Friday, September 19, 2014

The Two Sides of Performance Measurement

Not everything that can be counted counts and not everything that counts can be counted.   Albert Einstein
There’s no doubt that the well-defined measures and KPIs are important factors to manage performance and keep track of strategy execution effectively. However, everything has two sides: Do some performance measurement initiatives encourage quantity over quality? It also raises the question as to whether you are doing/measuring something simply because you can, you want to, or because you always have done even though the operating environment may have changed. Indeed, it is thought-provoking. Having KPIs that are both measurable and truly meaningful is always a challenge.

Distinguish between quantitative and qualitative performance objectives/KPIsIt’s dangerous to impose metrics just because the focus on what’s measurable is manageable. There are indeed qualitative objectives where the basis for rating performance is the set of criteria that address the question: “what does it mean to achieve this objective?” In some cases, these may also be action plans. Further, to populate the scorecard with too many metrics for the sake of measurement is also unproductive. KPIs and the associated metrics drive priorities and behaviors. Keep them focused on drivers of performance and, appropriately weighted.

The performance KPI setting should focus on achieving the ultimate goals of the business as a whole. Performance management, when used in an individual context, tends to focus on all that is good and has been achieved by the individual; it is rare that an individual emphasizes what they haven't achieved. When the manager changed the focus of the organization after poor company results, he/she asked people to explain why if all the performance was so good, was the company failing? He/she asked the managers to start explaining what they had not achieved and why? Celebrating success is important, but understanding what’s blocking achievements, targets and performance are paramount.

A barometer of the efficacy of a metric is what exactly is done with the data. Every metric should have a good reason for being measured. And the output should actually be a throughput, it should be an input to something else. So often you see things measured that are never really reviewed or communicated. The absence of inquisitive conversations around these issues can lead to a disconnect between actions and the measurements of success.

So there’re always two sides to measurement. The measures to motivate teams to achieve more and the measures to distract management from the ultimate business goals. The rule of thumb is that whatever metric/KPI you emphasize is exactly the one your team will focus on. Put another way, whatever is being watched is what you will get. That's why it's very important to use a balanced scorecard. A scorecard can be weighted emphasizing certain metrics, but make sure that no single KPI becomes the sole determinant of "success."


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