Purpose ‐ The purpose of this paper is to present findings from an action research intervention in the outpatient department of a National Health Service (NHS) Hospital. It investigates the perceived and actual problems of measuring capacity at a UK hospital. Design/methodology/approach ‐ An action research methodology was adopted: relevant literature on capacity measurement and performance was reviewed; the motivation behind its usage explored. Systems requiring improvement were identified and the adoption and implementation of new working methods initiated and explored. In addition to considering capacity measurement and performance issues, the authors examined the effects this may have on the long-term potential of the organisation. Findings ‐ The research identified gaps in the capacity and activity measures used and in the dissemination of performance information. To address these problems and meet the changing needs of the department a new performance measurement and reporting tool was implemented. Research limitations/implications ‐ The methodology applied was appropriate, generating data to facilitate discussion and draw specific conclusions from. A perceived limitation is the single case approach, however, Remenyi argues this can be enough to add to the body of knowledge. Practical implications ‐ The paper gives details about the introduction of new performance measures and the development of a performance measurement tool for the Outpatient Department of the Hospital. The conclusions drawn add substantially to previous commentaries, and develop interesting questions for future research. Originality/value ‐ Specific recommendations for the implementation of a new performance tool for healthcare organisations are made.