Lesson 27º








Measuring Systems

Once the long term and other short term objectives have been set, the leader has to establish a measuring system that allows him to know if the company is getting closer to fulfilling their objectives.

The measuring system allows the leader to know where the company is advancing and in which areas the company has to increase its efforts.

It also allows the different departments to know the results of their work, experiment new work methods and see which methods are efficient.

These measuring systems have to be absolutely objective.

For example, if the company has fixed a goal, to improve their profitability in x points they can use an indicator like the ROE (Return on equity).

If what they want to measure is the efficiency of their sales force they can use the ratio “sales/salesperson”.

In short, when goals have been established, it is necessary to quantify them; it is essential to see how a company advances or if it doesn’t advance with the way people are working.

For example, if the objective is to improve the quality perceived by the client, this can not remain in a mere declaration of principles, it is a simple idea, but you have to define indicators that measure this concept (for example, number of complaints by clients for every 1000 orders).

If you want to improve the quality of the manufacturing process you could use as an indicator e.g. the percentage “defected products over total production”.

If you want to improve the performance of the commercial network, some possible indicators will be “number of clients per sales person”, “number of orders per salesperson”, “profit per salesperson”, etc.

Measuring the performance of an activity can be a complex subject as there can be different nuances (for example, improving sales is not the same as concentrating on increasing sales with one client). Therefore, it is preferable not to establish a single indicator to measure a determined aspect but a few indicators.

This will allow the leader to control the departments he wants to measure.

The performance indicators that they are going to use should be discussed with the departments that are going to be effected.

Finally, they know exactly what they are doing and therefore can examine the “pros” and “cons” of the departments.

Besides, there can not be any discrepancies over the validity of the indicators used. The effected departments are the first that should use these tools to obtain information and be able to take the opportune measures.

These indicators allow the leader to analyze the evolution of people’s performance (see if the company improves or not), therefore buy the obtained results with those of the competitors (see where they are ahead and where they have to improve).