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Strategic performance management is a business function where business owners and managers develop activities or tasks to gauge the overall effectiveness and efficiency of their company. This process often involves taking a detailed look at the company and setting specific goals or objectives for divisions, departments, managers, and employees. Owners and managers will set goals or objectives for business processes, gathering information to measure performance and making changes to correct issues or improve the company’s performance.
While many different performance management tools exist in the business environment, owners and managers may decide to develop their own measuring process. Owners and managers typically rely on their personal education, experience, and knowledge of business function and tasks. Strategic performance management makes use of both quantitative and qualitative measuring 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 the personal judgment or inference of information from the experience of owners and managers.
Strategic performance management includes several different methodologies. Six Sigma, balanced scorecard, activity-based costing, and total quality management are a few of the more well-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 where errors occur and how the company can remove the problem in order to achieve 99.9999 percent accuracy in business processes.
The balance scorecard is a strategic performance management system where owners and managers outline their financial, business process, customer, and learning or growth perspectives. This typically involves a more qualitative process where owners and managers assess the information in order to develop strategies to improve output and performance. The balanced scorecard also outlines objectives, targets, and initiatives a company should achieve for business operations.
Activity-based costing is a strategic management performance tool that focuses primarily on the business costs a company incurs from its operations. While most performance management tools include cost reviews 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 lower costs for raw materials, labor, and overhead.
Total quality management is a strategy companies use to improve the quality of consumer products and develop positive customer service interaction. This strategic performance management method puts a stronger focus on product quality and customer service because these items represent the company in the economic market. Improving these items may lead to better goodwill in the business environment and a stronger market share.