Why should organisations bother measuring corporate performance?
Why should organisations bother about measuring corporate performance? What would the point be of gathering data about themselves? Will it be worth the time and effort? And – some organisations would see this as a major factor – can they afford it? Measuring corporate performance involves ongoing or continuous data gathering on an organisation’s units or departments in order to keep track of whether it is reaching its objectives, or if it is falling short. In other words, measuring corporate performance asks the question: How Are We Doing? And expects an honest answer because the information that is derived through its processes will inform subsequent decision-making.
But the measuring is far more than that; it opens the organisation to greater scrutiny for one thing, and with intensified scrutiny comes the need for greater transparency. With ongoing measurement, corporate discrepancies and anomalies, incorrect decisions and bad practices come to light. It shows what went wrong before by comparison with current conditions, and points to ways that performance can be improved. Internally, the organisation learns what works and what doesn’t; what it needs to do and what it should stop doing; and how to address its shortfalls. Externally, it shows its shareholders and stakeholders that it knows what it’s doing, and can do it with integrity.
This goes a long way in maintaining investor confidence as measurements can provide an accurate picture of how the firm is being managed, thereby providing a certain level of comfort to shareholders that their interests are front and centre. Measuring corporate performance is a strategic tool for any organisation because it is intended to improve performance in the long term. What can be measured, can be managed – but not everything should be measured, and therein lies the complication: how does the organisation determine what needs to be measured? Measurements should not be exclusively financial or too complicated. When managing something as complex as measuring corporate performance, perhaps the best way is to keep it simple.
There are several methods of measurement, such as Kaplan and Norton’s Balanced Scorecard or Total Quality Management (TQM) that are used by large corporations today. The Balanced Scorecard considers the customer perspective, the organisation’s business processes, its learning ability and financials while TQM focuses primarily on process measurement and controls. Organisations can start by turning their attention to their key business processes when initiating corporate performance measurement, as performance outcomes – the benefits as a result of the work done – are more important than work output. The outcome makes a difference to the firm, and is thus more prominent when strategising.
A major barrier that most organisations will face when trying to implement corporate performance measurements will be the silos that inevitably dot their respective organisations’ landscapes. It will become obvious that these silos make it difficult to share information and develop collaborative internal environments that compete to everyone’s detriment. How can corporations overcome the Silo Problem? By opening channels of communication and by allowing the free flow of information throughout the organisation that indicates a willingness to build an open, communicative culture. This can reduce the suspicion and scepticism between units and departments, and encourage better cooperation.
At the end of the day, what will corporations have to show for having measured their performance? They will know their shortfalls, capacities and potential; what their trouble spots and flash points are; and where their main challenges lie. In short, they will understand better their ability to sustain themselves, grow and compete; and they will know, in no uncertain terms, what their real value is.