Performance Indicator Systems - Essay Example

Performance Indicator Systems The business environment landscape today is very different from yesterdays. There is increased competition, customers have become more knowledgeable, choosy, and difficult to please thus their retention is not guaranteed and economic uncertainties owing to changing economic times are unavoidable. Companies are therefore faced with the task of sustaining positive revenues, retain customers and employees as well, and make profits to remain afloat. This calls for checks and balances to ensure that the business is not only operating effectively, but also efficiently (Crotty, 2004).

This is realized through continuous evaluation of the business environment to ensure there is improvement in the performance exhibited by the business today. However, before any improvement can be realized, it is imperative that business and departmental heads and decision makers in a company have a thorough understanding of the performance, as it is today, areas that need improvement and the measures and parameters that need to be used to positively change the company’s future performance.

This paper will examine the measures that decision makers can employ to measure organizational performance specifically looking at performance indicator systems, and their pros and cons. Finally, it will give a summary and a conclusion. Many companies have built manufacturing and production networks to respond to globalized competition. As such, this has increased internal production and manufacturing networks that result in the need of intensive knowledge on the production and manufacturing conditions required in the network.

Performance measurement systems have become important in this respect because companies want to measure whether the production and manufacturing mechanisms respond to their goals and objectives. Performance indicator systems can also be referred to as performance metrics or performance indicators. They can be defined as measures or metrics used to analyze and evaluate the various factors that are very critical to organizational success (Marr, 2012). They can also be defined as qualitative and quantitative measures, which are employed, by business experts and decision makers to continuously review the progress an organization is making against its own set vision and goals (Crotty, 2004).

These measures are usually further translated to the rest of the business as departmental and individual targets. Performance indicators are used broadly to review an organization’s progress. Specifically, they are used to among many other things evaluate staff efficiency and behavior, and assess the organization’s products quality. Performance indicator systems can broadly be categorized into two, Key Performance Indicator (KPI) and Key Performance Driver (KPD). The key performance indicator is the most commonly used performance system and it measures progress.

It is used in line with an organization’s strategy, continuously measuring the progress as the company gears toward achievement of the set strategy. The key performance driver, on the other hand, is used as a warning sign to the organization. It projects an outlook to the organization, indicating possible situations that need immediate attention without which unfavorable results may be achieved (David, 2011). For instance, the satisfaction of customers is a key performance driver indicator that needs continuous attention otherwise the organization may suffer poor retention of customers.

The adoption and usage of performance indicator systems varies from company to company. Whereas one organization’s performance indicator may focus on revenue, another may focus on profits or customer satisfaction. Governments, on the other hand, may have their performance indicators aligned toward inflation, national output and unemployment rates (Richard, 2005). However, despite the variations in their application, performance indicators display a number of similarities. Firstly, they need to be in line with the vision of that organization, its goals, values, objectives, and culture.

Secondly, performance indicators need to be measurable. A performance that can be measured can easily be worked on. All performance indicators thus need to be Specific, Measurable, Achievable, Relevant, and Timely (SMART). Performance indicators need to be specific, that is, clearly outline what needs to be done performance wise for success to be achieved. Indicators also need to be measurable (Marr, 2012). This means they must be based on a system that is observable. For example, in an organization, employees need to be furnished with continuous performance feedback.

The tracking and management of performance needs to be an open and all-inclusive process (David, 2011). As such, all employees in an organization need to know that the indicator in place is achievable. The relevance of a performance indicator is paramount if all employees are to head in the same direction. This further fosters a spirit of consultation among the employees. Lastly, indicators need to be timely, clearly indicating timeframes when desired outcomes are expected (Richard, 2005). Organizational success or failure may depend on the application of performance indicators.

When performance indicators are correctly and effectively used, they can lead to number of benefits. These include general organizational success, better employee relations, improved working relations between management and employees, and improved customer retention. However, the usage of performance indicators has been faulted. Since their major objective is to review the performance of an organization today and give action plans on how to improve the same, then a lot of emphasis is placed on the deliverables.

As such, employee welfare often tends to be sidelined as the set targets take priority. Performance indicators have also been faulted for placing too much emphasis on the mistakes of an organization in the quest to outline areas that need improvement. According to Marr, income-based performance indicators for instance are only good at measuring the failures and other consequences of past decisions other than comprehensively laying out the performance improvement plan (Marr, 2012). In summary, performance indicators systems, also called performance metrics or indicators, are measures used to review the performance of a business and outline areas that need improvement.

These indicators need to be specific, measurable, achievable, relevant and timely if their desired effect is to be achieved. While organizations can greatly benefit using performance indicators, they can as well register poor results. However, the benefits of using performance indicator systems far outweigh the disadvantages and organizations thus need to fully make use of them. This will not only improve an organization’s performance, but will also greatly boost its success. References Crotty, A. (2004). Selection and Definition of Performance Indicators for Water and Wastewater Utilities.

California: American Water Works Association David, P. (2011). Key Performance Indicators: Developing, Implementing, and Using Winning KPIs. New York: John Wiley & Sons. Marr, B. (2012). Key Performance Indicators (KPI): The 75 measures every manager needs to know. London: Pearson UK. Richard, B. (2005). Civil Service Performance Indicators. Ireland: Institute of Public Administration. .