Characteristics of a Good Performance Measurement System

What do you believe are the key characteristics of a good performance measurement system? The first key characteristic of a good performance measurement system is that it cares about optimization rather than suboptimization. Under a good performance measurement system, an organization is viewed as a whole system which each part interrelated and interdependent. When making decisions, employees would take other departments into account and make sure their decisions is good to the whole company. Let me imagine the example of engine and transmission, if the company adopts a better performance measurement system, that is, management measures the overall results departments make together rather than the results each department make, I’m sure the engine department would not reject the proposal. Adding $30 to the engine cost seems unwise for the engine department, but it saves $80 on the transmission components, so the overall result will be saving $50 per component! Implementing the proposal could save a huge amount of money for the company. This is a win-win model. If the performance measurement system do not pay attention the optimization of the whole company, and management still use the whole equals to sum of the each part assumption, it would turn out to be a win-lose model. The second key characteristic of a good performance measurement system is that it measures satisfaction of customers rather than abstract target numbers. For a long time, enterprise measures employees’ performance by whether they reach their target numbers. Such measurement makes mistakes on the purpose of producing. Target number sometimes means nothing. Whether enterprise meets the customers’ need and whether enterprise provides livelihood for people in need are important. Imagine that measurement system only focus on target quantities and despite the way to achieve them. Then all employees do their best to reach a large number. What if what they produce exceed customers’ needs?