How to Measure Performance in an Organization?

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By: Site Engineer, Staff

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Goal-setting is generally intended to guarantee some minimum level of performance. The only way to ensure that efforts are being geared towards goals is to evaluate performance periodically and relate the measurement to the set goals.

Performance measurement is, therefore, fundamental to the success of goal-setting because of it:

  • Provides feedback on current performance.
  • Highlights areas of deficiency.
  • Shows the level of discrepancy between actual and desired performance.

An effective performance measurement system is an asset to any organization and can serve the following purposes:

Objectives, goals, and strategies serve to identify the organization and its mission, as well as provide a central focus around which human effort organizational resources can be put to work. Clear, vigorous determination of goals is necessary for effective management. Goal-setting assists managers or administrators in their leadership role by providing a basis for uniting the efforts of the organization’s members.

Objectives help to establish the organization’s relationship with society and with its environment. They help to give the organization recognition and status. Also, goal-setting motivates individuals and provides a basis for evaluating the total performance (performance measurement) of the organization.

Some of the commonly used criteria in organizational research from measuring organizational performance or effectiveness are as follows.

1. Profitability

This criterion is based mainly on accounting data. This is often affected by unanticipated fluctuation, external to the system, such as markets, sales, and prices.

2. Morale, Turnover, Absenteeism

These criteria have been criticized as inconsistent, insignificant and difficult to evaluate and interpret. Another problem is their differential sensitivity to additional factors, such as the nature and volume of work, organizational level and time of occurrence.

3. Productivity or Output

It remains one of the widely used criteria for determining organizational effectiveness. It is typically measured with actual output data. It has, however, been widely criticized. It is said to ignore the environment of the organization and its coping ability. The criterion also emphasizes the end-products, while ignoring the means to the end. Critics also point out that this criterion reflects part effectiveness while saying nothing about the present or future. Again, while the productivity indices are being used, the current condition might have changed. Lastly, the quality and efficiency of production are played down.

4. Goal Attainment

This is complicated by the tendency of goals to change, to be vaguely stated, or to exist in sets at different levels. Also, because there are multiple goals, some will conflict. However, goals need to be evaluated before use, since; for instance, it would be misleading to talk of effectiveness in attaining wrong or inadequate goals.

5. Employee Satisfaction

It is usually measured by a self-report questionnaire. It is subjective more important, however, is the fact that it does not necessarily lead to organizational effectiveness or ineffectiveness.

It is usually measured by the employee or supervisory rating but is often subjective and sometimes biased.

There are also several primary evaluation criteria which include these following most frequently cited ones:

  • Growth
  • Employee acquisition and retention
  • Stability
  • Creativity
  • Societal value
  • Interpersonal relations
  • Interdepartmental relations
  • Cohesion, efficiency, and support
  • Conformity and institutionalization
  • Simultaneous achievement of high production-centered and high people-centered enterprise
  • Anxiety
  • Manpower utilization
  • Development
  • Flexibility
  • Adaptability
  • Absence of organizational strain
  • Successful acquisition of scarce and valued resources
  • Survival
  • Control over the environment
  • Sense of identity
  • Capacity to test reality
  • Optimal balance of integration and differentiation
  • Open communication
  • Psychological commitment

Strategic Objectives and Performance

There are eight areas in which organizational objectives might be developed and maintained:

  1. Worker performance and attitude
  2. Profitability
  3. Public responsibility
  4. Marketing standing
  5. Innovation
  6. Productivity
  7. Financial and physical resources
  8. Managerial performance and development

Organizational management, having established organizational objectives, has to develop a series of specific objectives for each level of management. These objectives are typically expressed in terms of sales growth profitability market share growth and risk, diversification.

However, organizations encounter difficulties and conflicts in establishing these multiple objectives, the following eight basic strategic trade-offs facing organizations are identified.

  1. Penetration of existing markets versus the development of new markets.
  2. Related versus unrelated new opportunities at a source of long-term growth.
  3. Profit versus non-profit goals.
  4. Growth versus stability.
  5. Riskless environment versus high-risk environment.
  6. Short-term profit versus long-term growth.
  7. Profit margins versus competitive positions.
  8. Direct sales effort versus market development effort.

It follows, therefore, that an organization has to decide on the relative importance to be attached to each of the above dimensions. Failure to do this may result in conflict and reduce the degree to which the organization’s objective will provide relevant strategic direction.

Organizational objectives are not set in a vacuum. They are based on an exhaustive understanding of the demands of the environment and available opportunities. Attention, therefore, needs to be given to those objectives which are likely to be pursued by competing firms, since these will have a direct effect on subsequent levels of organizational performance.

An organization’s competitive situation and marketing decisions are concerned with two major elements: products and market have identified three basic marketing objectives:

  • To enlarge the market,
  • To increase market share, and
  • Improve profitability.

These three main marketing objectives have been taken several steps further by some other scholars and suggest that there are six objectives which should be given explicit consideration:

  • Market share growth.
  • Cash-flow maximization.
  • Sustaining profitability.
  • Harvesting.
  • Establishing an initial market position.
  • Market-flow maintenance.

In various ways, however, these approaches can be seen to come together in ideas of a product/market matrix, which focuses on the product (that is, what is sold) and to whom it is sold. That is (the market) highlights four distinct strategic alternatives open to an organization:

Against the background of the comments made so far, it should be apparent that marketing objectives relate to the four categories of product/market matrix with decisions being made on:

  • Existing products in new markets.
  • New products in new markets.
  • Existing products in existing markets.
  • New products in existing markets.

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