Comparing performance measures
Once we have determined the measure and calculated our actual performance against the measure, the next question is: how do we assess the performance? For instance, if we calculate ROE to be 11%, or on-time deliveries to be 94%, are these good, bad or average results? There are several issues here: what standard to compare with, over what time period and where does the comparison information come from?
Standards of comparison ► ► ►
What standard should we compare to? Performance can be measured against:
► past performance
► internal targets
► industry averages
► best industry practice
► world’s best practice.
Past performance is useful to see whether or not we are improving. But improving’ (e.g. by making less of a loss this year than last year) may not be good enough. Or if we are best in the industry and are at the apparent ceiling of performance (e.g. 99% on-time delivery), improvement may not be possible.
Internal targets should provide a better estimate than past performance, since they should take account of current conditions, expected improvements, and desired or required levels of performance. However, internal targets may be ‘soft’ (easy) or 'hard' (difficult), depending on the target setter, so knowledge of the philosophy behind the target is required before performance can be assessed against it. For instance, setting a hard target may result in the target not being reached, but it may also result in a higher overall level being reached than a soft target that is more easily reached.
To avoid subjectivity, some organisations aim to beat the industry average, to be in the top quartile of industry performance, or similar. Regardless of whether performance is lip or down on last year, since the aim is to outperform competitors, assessing performance against the best in the industry is one way to raise standards.
In small economies like Australia’s, many industries have limited competition. Consequently, comparing against industry average or even industry best may not.be very challenging or useful. Therefore, comparing to world's best practice may be appropriate. As we discussed in Chapter 4, ensuring that we are comparing consistent measurements is important. This is particularly difficult to do across countries and cultures, where standards, expectations and rules may vary.