Introduction

Performance measurement is the active process of sourcing for information about an entity’s performance before analyzing it and then reporting the same. It normally encompasses the study of different processes within an entity therefore gauging the output and comparing it with the intended targets. Essentially, the process is necessary in gaining insights and understanding as to how well an organization is attaining its set goals. In addition, the same process provides avenues for analysis of possible areas of change and improvement thus enhancing the general quality of output over time. Performance measurement is in simple terms the regular process of data collection and analysis geared towards assessment of the correctness and effectiveness of the processes in achieving desired results (Howell, 2005).

Over the recent past, organizations have embraced the concept of performance management in a bid to gaining a competitive advantage over their competitors. In particular, performance management provides an opportunity for organizations to improve the quality of their services and products. Quality improvement is achieved through a continuous process of assessment and improvement of areas considered weak. In addition, the same concept is necessary in the attainment of transparency within the organizations. The benefit makes so much sense in organizations with vast stakeholders who base their decisions on the level of transparency within organizations. It is the duty of organizations to provide necessary information to not only their customers but the relevant stakeholders such as the government and shareholders. This process may also help in the facilitation of accreditation by relevant bodies in the companies’ industries of operations. For instance, the Accreditation Association for Ambulatory Health Care base their process of accreditation on the results of performance measurement.

Despite the steps made in the process of performance measurement and management, there are problematic aspects that need to be looked into for the process to be most effective. In particular, the challenges facing the not for profit organizations have always been a controversial area owing to the organizations’ nature of operation. Also, there is little research done on the subject therefore resulting in a lack of comparative information for use by other organizations. Indeed, the process of performance management is not limited to benefiting the host organization alone. Rather, information on the organization’s processes and systems can be used to help in the decision making processes of other organizations therefore saving them the danger of trial and error (Parmenter, 2012). Eventually, therefore, organizations should learn from the little available information and adapt accordingly.

One of the biggest areas of concern in performance management is the comparison of business and not for profit sectors. Most organizations approach the concept of performance management form the viewpoint of business sectors. The importation of the results from studies on business sectors and the application of the same in the charitable sector results in a lack of proper implementation. While business have the obvious goal of making profits for an easily identifiable owner, not for profit organizations have a more complex goal. Performance management is thus seemingly direct in the business sector as it is tied to the making of profit or lack thereof. In contrast, not for profit organizations are structured around complex and equally varied missions with the purpose of helping a wide array of constituents. As thus, it is very difficult to identify the primary groups of interest within the workings of charitable organizations (Neely, 2001). By extension therefore, measurement of the performance of a charitable organization is a complex task that requires much more input.

Still, performance measurement with not for profit organizations is shrouded with the challenge of having external funders, each of whom has their own agenda. The charitable organizations, unlike business companies, do not have a clear connection between the set targets and their funding sources. The different approach to capacity building is also a source of challenge for performance measurement in charitable organizations. Most not for profit organizations are structured around program delivery to the benefiting constituents. The focus on organizational capacity in not for profit entities is seen as an attempt to compete with organizational programs. In addition, their funding structures also present numerous challenges in performance measurement as the donors and funders dictate the direction of the organization.

Literature Review

A performance measure is any metric that is used for the purpose of quantifying the effectiveness of an action in attaining the desired outcome. As thus performance measurement is simply the process of executing a performance measure. It is a topic that is often discussed among the realms of academics and business but rarely defined in either of the two. Performance measurement is thus a process of quantifying the effectiveness of actions towards attainment of goals and objectives within the organization (Epstein et al, 2009). The concept appoints a multi dimensional array of performance measures including internal and external metrics to arrive at a rigorous assessment. Despite its uniqueness, it cannot be conducted in isolation and is a continuous process of change and improvement. In addition, one cannot use any metrics to measure the performance of an organization without regarding the reliability of such metrics (Hatry, 2006).

