Strategic performance management involves evaluating a company’s effectiveness and efficiency, setting goals, measuring performance, and making changes to improve performance. It uses both quantitative and qualitative tools, including Six Sigma, Balanced Scorecarding, Activity Based Evaluation, and Total Quality Management. These methods focus on reducing errors, outlining financial perspectives, allocating costs, and improving product quality and customer service.
Strategic performance management is a business function in which business owners and managers develop activities or tasks to evaluate the overall effectiveness and efficiency of their business. This process often involves taking a detailed look at the company and setting specific goals for divisions, departments, managers and employees. Owners and managers will set goals or objectives for business processes, gather information to measure performance and make changes to correct problems or improve business performance.
While there are many different performance management tools in the corporate environment, owners and managers may want to develop their own measurement process. Owners and managers typically rely on their personal education, experience, and knowledge of corporate functions and duties. Strategic performance management uses both quantitative and qualitative measurement tools. Quantitative tools include the use of mathematical or statistical formulas to determine how well the company achieves its goals. Qualitative analysis relies more on personal judgment or inferring information from the experience of owners and managers.
Strategic performance management includes several methodologies. Six Sigma, Balanced Scorecarding, Activity Based Evaluation, and Total Quality Management are some of the best-known performance management methods. Six Sigma is a renowned management strategy where companies attempt to improve their performance by reducing the number of errors in individual business processes. This process uses statistical measurements to find out where errors occur and how the company can fix the problem in order to achieve 99.9999 percent accuracy in business processes.
The balance sheet scorecard is a strategic performance management system in which owners and managers outline their financial, business process, customer, and learning or growth perspectives. This typically involves a more qualitative process in which owners and managers evaluate information in order to develop strategies to improve output and performance. The Balanced Scorecard also outlines objectives, goals, and initiatives that a company should accomplish for business operations.
Activity-based costing is a strategic management performance tool that primarily focuses on the business costs that a company incurs from its operations. While most performance management tools include cost review as part of the process, activity-based costing is a management accounting function that focuses on allocating business costs to goods and services produced by the company. This helps companies find ways to reduce costs for raw materials, labor and overheads.
Total Quality Management is a strategy used by companies to improve the quality of consumer products and develop a positive interaction with customer service. This strategic method of performance management focuses more on product quality and customer service because these items represent the company in the economic market. Improving these elements can result in a better start in the business environment and a higher market share.
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