Chapter 20 CONTROLLING FOR ORGANIZATIONAL PERFORMANCE © 2003 Pearson Education Canada Inc.20.1.

Chapter 20CONTROLLING FORORGANIZATIONAL

PERFORMANCE© 2003 Pearson Education Canada Inc. 20.120.1

© 2003 Pearson Education Canada Inc.

LEARNING OBJECTIVES • You should be able to:

– Define organizational performance– Explain why measuring organizational performance is

important– Describe the different organizational performance

measures– Identify financial control tools used to monitor and

measure organizational performance– Explain how a management information system can be

used as a tool for monitoring and measuring organizational performance

20.220.2


LEARNING OBJECTIVES (continued)

• You should be able to:– Describe the balanced scorecard approach to

monitoring and measuring organizational performance

– Tell how benchmarking of best practices can be used for monitoring and measuring organizational performance

– Discuss the manager’s role in helping organizations achieve a high level of performance

20.320.3


ORGANIZATIONAL PERFORMANCE

• What is Organizational Performance?– Performance - the end result of an activity– Organizational performance - accumulated

end results of all the organization’s work processes and activities

20.420.4


ORGANIZATIONAL PERFORMANCE (continued)

• Why is Measuring Organizational Performance Important?– Managers need to understand the factors that

contribute to high organizational performance– Better Asset Management

• asset management - process of acquiring, managing, renewing, and disposing of assets

20.520.5



• Why is Measuring Organizational Performance Important? (continued)

– Increased Ability to Provide Customer Value - must monitor value obtained by customers

– Impact on Organizational Reputation - strong reputation leads to greater consumer trust and ability to command premium pricing

– Improved Measures of Organizational Knowledge• organizational knowledge - knowledge created by

collaborative information sharing and social interaction leading to appropriate action

20.620.6

WHY IS MEASURING ORGANIZATIONAL PERFORMANCE IMPORTANT? (Exhibit 20.1)

Increased AbilityTo Provide

Customer Value

BetterAsset

Management

Impact onOrganizational

Reputation

ImprovedMeasures of

OrganizationalKnowledge

WhyMeasure

OrganizationalPerformance?

© 2003 Pearson Education Canada Inc. 20.720.7



• Measures of Organizational Performance

– Organizational Productivity• productivity - overall output of goods or

services produced divided by the inputs needed to generate that output

• organizational productivity - a measure of how efficiently employees do their work

20.820.8



• Measures of Organizational Performance (continued)– Organizational Effectiveness - measure of how

appropriate organizational goals are and how well an organization is achieving those goals

– Industry Rankings - numerous industry and company rankings

20.920.9

TYPES OF PERFORMANCE CONTROL TOOLS

InformationControls

FinancialControls

BalancedScorecardApproach

BenchmarkingBest Practices

Approach

PerformanceControl

Tools



TOOLS FOR MONITORING AND MEASURING ORGANIZATIONAL

PERFORMANCE• Financial Controls

– Traditional Financial Control Measures

• taken from organization’s main financial statements

• a number of financial ratios used in organizations– liquidity ratios - organization’s ability to meet its current debt

obligations– leverage ratios - use of debt to finance assets and ability to

meet interest payments– activity ratios - efficiency of use of firm’s assets– profitability ratios - effectiveness with which assets used to

generate profits

20.1120.11


POPULAR FINANCIAL RATIOS (Exhibit 20.2)

20.1220.12



PERFORMANCE (continued)• Financial Controls (continued)

– Traditional Financial Control Measures (continued)• budgets provide quantitative standards against which to

measure and compare resource consumption – Other Financial Control Measures - increasing popularity

• Economic Value Added (EVA) - economic value created with the firm’s assets less any capital investments made by the firm in its assets

• Market Value Added (MVA) - stock market’s estimate of the value of the firm’s past and expected capital investment projects

20.1320.13



PERFORMANCE (continued)• Information Controls

– Management Information Systems - used to provide management with needed information on a regular basis

• provides information, not merely data– data - raw, unanalyzed facts– information - analyzed and processed data

• organizes data in a meaningful way• can access the information in a reasonable amount of

time20.1420.14



PERFORMANCE (continued)• Information Controls (continued)

– How Are Information Systems Used in Controlling?• managers need information about:

– what is happening– what are performance standards– acceptable ranges of variation– appropriate courses of action

20.1520.15



PERFORMANCE (continued)• Balanced Scorecard Approach

– Performance measurement tool that examines four areas

• financial

• customer

• internal processes

• people/innovation/growth assets– Determine whether goals in each area are being met– Focus is still on areas that drive the organization’s success

• scorecards reflect organizational strategies20.1620.16



PERFORMANCE (continued)• Benchmarking of Best Practices

– Benchmarking - search for the best practices among other organizations that lead to their superior performance

– Used to identify performance gaps and potential areas of improvement

– Look for internal best practices that can be shared

20.1720.17

STEPS TO SUCCESSFULLY IMPLEMENTING AN INTERNAL BENCHMARKING BEST PRACTICES

PROGRAM

Connect best practicesto strategies and goals

Identify best practicesthroughout the organization

Develop best practicesreward and recognition systems

Communicate best practicesthroughout the organization

Create best practicesknowledge sharing system

Nurture best practiceson an ongoing basis



MANAGER’S ROLE IN HELPING ORGANIZATIONS ACHIEVE

HIGH PERFORMANCE• Help Members Make Right Choices During

Change– Provide direction by answering employees’

questions– Define what change means for employees– Describe how performance will be evaluated– Describe tools and support that will be provided

20.1920.19



HIGH PERFORMANCE (continued)• Design Performance Management Systems

– Identify appropriate performance measures– Addresses common performance measurement

problems– What gets measured gets done– Address common problems that plague

performance measurement

20.2020.20

COMMON PERFORMANCE MEASURING AND REPORTING PROBLEMS

Conflictingreports

Failureto

customize

No links betweenperformance

data and goals

Unrelatedsources of

data

CommonProblems

Overlycomplexmeasures

Confusingcharts and

graphs

Toomuchdetail




HIGH PERFORMANCE (continued)• Move From Ideas To Action

– Develop great ideas

– Think of these ideas as things that can actually be done

– Map out the entire implementation process from conception to delivery

20.2220.22

MANAGER’S ROLE IN ACHIEVING HIGH

PERFORMANCE (Exhibit 20.4)

Help employeesmove from

ideas toaction

Achieving HighLevels of

Performance

Help organizationalmembers make

right choicesduring change

Design anappropriateperformancemanagement

system


Chapter 20 CONTROLLING FOR ORGANIZATIONAL PERFORMANCE © 2003 Pearson Education Canada Inc.20.1.

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