Performance Management: Methodologies

In introducing Performance Management, we mentioned that it isn't necessarily a simple matter to come up with key performance indicators (KPIs). The underlying drivers of profit and cash flow may vary from business to business and industry to industry. Several methodologies have been developed in an attempt to create an organizing principal for performance management, and this article discusses a few of the better known or historically significant ones.

Baldrige Award

The Malcolm Baldrige Quality Award was established by an act of the U. S. Congress in 1987. The Baldrige Award established criteria for business performance excellence and was the first widely used methodology for performance management in the USA. The award is based on demonstrated adherence to numerous criteria, which effectively become KPIs. Since its inception, the program has diversified from a focus on general performance excellence to include industry-specific criteria in education and health care. For more detailed information see the National Institute of Science and Technology's (NIST) Baldrige Award site.

Six Sigma

Six Sigma is a quality control and continuous improvement methodology that relies heavily on statistical analysis. The key driver here is to minimize total defective parts per million opportunities (DPMO), and other statistical measurements around the quality process may be used as KPIs. Six Sigma is ideally suited for manufacturing businesses but attempts have been made to adapt the methodology to other industries as well. For more information, check the International Society of Six Sigma Professionals.

Kaplan-Norton Balanced Scorecard

The Balanced Scorecard (BSC) methodology, first introduced by two Harvard University professors in the early 1990's, is far and away the most widely used performance management methodology in business today. BSC focuses on four management dynamics: Financial, Customer, Process, and Learning. This methodology is also the source of great confusion, because other non-BSC performance management systems often call themselves "scorecards" as well. Because the Balanced Scorecard is so pervasive, I plan to devote a full article to discussing it in the near future.

Want To Go It Alone?

For those who don't want to be tied to a specific methodology, a resource to check out is The Performance Manager: Proven Strategies for Turning Information into Higher Business Performance. This book breaks down the business by functional area and gives you ideas for KPIs you can implement for each area. It's available in paperback at a very reasonable price from Amazon (but what isn't available on Amazon?).