1.1 – Performance Based Management Systems (Tools)

Every company needs a Strategic Management model to run its business, these are models that help in the planning, implementation, monitoring and assessment of your business strategies and goals. There various models used by companies such as balanced scorecards, SWOT analysis, PESTLE and others. This article series will concentrate on 4 models that might seem similar but are different from each other. These are categorised as the performance based management system – Key Performance Indicators (KPIs), Objectives and Key Results (OKRs), the others are Management by Objectives (MBOs) where objectives are achieved in a specific order, then there are balanced score cards (BSCs) where the achieved outcome is compared to the reference value. While some design their own systems or maybe a combination of methods. These help in managing the business and it enables efficient utilization of resource. They measure the actual outcome as compared to benchmarks. 

To do that one must understand the difference between these concepts. This is a series articles that explain the difference between these similar systems.

In this part of the series we will help you understand what these 4 concepts mean:-

Benefits of Reading this Blog:-

-Learn about KPIs, MBOs, OKRs, BSCs

-Importance and Relevance of each

The Meaning

Key Performance Indicators better known as KPIs are quantifiable and measurable factors that are linked to the business goals and objectives. These aren’t exactly a model in itself but a part of a strategic planning model. They measure the success factors of an organization or an on-going process or activity. It basically measures the effectiveness of the overall performance of the business activities. There are High level KPIs and low level KPIs, the first one concentrate on the overall business objectives at an organizational level while the later focus on the departmental level KPIs and are measured over a period of time, generally annually. These are the growth priorities of the business and the operating strategic plan.

Objectives and Key Results better known as OKRs is a framework where each objective of the business has 3-4 metrics to track results. The objectives are qualitative in nature while the key result metrics are quantitative in nature. The goal of OKRs is to align company, group and the employees individual goals and the steps that need to be taken to achieve them. They are simple to use and they do not take much time in the implementation process. In simpler words the Objective tells you which direction to go in and then the Key results helps you identify whether you have reached there, like a GPS system. The best part is there is no single way to use OKR, every company can tweak it to the convenience of their businesses processes.

Balanced Score card or BSCs is a model that measures performance in 4 perspectives – Financial, Customer, Internal Process and Learning and Growth. The scorecard is categorized into 4 columns – the objective, the measures (these are generally KPIs), the initiatives and the action items. Objective is what your organization is trying to achieve strategically, Measures are those that will tell you if you have achieved your objective, Initiatives are the projects or the action steps to achieve object and the lastly action items are those that are tasks at an individual level of the company. This is helps the management better allocation of tasks and integration of processes of different departments. It gives and backward and forward looking picture of the business. The categories can be made more extensive as per company structure for example adding feedback and review section.

Management by Objective, also known as MBOs is a process where goals are set at an organization level to give a direction to the employees of the company at all levels. This is to give a sense of clarity to the employees of their work responsibilities and their future course of actions. Key Result Areas are designed for the employees at an individual level based on their position, specialization, educational background, role and their interests. This sets the expectations in advance and avoids mismatch and fair employee annual reviews. This also leads to clear communication and more collaborations and cohesiveness. Each goal at the company level has a plan and a sub-plan.

The Future

While these are all goal oriented performance indicators, the future is the integration of process based performance management, where the concentration would be on the how rather than the where. The focus would be on building the best and most efficient processes and the success would follow. The companies would adopt indicators and systems that measure the success of the steps of their processes rather than the outcome, this would help them identify the exact steps where they are lacking or doing something wrong and then take corrective actions. A use of both, goal oriented and process based management systems can make the businesses for a volatile external environment.

Key Takeaways:-

• The meaning of performance based systems
• The types of performance based systems
• The models might seem similar but are different
• The future includes process based management systems.