The document discusses performance measurement as a critical set of metrics for evaluating the efficiency and effectiveness of organizations in a rapidly changing business environment. It emphasizes the importance of methodologies like the balanced scorecard in assessing various perspectives, including financial, customer, internal processes, and innovation. Additionally, it highlights the significance of performance measurement in both private and public sectors for enhancing decision-making, accountability, and alignment with strategic goals.

1. Performance measurement
Taufiq H. Ghilan Al-Madhagy & Muhammad Azri Bin ZAinal Nafea
IT Policy and Strategy
STID6014, towfeeq2k5@yahoo.com
School of Computing, CAS UUM, Sintok 06010 Malaysia
and thus this definition is given for performance measure-
I. INTRODUCTION ment as a set of metrics used to quantify both efficiency and
effectiveness of actions and helps to bring more scientific
The world economy has evolved in the past two decades. analysis into a decision-making process, Rezaei et al.
New business drivers has come into existence and brought (2011) [6].
new factors to business development. The business can be
divided into three categories; the traditional business, the
partial e-business, and the full e-business. The rapid devel- III. PERFORMANCE MANAGEMENT METHODOLOGY
opment in information technology and communication has
made a direct influence on business nature. Some compa- The behavior of managers and employees are affected by
nies have shifted towards the e-commerce strongly, and the measurement system in the organization. The traditional
some preferred to have the “click and mortar”1 form of financial accounting measures can no longer give accurate
companies which are now taking the popularity and biggest signal for the continuous improvement and innovation in
share of the market. Performance gain importance as busi- this continuously changing business environment.
ness evolves and has become the tool to measure success or The inadequate performance measurement systems that
failure of business. In the following lines we discuss the dif- worked in the industrial era lead the managers and re-
ferent definitions of performance measurement, perfor- searchers to focus either on the improvement of financial
mance management methodology, and performance man- measurement or operational measures. Senior executives
agement guideline approach. realized that single measurement cannot give critical areas
of business into focus so they used the both methods men-
tioned above. Using balanced scorecard includes the finan-
II. PERFORMANCE MEASUREMENT DEFINITION cial measures that gives the results of action already taken
and complements with operational measures on internal
Performance measurement has different definition as
process, customer satisfaction, and innovation with im-
many scholars define it. It is a determination of what a pro-
proved activities.
gram accomplishes and whether the desired results are be-
In today’s business challenges, manager should focus on
ing met or not. It is ongoing monitoring and reporting
different aspect of performance to give a broad view of all
process towards pre-defined goals to measure effectiveness
areas of business on focus. Balanced scorecards give this
of an organization, program, or services and enhanced ac-
opportunity for managers to view the four important busi-
countability. The program is defined as a project, function,
ness perspectives, namely: the financial perspective, the
or policy that has identifiable purpose or objective, Yost
customer perspective, the internal business perspective, and
(2012) [4]. Another definition for performance measure-
the innovation and learning perspective.
ment” is the formal, information-based routines and proce-
Balanced scorecards give the answers to these questions:
dures managers use to maintain or alter patterns in organi-
1) how do we look to shareholders? 2) What must we excel
zational activities.” (Simons 2000) [5].This includes such
at? 3) How do customers see us? 4) Can we continue to im-
activities as strategic planning, data collection, institutional
prove and create value? Balanced scorecards give the man-
structures and incentives, resource allocation, and strategic
ager the most important measures to focus on, Kaplan et.
response. Another article defines the performance mea-
al.[7].
surement as the process by which a company “manages its
This method has many advantages: Firstly, many of
performance in line with its corporate and functional strate-
company's competitive agenda like improving quality, em-
gies and objectives”. In today’s competitive market and ra-
phases of team work, customer oriented, short response
pidly changing technologies performance measurement is
time, and others are presented in one report that is easy to
considered a primary tool for decision taking for managers
analyze and gives clues on areas that needs to be focused
11
on. Secondly, BSC forces managers to focus on all impor-
Online and offline, in stores, business transactions.

2. tant operational measures and to judge if one area is or new product introduction. Some companies improve
achieved on the expense of the other. their customer and internal process performance conti-
nuously, and others require management to make improve-
A. Customer perspective ments on specific time periods.
Top management has a priority mission statement to have
the best impression of the customer that is “to be number
one value to customer". The BSC translates this mission D. Financial perspective
customer into specific measures that reflect factors matters In financial measures, the strategy, implementation, and
the customer. execution contribute to improve the bottom-line. Normally,
The customer concerns are categorized into four catego- a financial goal deals with profitability, growth, and share-
ries: Time, quality, performance and service, and cost. Lead holders’ value. There are arguments that the financial fig-
time measures the time needed to meet customer’s needs. It ures are as a consequence of the operational improvements
falls into two cases, existing products and new products. and thus people should stop relying of the financial meas-
For existing products, lead time measured from the time ures but the operational ones. On the other hand, this view
company receives an order till it reaches the customer. And contradicts with the author's view that the well-defined fi-
for new product, the lead time is the time needed from the nancial control system can enhance the organization's total
definition stage till it is delivered into market. Quality quality management program. Secondly, the linkage be-
measures the delivery time, the level of defects of product, tween the improvement of operating performance and the
and the accuracy of delivery forecasts. financial success is weak. The author summarizes this in
To put BSC into action, companies should express clear- that the executives should review their mission and strategy,
ly the goals of time, quality, performance and services then if the improved performance failed to be reflected in the
translate these goals into measures. bottom-line.
