Next Generation Performance Measurement

Company leaders know that they need to invest in their people, their customer relationships, and their business alliances, and that these investments ultimately improve performance. But when it comes to determining how these investments should be prioritized, and what the payoffs are, they're often at a loss. Such missing strategic indicators are the focus of a series of studies by the accounting and tax firm KPMG LLP. While measurement in and of itself is not a panacea, organization and employee behavior is driven by what is measured. According to a KPMG survey of 143 upper executives from industry and government, 93% of leaders believe measurement is very or somewhat effective in influencing performance in their areas, but only 51% are comparatively satisfied with their current measurement systems. The study goes on to state that traditional performance measures, which tend to gauge financial, operational and functional efficiency, are not enough in today's changing world. While such measures are generally abundant, precise, and quantitative, they are historical or lagging by nature. Decisions based on such indicators may be dangerous because they rely on outdated or irrelevant information. Better strategic indicators reflect what's happening in the marketplace, strategic implementation, and resource management, and ideally they are predictive. Citing previous research, the KPMG report says successful measurement-oriented companies have measures that all managers understand, feature a balance of financial and non-financial indicators, have strong links between strategic and operational measures, update performance data regularly, and frequently communicate current performance to all employees. Survey respondents said measurement systems fail when they measure what's easily measurable rather than what matters, measure too many things or are too difficult to understand, are based on inaccurate data, and when measurements aren't linked to company goals.