Towards Overall Organizational Performance

The need for overall organizational performance

The survival of organizations depends on their overall performance. It is no longer viable to focus on some specific aspect of performance, such as production performance, financial performance, or sales performance. To stay competitive in the long run, organizations must take a much broader view. They must start tackling the performance issue holistically. More specifically, they need to grasp the complexity of their business, take a multidimensional perspective on performance, define various measures, conduct measurements, acquire, and analyze the results, and perform specific actions accordingly. Thus, a lot of work is ahead of managers willing to manage the overall performance of their organizations.

Let’s first distinguish the terms ‘organization performance’ and ‘performance management’. Organization performance indicates the quality of the organization’s continuous co-alignment with the environment (Chakravarthy, 1986). On the other hand, performance management is seen as a tool that helps management improve an organization’s performance (Aguinis & Pierce, 2008) by providing them more control over an organization.

Performance management system may be regarded as a set of formal, information-based routines and procedures managers use to maintain or alter patterns in organizational activities (Simons, 2000). This system focuses on conveying financial and non-financial information that influence decision making and managerial action (de Waal, 2010). It is a balanced and dynamic system that enables support of decision-making processes by gathering, elaborating, and analyzing information (Neely, Adams & Kennerley, 2002). The term “balance” refers to the need of using different perspectives and measures with both leading and lagging indicators that, tied together, provide a holistic view of an organization (Kaplan and Norton, 1992; Kaplan and Norton, 1996). On the other hand, “dynamicity” refers to the need of developing a system that continuously monitors the internal and external context and reviews objectives and priorities (Bititci et al., 2000).

On top of that, Simons (2000) argues that performance management systems cannot be designed without taking into consideration human behavior. Thus, it is not enough to observe only the hard elements of performance, i.e., what is being done, but also the soft components, i.e., the way it is done.

In order to secure its viability over the long run, the majority of organizations today need a management system based on overall organizational performance. Having this kind of a performance system seems quintessential for their success.

Overall organizational performance overview

Overall organization performance system is a very complex network of various indicators organized into three basic levels: strategic, operational, and individual (cf. Brudan, 2010). At strategic level, performance management deals with the achievement of overall organizational goals. This level is crucial for the long-term adaptation to the environment, especially in situations in which management ought to pay attention to a large number of variables in the environment and their volatile dynamics (cf. Stefanovi?, Proki? & Vujovi?, 2012). Performance management at operational level covers end-to-end processes, i.e., the way value is being created for the end-users. This level acknowledges the processes as the driving force of any organization (Hammer & Champy, 1993), while adopting the customer’s point of view (Davenport, 1994). The third level of performance is oriented towards individuals. It covers how their day-to-day activities are being performed and the results achieved.

These three levels of performance ought to be seen as inextricably intertwined parts of the same system, even though in practice this is rarely the case. “Practice shows that communication and integration between the three levels of organizational performance is limited... Management does not see performance management as an integrated discipline used at various organizational levels, but as a subcomponent of strategic, operational and HR management respectively. An integrated approach, linking together all levels of performance management, becomes a necessity for both research and practice to facilitate the understanding and usage of performance management systems... This proposed integrated view to performance management has the potential to assist individuals and organizations to better understand and align these levels and create a complete, holistic picture of performance that outlines the relationship between organizational and individual performance.” (Brudan, 2010, pp. 117-119). Bearing in mind the importance of having one integrated and overall performance system in place, let’s have a closer look at each of the three performance levels.

Strategic performance level

Strategic level emphasizes the organization’s relationships with its environment and the basic “skeleton” of the major functions that comprise the organization (Rummler & Brache, 2013). In other words, strategic level is focused on strategic goals, i.e., the goals covering the whole organization as a part of its business strategy. These goals are then broken down into subgoals for each function. Only by taking a holistic stand and viewing the organization holistically, its subgoals will not permit the optimization of the functional silos. Therefore, each subgoal ought to be derived from one of the strategic goals and be aligned with it.

The performance at this level is measured by the percentage of achievement of strategic goals and subgoals. Only after the measurement results are obtained and analyzed, the discussion regarding further actions may start. Of course, this discussion must incorporate the results obtained from the other two levels of performance as well. Considering strategic level solely will not provide comprehensive information, which may jeopardize the effectiveness of further actions.

Strategic goals and accompanying functional subgoals may only be achieved through the hard work being done by every employee of the organization. In other words, strategic performance level needs to be integrated with other levels of performance in order to establish and manage the overall performance management system. Only in this way will the strategic performance system gain its full relevance.