Performance measurement has gained popularity over the recent past as is evidenced by attendance at business meetings and conferences on the subject. In fact, there is much more literature on the subject of performance measurement and management over the last decade compared to other periods in history. This is a pointer to the increasing popularity of the concept among the industrialists and academics and thus gaining its rightful place in literature. Past research has pointed out to the increasing acceptance of the balanced scorecard as a tool for performance measurement in the world (Barr, 2014). That notwithstanding, there is significant empirical evidence to show that not all performance measurement initiatives are successful. In fact, a large percentage of what people consider as performance measurement is clogged with unreliable data thus rendering the process a total fail. This scenario is amplified by recent revelations that up to 70% of attempts to initiate performance measurement systems as having failed (Epstein et al, 2009).

The process of performance measurement starts with the decisions of the processes to be measured, how the measurement will be done and the targets of the measurement process. All these decisions have significant impact not only on the organization but the entire environment around it (Spitzer, 2007). Ideally, the onset of measurement has consequences and is an integral part of the management planning process of any organization. In the past, the effectiveness of the process has been criticized because of poor choice of metrics and lack of uniformity in the processes to be measured. However, recently, the process is being used to assess the impact of actions on the different stakeholders of the organizations being measured. Challenges have also emerged regarding the use of performance measurement across different sectors of organizations. In particular, there is friction between the choice of metrics and processes to measure in the charitable and business sectors (Neely, 2001).

Despite a lack of vast literature, performance measurement is not a new concept per se. Rather, it has its roots in ancient accounting systems including the Medici accounts that were in use in pre-industrial times (Howell, 2005). Through the concept, businessmen managed to maintain excellent account of the various transactions without relying on complex techniques such as cost accounting. However, the emergence of industrial development increased the organizational needs for metrics to track the performance of the businesses. In essence, the shift form piece work to wages and the transformation of businesses from single to multiple operations as well as the diversification of production all contributed to the emergence of management accounting. Towards the end of the 1980s, management accounting received criticism for its inability to manage the dynamic business of the day (Parmenter, 2012). In particular, the inappropriateness of performance measurement ion the traditional systems was a source of concern.

In the past, performance measurement based on traditional accounting methods was focused on financial strength, local delivery and internal improvements (Neely, 2001). However, in the 1990s more balanced performance measurement methods were developed in line with the changing business environment and the need for more efficiency and effectiveness in the measurements. It is the emphasis on more balanced system that led to the emergence of such models as the SMART pyramid and the Balanced Scorecard in performance measurement (Saul, 2007). However, this is not the end of performance measurement models and more of these are emerging such as the Performance Prism which is overcoming traditional shortcomings. Nonetheless, frameworks alone cannot completely solve the problem of performance measurement. They only provide varying perspectives regarding the categorization of performance measures and allowing managers to consider between the particular demands on the business.

Performance management in the not for profit organizations is gaining popularity over the recent past. Perhaps the reason for this shift is due to the focus on management being expressed towards charitable organizations (Spitzer, 2007). There is high degree of opposition among not for profit employees towards the acknowledgement that they are in a competitive environment. Most managers in the not for profit organizations have in the past been reluctant to use organization measurement models. The reluctance to use market analysis among these managers leads to a difficult situation where they override the adoption of useful techniques from the profit sector. Indeed, the managers acknowledge the need for performance but they still abhor the possibility of losing the organizations’ values thus leading to suspicion of techniques from the profit sector (Barr, 2014).

The reluctance of not for profit mangers may be valid to some extent as there is evidence of loss of organizational values in the past. Research has shown that a strict application of performance measurement in the not for profit sector results in goal displacement (Howell, 2005). This scenario is characterized by a general disconnect between the organization and the values that motivate the not for profit sector. In truth, the not for profit organizations need strong management and performance measurement is one such approach. However, the difficulty of measuring achievement should be considered in the adoption of performance measurement tools. In particular, eth goals of charitable organizations in achieving social mission rather than clear financial targets should be emphasized. That notwithstanding, the challenges in the not for profit sector can be overcome and performance measurement initiated if the proper conditions are set beforehand (Hatry, 2006).

Analysis

Performance analysis is an active continuous process of change and improvement that is very important in the attainment of organizational goals. In particular, the not for profit sector could utilize the potential of the concept in analyzing its operations and commitment to social development. However, this process is not without challenges and its implementation requires that managers apply necessary skills in deciding the metrics to be used and the processes to be measured. In fact, the choice of metrics and the decision on the processes to be measured is a decisive factor in the success of the entire process. The complex nature of the not for profit organizations require that the process be implemented in a sober approach to improve its overall effectiveness.