The improved quality, response time, productivity and
B. Internal business perspective new products if they are not translated into improved mar-
The three internal business operations, namely processes, ket share; improved sales, reduced expenses will not return
decisions, and actions are important elements to be focused good revenue to the company.
by managers to satisfy customers’ needs. As a result of The scorecards put the strategy and vision on the core
business processes the internal measures developed and and create a goal that the people will reach using whatever
they have the greatest impact on customer satisfaction. behavior or action to reach that goal. By combining the
These internal operations create the balanced scorecard. customer, the financial, internal process and innovation, and
These factors affect cycle time, quality, and employee organizational learning perspectives, the balanced score-
skills, and productivity. Companies should consider what cards will enable managers and gives better understanding
processes and competencies they must excel at and specify of the interrelationship between all these elements and will
measures for each. Managers should divide the overall of give better results in achieving the organization's goals, and
these four components into local levels, the employee’s lev- improved revenues. Balanced scorecards drives the manag-
el, so the measures link top management's judgment about ers to look ahead consistently and not behind.
processes and competencies to the actions taken by the em-
ployees. If there is unexpected result that managers find IV. PERFORMANCE MANAGEMENT GUIDELINE APPROACH
such as late on-time delivery, they identify it by using the
information systems to track it and make proper decisions. Performance measure selected has present and future
Information systems can help in avoiding constraint for fol- benefit used to identify if actions or outcome has been
lowing up operations and as a result affecting and improv- achieved, a standard is met, or desired benefits are
ing the performance. achieved. There are some guidelines that we are going to
present in order to facilitate the collection of data and use it
C. Innovation and learning perspective to accomplish performance measurement in accurate way.
For competitive success, the companies focus on the cus- First of all, make decision on how your work activities
tomer-based and internal business process on BSC. On the are related to the strategic plan goal of your organization
other hand, to achieve success there should be continuous and identify the expectations of the stakeholders. Secondly,
improvements for the existing products and processes and identify the accomplishments you want to achieve through
the introduction of new ones. If the company has the ability series of questions and brainstorming till to reach the end of
to innovate and improve, that gives it the value in the mar- desired goal. Thirdly, State the desired accomplishment
ket. specifically as possible is one of the factors that we should
Only through launching new innovative products and be aware of. Then identify performance measure that will
improved operating efficiencies the companies can enter be used to specify and determine the desired accomplish-
new markets and increase revenues, thus increasing share- ment. The performance measure that is selected should help
holder value. The percentage of sales of new products is in- to determine whether and to what extent we are achieving
dicators of the success of it; if it is declining the managers our desired accomplishment.
can investigate if problems occurred in the product design

3. One of the key factors that should be taken into account The data collected or reports created concerning the per-
is the data. Data should be available, reliable, accurate and formance or an organization or company can be interpreted
consistently reported to be marked to develop the capacity differently by different managers. take for example the term
to obtain it from different departments especially the plan- revenue which can be interpreted by some managers as cash
ning departments in the organization. plus account receivable. Others, on the other hand, would
Fourthly, obtain baseline or trend information on your interpret revenue as cash and future receivable amounts
performance measure by collecting trend information and to subtracted returns.
be a baseline for future comparison of your own collected Performance has many conceptual frameworks, i.e. the
performance data. term itself consisted of innovation, profitability, efficiency,
A comparison data has to be existed in order to set a tar- productivity, effectiveness, and quality, Sink and Tuttle
get or standard that we aim to reach for each performance (1989) [2].
measure. You can obtain this targeted data from any source Others suggested seven areas for performance measuring,
of business to be compared with if it has achieved its goals Herper (1984) [3], included the following: Productivity,
and targets on the reality bases. If there are any additional price, Unit cost, factor proportion, product mix, cost pro-
data needed to be gathered, we should determine if it can be portion, and input allocation. There also other practical
gathered in cost effective manner. We have to be sure concepts such as balanced scorecards that needs additional
whether or not it is accurate and reported consistently. The information from customer, financial, internal business
department concerned/relevant could be needed to make processes, and innovation and learning areas.
this data available. The data gathered has to be displayed in Different views concerning the performance measure-
an understandable and simple way. It, then, is compared to ment. Firstly, the private sector which describe it as a ne-
the baseline and to the comparison data. In most cases, cessary tool for successful management and is an important
there should be a comparison with the target/standard that part of ISO 9001:2008. it helps in decision-making process
we want to achieve the desired accomplishment. which is based on information and communication technol-
ogy instead of experiences and judgment. Learning aspect
V. PERFORMANCE MANAGEMENT ADVANTAGES can be achieved as a result of implementing performance
measurements.