Operational performance level

Focusing on strategic level performance by itself will not provide a significant level of understanding of how the organization actually works. For this to happen, one must take a deeper look into the organization’s “skeleton”. This deeper level will show the processes, which may be understood as the manner in which an organization does its work, i.e., the set of activities it pursues to accomplish a particular objective for a particular customer, either internal or external (Davenport, 2005). Operational performance level relates process performance and the customer satisfaction level resulting from it (Davenport, 1994). Taking the process standpoint in organizations is likely to yield certain benefits in terms of the overall performance (Davenport & Stoddard, 1994).

Rummler and Brache (2013) argue that an organization is only as effective as its processes. Therefore, operational performance level shows whether the work is done effectively and efficiently enough. The first step on this level is to identify all the processes being run within an organization and the relevant process performance indicators. These indicators are derived either from process goals or from the means of achieving these goals, i.e., subgoals. Each of these goals ought to be congruent with enterprise-wide goals, take into account the behavior of the competitors and, last but not least, be in line with process stakeholders’ interests. It is very important to emphasize that process performance represents a degree of stakeholder satisfaction, which is why process performance measurement ought to be focused on those individuals who have an interest in the business process. In order to develop this stakeholder-driven performance measurement system, stakeholders of the process have to be identified and their process-relevant goals clarified. Each group of stakeholders needs to be represented by an aspect or dimension of performance (Kueng, 2000).

Measuring the process performance is critical for process improvement and excellent process management is based on suitable performance measures (cf. Chiou-Shuei, 2014; Crandon & Merchant, 2006). Once there is a reasonable level of agreement on the meaning of performance, managers can obtain information on key aspects of process performance through performance measurement, that is, the periodic measurement of specific inputs, activities, outputs, intermediate outcomes, or end outcomes. Performance measurement includes both the collection and analysis of numerical data and less formal assessment of performance such as narrative assessment of the extent of progress toward defined goals (Wholey, 1999). “The main objective of process performance management system is to provide comprehensive and timely information on the performance of business processes. This information can be used to communicate goals and current performance of a business process directly to the process team, to improve resource allocation and process output regarding quantity and quality, to give early warning signals, to make a diagnosis of the weaknesses of a business process, to decide whether corrective actions are needed and to assess the impact of actions taken.” (Kueng, 2000, p. 72).

Individual performance level

Stopping at the operational level would hinder the understanding of performance on the most granular level: an employee and the work he or she performs. Rummler and Brache (2013) argue that “performance can be improved only if jobs and performers are analyzed in an overall performance context.” (p. 62) Therefore, focusing on each individual within an organization is an essential task if one wants to gain a holistic view on performance.

Performance management system on the level of employees can be based on a consideration of behavior (how work is being done) or results (outcomes of work). Of course, combination of both is possible as well (Aguinis & Pierce, 2008). For a more holistic overview of individual performance, Rummler and Brache (2013) advocate the so-called ‘Human Performance System’ (HPS). HPS contains the following elements (Rummler & Brache, 2013): (1) input in terms of task support, (2) performer with its skills, knowledge, and capacity, (3) output in terms of performance specifications, (4) consequences of reaching or not reaching the desired performance, and (5) feedback in terms of information about the performer’s performance. Each of these elements is being permanently assessed for each employee within a organization.

HPS approach implicitly states that performance problems occurring at individual level may only sometimes be attributed to the employee. Rather, it supports the claim of W. Edwards Deming that employees are responsible for only 15 percent of the problems, and the system for the other 85 percent, which is the responsibility of management (Walton, 1986).

Setting up overall organizational performance

The path toward designing and implementing the overall performance system is not an easy one. It must start with increasing the level of understanding of all key stakeholders about the concept of a performance system and the benefits of its implementation. After all the stakeholders are acquainted with this and their approval is obtained, the work on designing the performance system may begin.

The design effort ought to start on the strategic level with the strategic goals. These goals are then broken down into subgoals for each function or division. After that, the subgoals are treated as targets that must be met by the processes being run within an organization. The processes are being mapped and performance indicators defined, starting from the process targets, and moving backwards toward the upstream activities. Of course, each process performance indicator ought to have its own accompanying target in line with the process targets. The next step involves positions in charge of the activities comprising these processes. After identifying the responsibilities of each position within the processes in stake, performance indicators are being defined reflecting the performer’s behavior and results, as well as a system surrounding and influencing the performer's performance (adequate inputs, timely feedback, etc.).

Only the performance system that links performance indicators from the top of an organization to its operating core and spreads throughout an entire organization may provide significant potential for radical performance improvement. Thus, every individual in an organization must be fully covered by the performance system, which means that the performance of every employee will be connected to the performance of every other employee. The resulting network of performance represents the system for measuring and improving the overall organizational performance.?

References

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Note:?This article has derived from the paper presented at the SymOrg conference in 2016 under the title “Overall Organizational Performance: A Note on Firms Operating in the Western Balkans Region” by Ivan Stefanovic and Nenad Marcetic.