What Are the Best Measures of Organizational Performance?

What are the most effective measures of organizational performance?

An organization’s performance depends on many factors, such as:

  • The efficiency of business processes
  • Employee productivity
  • How effectively organizations meet their objectives
  • The alignment among business functions, as well as those functions’ alignment with the organization’s strategy
  • Organizational culture and climate

All of these contribute to how efficiently an organization operates and how well it performs in the marketplace.

But what are some effective measurements, metrics, and KPIs that can be used to measure progress, performance, and effectiveness?

Before choosing those metrics, the first step is to define a model and a concept of organizational effectiveness.

Modeling Organizational Effectiveness

A model of organizational effectiveness acts as a baseline for measuring performance.

Many models of organizational effectiveness revolve around the concepts covered above, such as:

  • How efficiently and effectively an organization achieves its stated aims
  • How well an organization can obtain and utilize resources
  • The efficiency of business processes and operations
  • A cohesive set of business systems, such as communication, leadership, workforce productivity, and delivery

There are quite a number of perspectives on how to best define organizational effectiveness.

Therefore, before measuring organizational performance, it is a good idea to clearly define what “organizational effectiveness” means to your organization.

With that definition as a guide, it will be easier to set performance goals, track progress, and make improvements.

Some of the Top Measures of Organizational Performance

Building off of some of the concepts of organizational effectiveness already covered, let’s look at a few ways to measure organizational performance.

Achievement of Organizational Objectives

One of the most common ways to evaluate organizational effectiveness and performance is how well a business achieves its stated goals.

This approach would evaluate factors such as:

  • How successfully an organization meets its targets
  • Expenditures
  • Bottom-line profits
  • Innovation
  • Growth

Some models of organizational effectiveness, as mentioned, revolve exclusively around goal-setting and achievement.

Others include other metrics such as those covered below.

Business Process Efficiency

The efficiency of individual business processes can also be used to gauge organizational performance.

Business processes, units, and functions can be measured by, for instance:

  • Speed
  • Cost-efficiency
  • Results and productivity
  • Agility and adaptability

Measuring every business area or function can help organizations spot inefficiencies as well as growth opportunities.

Results of Business Investments and Projects

Another measure of organizational performance is how effectively and efficiently an organization can execute business projects.

High-level metrics for evaluating individual projects can include:

  • Financial returns
  • Project results
  • Project efficiency
  • Projected costs versus actual costs, measured against the derived benefits

As with the other performance indicators covered here, it is important to keep these measurements in the context of a model of organizational effectiveness.

Though some measurements are more valuable than others, no single metric should be used as a catch-all to determine performance.

Marketplace Performance

How well a business performs in the marketplace can also demonstrate is effectiveness and performance.

Areas to measure can include:

  • Market share
  • Innovation
  • Growth
  • Valuation
  • Profits

Among other things.

Alignment

Organizational alignment can refer to the synchronization between:

  • Different departments 
  • Individual employees and their department or their team
  • The workforce’s actions and the organization’s mission
  • The organization’s behavior and its mission
  • An organization and its marketplace

The more aligned that workers and business units are with the organization, the better an organization will perform.

Workforce Metrics

The workplace and the workforce experiences play major roles in how well an organization performs.

Skilled, motivated employees are more engaged, more productive, and more profitable. 

To determine how the employee experience affect organizational performance, a business should focus on measurements such as:

  • Skills and proficiency 
  • Productivity and performance
  • Engagement and motivation
  • Sentiment
  • Retention and loyalty

These can offer insight into strengths, weaknesses, and opportunities for improvement.

How to Improve Organizational Performance: Model, Measure, Change

As mentioned earlier, no single measurement should be used to gauge organizational performance.

Instead, a set of metrics should be used against the backdrop of a model of organizational effectiveness.

That model, combined with appropriate measurements, can offer deep, actionable insights into organizational performance.

This information can then be used to manage change and make performance improvements.

Change management frameworks, for instance, provide a straightforward approach to assessing needs, designing organizational change solutions, and managing those changes.

A change management roadmap could include steps such as these:

  • Develop or follow a model of organizational effectiveness
  • Assign appropriate measures of organizational performance based on that model
  • Measure and analyze
  • Identify areas that need improvement
  • Develop a roadmap for organizational change
  • Follow a change management framework to initiate, execute, and manage change
  • Measure the results

Because each business is different, each model of organizational effectiveness will be unique.

Business leaders, managers, and other professionals should work together to define organizational effectiveness and establish the right measurements for that definition.

If business professionals commit to the process seriously, then they can gain deep insights into their business.

And, more importantly, they can generate substantial improvements to their organization’s performance.

Chris is the Lead Author & Editor of Change Blog. Chris established the Change blog to create a source for news and discussion about some of the issues, challenges, news, and ideas relating to Change Management.