators are developed for all levels in an organization because they monitor progress with respect to all the activities, inputs, outputs, goals, targets and outcomes (Kusek and Rist, 2004). Developing the indicators to monitor the outcomes allow managers to assess the degree at which the intended outcomes are achieved. Therefore business performance indicator development is a core activity and requires data collection, analysis and reporting in order to create effective indicators. Business performance indicator systems consist of different types of indicators that are used for measuring different areas. For instance, the financial indicators are used to measure the financial performance of the company. These include premium growth, claim’s ratio and profit. In order to improve the performance of the company, the senior management always set certain performance indicators that help in measuring and improving the performance. As mentioned above these indicators that are set to measure the activities, inputs, outputs, outcomes and goals of the company, provide very important feedback to the management system. They help managers in identifying those parts of the company that may not be achieving its results as planned. Indeed, by measuring the performance indicators on regular basis, decision makers and senior managers can know which programs, projects and policies are going on track, which are moving off track or performing better than expected against the figures and goals set as target. This way business performance indicator system provides an opportunity to the leaders and managers to make necessary adjustments in the company and increase their chances of achieving the desired outcome. These systems play the role of the landmark that helps the management and employees in understanding the relevance of their work and the goals to be achieved. Business performance Indicator systems have several uses with in a company. According to Schönthaler et al (2012); “To make business objective achievement and success strategies measureable, it is necessary to operationalize in terms of key performance indicators” (p.140). Bititci, Carrie and Turner (2002) also pointed out that companies use business performance indicator systems to monitor and control the business, bring improvements in the business, maximize the effectiveness of the improvement effort, to work in accordance with the organizational objectives and to reward and discipline its employees. In addition to this, the business performance indicator systems help in forecasting the revenues, minimize the risk of non-imposed standards, improve the overall decision making, capitalize the opportunities, reduce the production time and increase customer satisfaction which ultimately improves the profitability of the company. Business performance systems are usually predefined by the company management and implemented by explaining to people their relevance of the work with the company goals. However, in order to motivate employees to achieve their individual goals; companies relate key performance indicators with the rewards of the employees. This encourages all individuals to achieve their goals and departments to achieve their strategic objectives, which ultimately results in success of the company objectives and goals. On the other hand, it is also important to note that sometimes the business performance indicator systems turn into toxic substances and work as a dangerous poison. This situation arises when the management is unable to define right performance indicators or when it is unable to properly analyze the information obtained from performance indicators systems. The business performance indicator systems should be used to measure if company is achieving its key goals. The data generated from these systems should then be used for decision making and taking actions where required. This leads to the conclusion that the purpose of business performance indicators is to inform or give objective data. Hence, performance indicator systems should not be considered as the complete picture because no measure is perfect. This can be best described by considering the example of a torch. A torch gives light in a dark room but only in a particular direction. It shows what we want to see but only to a limited extent. Similarly, the different measures show or provide data about a particular side or aspect of the company. They only give a spot light and the remaining room remains dark. They cannot be considered true for the entire business or the only way of measuring company performance. Bauer (2004) pointed out that one of the most important concerns during implementation of business performance indicator systems is the ability to distinguish between important strategy-driven metrics from the plain metrics. Taking a wrong metrics for performance indicators can submarine the performance of the business. Therefore, the business performance systems should not be considered as targets but as indicators that should be used by individuals and managers for identifying their areas of improvement. They should not be considered as goals, otherwise they become toxic and badly affect harm the organizations. This discussion leads to conclusion that Business Performance Indicator Systems capture and distribute the information which is of critical importance to the companies and plays a significant role in the strategic process and in measurement of outcome. A well designed performance indicator system gives the necessary navigation instruments to the management for understanding the current level of performance. However, if management fails to design the correct performance indicators or poorly analyze the information by considering only one aspect and ignoring others, then these business performance indicators turn into toxic. Therefore, companies need to intellectually design their business performance indicator systems. References Bauer, K. (2004). The Power of metrics - KPIs: Not all metrics are created equal. DM Review, 14 (12), 1-3. Bititci, U, Carrie, A & Turner, T. (2002). Integrated performance measurement systems: Structure and dynamics, in Business Performance Measurement: Theory and Practice. Cambridge University Press. Kusek, J and Rist, R. (2004). Ten steps to a results based monitoring and evaluation system. The World Bank. Washington D.C. Neely, A. (2002). Business Performance Measurement: Unifying Theory and Integrating Practice, 2nd edition, New York, Cambridge University Press. Schönthaler, F., Vossen, G., and Oberweis, A. (2012). Business Processes for Business Communities: Modeling Languages, Methods, Tools. Springer, Verlag Berlin Heidelberg. Taticchi, P. (2010).Business Performance Measurement and Management: New Contexts, Themes and Challenges. Springer, Verlag Berlin Heidelberg. Read More