The differences between the not for profit and profit organizations largely affects the practicability of the process. In the business sector, the culture encourages changing and adaptation to reflect the changing times. However, the not for profit sector has a different perspective where any change could be misinterpreted to mean a drift from the mission. The situation therefore means that changes occasioned by performance measurement could be interpreted as a selfish step of making the organization better at the expense of its social mission. Most often, managers of not for profit organizations do not anticipate the prediction of necessary changes for fear of these accusations (Epstein et al, 2009). Even when they do, they can only make minimal changes thereby rendering the entire process ineffective.

The assessment of customer satisfaction is a key indicator of performance but yet poses great challenges to the implementation of the process in the not for profit organizations. In the profit business sector, the customers have the option of choosing from a wide array of service providers. Therefore, their choice of organizations could be interpreted to mean that they are more satisfied with the services of these entities and can be used as a measure of customer satisfaction. In the not for profit sector, there is no direct link between the beneficiaries of the service and those who pay for the extension of those services. The beneficiaries have no choice as to where they can get the services on offer and are usually selected by the organizations based on their need requirements (Parmenter, 2012). In this scenario, the not for profit organizations risk being isolated from the community because of a lack of feedback mechanism. To avert this situation, they need to initiate proactive measures of getting feedback as well as creating other avenues that meet the said challenge.

Findings

Successful implementation of performance measurement is reflected in business conferences to show the possibility of achievement. However, most case studies point to a process that is not as direct and easy as the conferences seem to portray. The process of coming up with a performance measurement system is quite complex and rigorous and may take an organization many years (Saul, 2007). Ideally, it requires strategy both in the formulation and implementation stages and should be unique to an organization’s needs and requirements. On average, the process of developing a strategic performance measurement for a reputable organization could take between three to five years of planning. Ideally, most scientists allude to the necessity of having several years to derive full benefit from the process.

The process of performance measurement implementation is not an easy task either as numerous case studies have shown. In a recent study, about three out of five organizations that went through the design process continued with the implementation of a majority of the measures (Neely, 2001). In some other cases, companies have abandoned the process midway and failed to implement even a single measure from the design process. Further, almost all the companies that have gone ahead and implemented the performance measurement systems have complained of difficulties in the process. These revelations do not point to a process that lacks merit but one that requires rigorous strategy as well as excellent patience for the benefits to be achieved.

The barriers to the implementation process are wide and varied based on the different studies. However, they all make the same or almost similar conclusions regarding the implementation process of performance measurement. The barriers are all centered on the need for proper and sound strategies both in the formulation and implementation processes. The visions and strategy of the organization must be actionable for the process to be successful (Hatry, 2006). Often times, the achievement of consensus among senior managers regarding how visions will be attained has failed in many organizations. The situation results in each of the managers pursuing different agenda with each compromising the attainment of the other. The lack of proper linkage between strategy and the key components of the organization could also lead to failure of the process. The strategy could also be inconsistent with team and individual goals leading to a lack of goodwill in implementation.

References

Epstein, M. J., Rejc, A., American Institute of Certified Public Accountants., & Society of Management Accountants of Canada. (2009). Performance measurement of not-for-profit organizations. Mississauga, ON: Society of Management Accountants of Canada.

Hatry, H. P. (2006). Performance measurement: Getting results. Washington: The Urban Institute Press.

Barr, S., & In Wishnew, N. (2014). Practical performance measurement: Using the PuMP blueprint for fast, easy and engaging performance measures.

Spitzer, D. R. (2007). Transforming performance measurement: Rethinking the way we measure and drive organizational success. New York: AMACOM.

Neely, A. (2001). Business performance measurement: Theory and practice. Cambridge: Cambridge University Press.

Howell, M. T. (2005). Actionable performance measurement: A key to success. Milwaukee, Wis: ASQ Quality Press.

Parmenter, D. (2012). Key performance indicators for government and non profit agencies: Implementing winning KPIs. Hoboken, N.J: John Wiley & Sons.

Saul, J. (2007). Benchmarking for nonprofits: How to measure, manage, and improve performance. Saint Paul, Minn: Fieldstone Alliance.

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