STEP 1: Set measurement criteria
Include the following five business perspectives:
Customer perspective (How do customers see us?)
- Quantified by measures of time, quality, performance, and service.
Internal processes perspective (Where must you excel?)
- Consider measures coming from core competencies and the business processes that have the most impact on customer satisfaction (cycle time, quality, employee skills, productivity, etc.).
Innovation and learning perspective (Can you continue to improve and create value?)
- Focuses management on measures concerning the improvement of existing product/services and the introduction of future products/services, technology and learning (new production rate, defect rate, etc.).
Financial perspective (How do you look to shareholders, investors, clients & partners?)
- Quantified by measures of growth, profitability, and shareholder value. Reflects sound financials.
Employee perspective (Is your workforce adequately motivated?)
- Quantified with measures of employee satisfaction (job satisfaction, satisfaction with supervision, satisfaction with pay).
The above performance measurement scorecard reflects the five key business performance perspectives as follows:
- The internal processes perspective is represented by the quantitative key result area (KRA), performance to plan, and the qualitative key result area, safety and environmental.
- The financial perspective is represented by the qualitative KRA cost to budget.
- The employee perspective is represented by the qualitative KRA team.
- The customer perspective is represented by the qualitative KRA customer service.
- The innovation and learning perspective is represented by the qualitative KRA consistent design, development, and implementation of improvements to the organisations operations.
Three levels of performance measures are represented in this sample tool:
- Key result areas (Level 1)
- Performance criteria (Level 2)
- Performance targets/standards (Level 3)
Definitions of each of the performance criteria and behavior descriptions used to rate the qualitative measures follow the performance measurement scorecard.
STEP 2: Use the following guidelines when developing this system
Prioritise key result areas depending on the amount of effort necessary to expended in each area. For example, if Customer Service is not an important aspect of this division, but Performance to Plan was identified as a new, essential component, the latter will require a greater amount of effort and focus. There are many options for representing this effort, including percentage; scale of high, medium, low improvement opportunity; or ranking on a scale from 1 to 10.
Establish and communicate the necessary steps to reach performance standards (e.g., "needs improvement," "meets expectations," "exceeds expectations") by defining metrics. The targets for quantitative measures are represented by specified variances, and the targets for qualitative measures are represented by a numeric proficiency rating scale based on corresponding behavior descriptions.
Identify the degree to which each team affects the performance criteria based on the roles and responsibilities of the teams. For example, represent the impact by percentages to help determine incentive allocations based on performance. The percentage breakdown can be established by a focus group. A team's impact on the performance criteria also can be represented by either check marks or a "high, medium, low" rating scale.
Assist team members in understanding the different measures across all steps of the process, as well as how overall production links to divisional goals.
Have the measures serve as a basis for a dynamic, continuous process used to evaluate team performance. Revise strategy and results-based measures as appropriate.
Finally, remember that the most effective performance measures use both result measures (quantitative) and behavior measures (qualitative). Result measures are usually self-explanatory, while behavior measures should include specific definitions and metrics.
STEP 3: Establish and communicate key performance standards
Establish and communicate the necessary steps to reach performance standards (e.g., "needs improvement," "meets expectations," "exceeds expectations") by defining metrics. The targets for quantitative measures are represented by specified variances, and the targets for qualitative measures are represented by a numeric proficiency rating scale based on corresponding behavior descriptions.
STEP 4: Identify responsibility levels
Identify the degree to which each team affects the performance criteria based on the roles and responsibilities of the teams. For example, represent the impact by percentages to help determine incentive allocations based on performance. The percentage breakdown can be established by a focus group. A team's impact on the performance criteria also can be represented by either check marks or a "high, medium, low" rating scale.
STEP 5: Put in place a feedback loop
Assist team members in understanding the different measures across all steps of the process, as well as how overall production links to divisional goals. Have the measures serve as a basis for a dynamic, continuous process used to evaluate team performance. Revise strategy and results-based measures as appropriate.
STEP 6: Use both quantitive and qualitative measures
Finally, remember that the most effective performance measures use both result measures (quantitative) and behavior measures (qualitative). Result measures are usually self-explanatory, while behavior measures should include specific definitions and metrics.