Performance Measurement

Topics: Measurement, Investment, Systems of measurement Pages: 12 (4264 words) Published: July 14, 2014
1.0 Introduction

Performance measurement is essential to improve the performance of the organizations to compete in today’s business environment. In the era of industry way back in the 1960’s, the traditional performance measurement system has been designed to report labour productivity, machine and capacity utilization, and standard cost variances. These are cost-efficiency-based measures derived from a strategy to minimize production costs, described as a cost leadership strategy. (usefulness of traditional and new performance measures). At that time, multi-divisional forms became popular and each divisional performance is being measured as it will affect the organizational performance as a whole. (Multi-divisional form). In assessing the success of the division, company normally focus on the costs and revenues under the control of that divisional manager. (Performance measurement).

However, in recent years, traditional performance measurement system has been criticized for their inadequacy in providing performance indicators that can clearly help a company achieve its ultimate goal. (The Declining Need for Traditional Performance). Therefore, traditional organization performance measurement systems are no longer compatible with the new business environment as it measures the financial dimension alone.

Since the beginning of the 1990s, the financial measures alone were not sufficient to measure performance as said by Kaplan and Norton. Other factors in the new economy such as competence and knowledge, customer focus, and operational efficiency and innovation are missing from traditional financial reporting. Thus, managers should design a new performance measurement system that includes financial and non-financial measures to measure the divisional performance as well as organizational performance. However, traditional measures are still useful, though to a much lesser extent because every firm has its own business nature, which requires a different kind of performance measurement system.

As the modern manufacturing environment has undergone dramatic changes since the past decades, the organization has to take a different approach in measuring performances.

2.0 Divisional Performance Measures

Performance measurement is generally defined as regular measurement of outcomes and results, which generates reliable data on the effectiveness and efficiency of programs. (Performance measurement definitions). Performance Measurement acts as a tool for an organization to improve strategic planning, budgeting, contracting, and evaluating employees. Organization used the performance measure to assess how resources are being utilized to produce goods or services. This is because it can reflect how well an organization is delivering services to meet goals and objectives. (Grau, 2008). Up to now, there had not been a define definition of performance measurement as it has numerous ways in defining it. Nevertheless, from the discussion above, we can said that the performance measures are closely connected with planning, goal setting, and budget processes. Therefore, the organization can define it whenever it is suitable to their organization.

Nowadays, many organizations have diversified its business and operations in more than one country. Diversifying and expending the business activities has led to complexity in managing and accounting for an organization. Because of the complexity of operations, it is difficult for top management to directly control operations. Therefore, organizations have been divided into divisions and it is controlled by divisional managers.

A divisional structure which is split up into semi-autonomous units called divisions. The divisions can have varying degrees of autonomy to control over their day-to-day operations but they are still answerable to a central authority that provides the overall strategy for the organization and coordinates its implementation among the divisions....
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