Performance management helps to define the organiza- Public sector views are presented as follows: the gov-
tion’s goals and objectives in a tangible way. It enables the ernments have many entities that represent it which are the
organization to develop activity plans to accomplish the ministries who serve the public sector. These entities have
pre-defined goals and objective, monitor actual perfor- obligations towards the head of the government and the
mance verses plans, advise via routine performance reports public as well. They have to accomplish the obligation of
managers of the actual situations that require more attention the government plan in years to come whether it is a five-
towards achieving the planned strategies, analyze moment- year plan or four-year plan. These entities have to be moni-
ous performance deviations, and perform corrective actions tored to achieve the strategic goals of the government. Per-
to fix these deviations from the actual desired plan for the formance measurement her represents a tool to measure its
organization. compliance with the governments promised plan. So the
Performance measurement gained popularity and impor- performance measure is in place here and it is a mandate
tance in the past two decades. In the past, it was only ac- between these entities head and his/here superior to accom-
count-based tool for managers to measure the success or plish strategic plan with annual performance goals into a
failure of the organization and the functional performance. management process.
Now this concept has evolved and has broader range of oth- Governments encourage improving the quality services
er components that measures the success and failure of an delivered to public. Because of direct contact with public
organization. It is vital to understand the benefits and im- these agencies have serious failures indication if there is no
pacts of the performance measurement in business. performance measurement in place. The key role here of the
Performance measurement provides feedback to manag- performance measure is to provide feedback information
ers to answer the following three questions: How well the and better insight to improve management decisions in the
organization is performing? Is the organization achieving its ministries and its affiliated agencies, better planning in top
objectives? How much the organization improved from the management, and improved application of strategic goals of
last period? It is clear to say that performance measure is the current government. It improves the communication be-
representing a system that should be aligned with the orga- tween the workforce and the management and provides bet-
nizational objectives, polices, and missions. These three ter visibility and transparency.
components are in principle the attributes for measuring the There are future expectations of the performance measure
quality of performance in an organization. Performance that will lead to more transparency, accountability, and
measure, in the past, did not have enough attention from more public participation in governmental affairs. This is
managers who only considered taking decisions based on obvious especially in the light of the improvement of hu-
their experience and paying a lot of attention to financial in- man rights and public awareness of the resources that are
formation. Now it is playing an influential role in process spent by the consecutive governments. The use of extensive
management within a company, P.Kongkiti et.al.[1].

4. information and communication technology depends on an
effective performance measurement in the entities in ques-
tion. It symbolizes good governance in the era of globaliza-
tion and social responsibility.
Adopting performance measurement in organizations ei-
ther private or public is reflecting how this entity is willing
to develop its business or service to higher level and gives
indications of the correct measurement that is follow inside
it. It will lead eventually to a transparency and good gover-
nance.
Implementing continual measures of performance gives a
good indication of the commitment of the managerial level
towards the continuous performance improvement. There
are many beneficial results of implementing performance
measures, e.g. it strengthens the entity’s execution capabili-
ty on the way of achieving its strategies, objectives and pol-
icies in the way that is planned. It facilitates the managerial
decisions of today’s decision based on the reports delivered
through performance measurements and helps for future de-
cision taking with learned experience from previous expe-
riments in implementing specific performance measures. In
addition to that, it helps strengthening the accountability in
the organization and encourages for more development of
its methods to achieve the desired results. Effectiveness and
flexibility are ways to improve complex audit on the re-
sources spent on public services and enables safeguard the
public resources.
REFERENCE
[1]. P.Kongkiti,A. Pornthep, H. Petri, and D. Richard (2008), Depart-
ment of Industrial Engineering, Kasetsart University, Bangkok,
Thailand, IMDS Vol. 109(5), pp 646-660
[2]. Sink, D. and Tuttle, T. (1989),Planning and Measurement in Your
Organization of the Future,
IE Press, Norcross, GA
[3]. Harper, J. (1984),Measuring Business Performance, Institute of
Manpower Studies, Gower, Aldershot
[4]. Dave Yost Ohio Auditor of State. (n.d.). Retrieved November 11,
2012,from
www.auditor.state.oh.us:www.auditor.state.oh.us/publications/gen
eral/SchDistSelfAssessGuide.pdf
[5]. Simons, R. 2000. Performance Measurement and Control Systems
for Implementing Strategy, London: Prentice-Hall International.
[6]. A.R. Rezaei, T. Çelik, Y. Baalousha (2011), Performance mea-
surement in a quality management system, Department of Civil
Engineering, Eastern Mediterranean University, Famagusta,
Northern Cyprus, Via Mersin 10, Turkey.
[7]. Kaplan, R.S., Norton, D.P. The balanced scorecard--measures that
drive performance. (1992) Harvard Business Review, 70 (1), pp.
71-79