According to Smith, performance indicators “facilitate estimation of the production function confronting the organisation, so that best practice can be identified and achievable targets set. ” According to Bartol and Martin, an organisation is “two or more persons engaged in a systematic effort to produce goods or services. ” Organising is “the process of allocating and arranging human and nonhuman resources so that plans can be carried out successfully”.
By making use of performance indicators, central management is therefore able to assess the productivity and efficiency of each division or department in an organisation. It is important to note that divisional profitability is a very important figure to look at in order to assess how effectively the firm has allocated and arranged resources. Emmanuel, Otley and Merchant point out, there are various other measures that account for a broader series of success criteria, e. g. stock and asset turnover statistics, gearing ratios and figures showing the major sources and application of funds.
By analysing these, management and also shareholders (owners of the company) are therefore better informed about how each department within the organisation is performing. Asda for example has extended its brand name into the non-food sector and now sell products such as DVD players, televisions, clothes and mobile phones. Asda’s management are able to assess how well they are doing in the non-food sector by examining this particular division’s marketing strategy and analyse it’s achieved volume of sales, it’s current share of the market and consumer responses.
If central management did not have such performance indicators, how could they monitor the progress of its non-food range? Therefore performance indicators are essential to an organisation’s growth and future existence. In relation to this, leading is as defined by Bartol and Martin “the process of influencing others to engage in the work behaviour necessary to reach organisational goals and objectives”. Performance indicators are tools that enable senior management to see how efficiently area and regional managers are carrying out their duties and motivating their staff.
Information generated by such performance indicators is essential for management to have because it determines which branches have the more productive workforces and to an extent how motivated they are to work towards organisational goals. At Natwest Bank, each morning a huddle takes place and staff under-achieving are examined on their technique and staff with outstanding achievements are rewarded. This acts as a great incentive to do well and lift your performance. Profit sharing is another good motivator as the harder you work the more profits you make and this leads to higher wages; you are in essence working for your own business.
Managers of all branches, whether under-performing or meeting targets must publicly state their sales performances at regional meetings. By doing this, sales performances in each of these under-performing departments soared and this is arguably due to more effective leadership of these particular managers. Performance indicators are therefore vital to have, as managers will then be able to motivate staff to work towards goals and thus lead effectively. As can be seen from the above points, it is extremely hard to imagine an organisation from surviving without performance indicators.
Planning, organising, leading and controlling all form the foundations to achieving effective management and the above points portray that at the end of the day, none of functions are achievable without having some form of performance measure, no matter what form of structure the organisation possesses. Every organisation, no matter how big or small, needs some sort of performance indicator to in order to plan, organise, lead and control the business if it is to carry on existing.