Recommended process to develop a performance measurement system
1. Senior management need to determine a clear vision of the change that will be required and demonstrate commitment to such changes. Senior management can demonstrate support by setting objectives and timescale for the development of a new performance measurement system, they can also help educate and create dissatisfaction with the current situation.
2. Benchmark the existing performance measurement system with other organisations within the same or another industry. Consult with external stakeholders e.g. investors orcustomers, to understand any valuable critical success factors. Consult with staff for their ideas and opinions as to what would be 'effective appraisal criteria' to meet any new proposed measures introduced.
3. Participation by staff during the process is required to aid change. It will help establish fair and objective criteria for the elements of competence (standards) in order for staff to be assessed e.g. new innovation, business, and customer satisfaction.
4. Targets/criteria should be set after consultation and measurably linked to the corporate goals and objectives of the organisation.
5. Reward systems should be modified to correlate bonus or career advancement with targets achieved e.g. new performance associated reward systems introduced. The new bonus system to meet targets should be viewed by staff as 'financially material' enough to be viewed as worth pursuing by staff to achieve better goal congruence.
6. Introduction of new appraisal procedures e.g. prepare report formats, appraisal forms, communicate to all employees the process to be undertaken when measuring performance.
7. Training for staff and managers to make sure an effective appraisal process e.g. improve understanding of criteria, assessment and interviewing techniques that will be used.
8. Review and monitor the new system regularly to ensure a positive commitment from management and staff. It is important to ensure the new performance measurement system is not just seen as a cynical and bureaucratic form filling exercise, but something that is essential and worthwhile to improve performance and fairly reward individuals or teams for the effort they make to achieve new targets.