Performance Measurement: A System Approach for Excellence

Performance measurement traditionally focuses on financial measures, such as sales turnover, profit, debt and return on investment. However, traditional financial measures do not match entirely with the competencies and skills companies required to face today’s business environment. The complexity of managing an organisation today requires that managers be able to view performance in several areas simultaneously. Rather than analysing performance from an historical perspective, it is important to understand organisational Excellence, which potentially leads to success of a business in the future. The first condition to improve, and ultimately to achieve Organisational Excellence, is to develop and implement a system of Performance Measurement Criteria that goes beyond the presentation of financial figures and incorporates other non-financial success factors. This paper provides performance measurement systems built upon what many researchers and practitioners believe are the Critical Success Factors for Organisational Excellence. By developing a sound methodology, based on structural equation modelling and the system for performance measurement this paper also provides the impact of different performance dimensions on the organisation. Such performance measurement system goes beyond simple internal measurements and provides assessment of performance from external stakeholders. Introduction Effective management depends on the effective measurement of performance and results. However, performance measurement traditionally focuses on the reasons that explain success or failure from an historical perspective, which is clearly not enough to understand Organisational Excellence. Excellence is definitely associated with outstanding performance. It was Peters and Waterman in there book “In search of excellence” has introduced the term ‘Excellence’. Focusing on the attributes of performance excellence, Peters and Waterman described 42 of the best-run companies in the USA and tried to provide some general principles that could be applied to any organisation. The eight factors, which they believe contribute to organisational excellence. If we define Organisational Excellence (OE) as a means of measuring customer’s, employer’s and shareholder’s (stakeholders) satisfaction simultaneously within an organisation in order to obtain a comprehensive evaluation of the organisational performance, it becomes clear that knowing what drives the satisfaction of the key organisational stakeholders is the path that leads to success of a business in the future. The above definition calls attention to the measurement aspects of Organisational Excellence from the different stakeholders’ point of view. In this sense, the first condition to improve, and ultimately to achieve OE, is to develop and implement a system for Performance Measurement. Kanji defines TQM as “a management philosophy that fosters an organisational culture committed to customer satisfaction through continuous improvement” and suggests that its principles are (Kanji and Asher,): • Leadership (the prime); • Delight the customer; • Management by fact; • People-based management; and