Good performance management can improve effectiveness and efficiency, but Mahmood Reza says that is dependent on the right performance measures being in place.
Penn State (CC BY-NC 2.0)
Performance improvement and the role of performance management (PM) in arts organisations is an increasingly important topic. Business pressures are more pronounced and organisations are now required to become even more effective and efficient, execute better on business strategy, and do more with less in order to remain sustainable and grow.
PM is effectively trying to ask the question of how you are doing. To answer this question you must determine what you are making the assessment against, what your yardstick is and what assessment criteria you are using. If you have some idea of how you are doing and can evaluate performance against something, then you can make informed judgements, see where and how you can improve, and ultimately achieve whatever it is you have set out to achieve (your objectives).
Organisations need clues or milestones to identify if they are progressing according to plan
PM should not be seen as consisting of isolated strands of collecting measures and reacting to this. Truly effective PM involves a whole host of elements, ranging from organisational culture, clarity of vision and objectives, motivation and reward, benchmarking, league tables, management accounting techniques and business planning. They all play their part and should not be viewed as standalone and unconnected elements.
First, your mission statement informs your many stakeholders of what your aspirations are, how you hope to achieve them and who will benefit from them. Then the mission statement helps generate critical success factors (CSFs). These are the cause of an organisation’s success, those areas in which you need to perform well if you are to achieve overall success and meet objectives. For example, CSFs for an art gallery may be the quality of the artistic programme, financial stability and audience engagement. The measures used to monitor and manage CSFs are referred to as key performance indicators (KPIs), and these are normally a blend of numbers (quantitative) and non-numbers (qualitative). Targets can be set for these KPIs so that progress is measured and any variations will prompt investigation and ultimately action to rectify the situation.
There is a general rule in business that you manage what you measure. Organisations need clues or milestones to identify if they are progressing according to plan. In the example of the art gallery quoted above, appropriate KPIs may be the number of visitors per exhibition, visitor feedback, numbers of first-time visitors, level of returning visitors, levels of cash flows and levels of spend per visitor.
It has become increasingly important for organisations to develop systems of performance measurement which not only reflect the growing complexity of the business environment but also monitor their strategic response to this complexity. A common thread running through all of them is that performance measures should:
- be linked to corporate strategy
- include external as well as internal measures
- include non-financial as well as financial measures
- make explicit the trade-offs between different dimensions of performance
- include all important but difficult-to-measure factors as well as easily measurable ones
- pay attention to how the selected measures will motivate managers and employees.
In attempting to establish a clear link between performance and strategy, it is vital that management ensures that the performance measures target areas within the business where success is a critical factor. The performance measures chosen should therefore do the following:
- measure the effectiveness of all processes including products and/or services that have reached the final customer
- measure efficiency in terms of resource utilisation within the organisation
- comprise an appropriate mix of both quantitative and qualitative methods
- comprise an appropriate focus on both the long term and short term
- be flexible and adaptable to an ever-changing business environment.
The last point stresses how important it is that performance measurement systems are dynamic so that they remain relevant and continue to reflect the issues important to any arts organisation.
One weakness with measuring performance is that too many organisations generate lots of meaningless measures and measure for the sake of measuring. A guiding principle for developing performance measures is that you should always manage what you measure. There are three traditional types of performance measures:
- Input measures: At the lowest end of the performance measurement spectrum is the tracking of inputs such as staff time and budgetary resources. Inputs are generally the simplest elements to measure, but provide limited information for decision-making and analysis of actual results.
- Output measures: Results generated from the use of inputs are the domain of the output measure. These metrics track the number of people served, services provided and are sometimes referred to as activity measures. Depending on the nature of the service, output measures may provide information on whether the desired results are being achieved.
- Outcome measures: Outcomes track the benefit received by stakeholders as a result of the organisation’s operations. Whereas inputs and outputs tend to focus internally on the service itself, outcomes reflect the concerns of the participants (clients, customers, other stakeholders). Outcome measures shift the focus from activities to results, from how an activity operates to the good it accomplishes.
Outcome measures offer many advantages. They demonstrate results, which in today’s environment is exactly what everyone, from the general public to the world’s most generous philanthropists, are demanding from public and non-profit organisations. They provide guidance in resource allocations – funding can be directed to those actions that produce documented results. A focus on outcomes, rather than inputs or outputs, serves to guide the entire organisation toward its true aims. Accountability is enhanced when the focus shifts to outcomes. Administrators cannot hide behind data indicating numbers served, but must outline specifically how targeted audiences or visitors are better off as a result of their offering.
There are a number of models for performance measurement which provide structure and coherence and I will explore them in detail in my second article (to be published next week).
Mahmood Reza is the Owner/Manager of Pro Active Resolutions.