Sunday, April 30, 2017

Digital Performance Measurement Pitfalls

To avoid varying performance measurement pitfalls, ensure that digital performance measures are both qualitative and quantitative.

Digital transformation is a journey, from digital strategy crafting to organizational structure tuning, it has to permeate into the business vision, strategy, mindset, culture, communication, action, process & capability, and last, but not least, performance measurement and management. There are a lot of additional parameters, correlations, and context that should be taken into account as digital transformation is dynamic, complex and holistic. How to avoid performance measurement pitfalls and make the objective assessment of digital organizational maturity?

  • Only measure the part of the story from the finance perspective: Keep in mind performance measures are stories, not just data. Historically, performance measurement systems for most businesses have been financing driven. However, in many business situations, financial indicators only cover part of the story. The holistic performance measurement approach is fundamental to avoid "a one size fits all solution." It's fair to say any organization that didn't have a systematic approach to measurement and analysis at both the strategic level and operational level has a giant blind spot that is impairing their performance. In addition to having some kind of basic measurement in each level, the holistic approach from top down is excellent to manage business performance systematically. But the tactical level of measures has to be in alignment with the business goals to present multidimensional business value. The ultimate goal of performance management is to implement business strategy effectively through well defining the right set of measures at both strategic and tactical level, to make a holistic assessment via telling the full story objectively. Even if you choose the right KPIs, you must change them from time to time accordingly. Otherwise, your business is going to be driven by that specific set of KPI. You are going to focus on them only, but ignoring the bigger picture of the dynamic business reality.

  • Assume the collective functional performance is equal to the sum of pieces - the individual’s performance, or unit performance, which is not always the case: There’re always two sides of measurement. The measures to motivate teams to achieve more and the measures to distract management from the ultimate business goals. The performance measurement setting should focus on achieving the ultimate goals of the organization as a whole, not just the individual or the team’s performance. Performance management, when used in an individual context, tends to focus on all that is good, that has been achieved by the individual. It is rare that an individual emphasizes what they haven't achieved. When the managers changed the focus of the organization after poor company results. They asked people to explain why if the overall performance was so good, was the company failing? Top executives asked the managers to start explaining what they had not achieved and why? Because often PEOPLE DO WHAT YOU INSPECT, NOT WHAT YOU EXPECT! Don’t just scratch the surface to manage the numbers, always understand the whole story behind the scene, and ensure the business as the whole is superior to the sum of pieces. So, the measurement and incentive should serve the ultimate business goals. Celebrating success is important, but understanding what’s blocking overall business achievements, targets and performance are paramount, in order to make a leap of digital transformation.

  • Wrong selection of key performance setting could get the devastating effect to the business: The most dangerous part of performance measurement is when performance system is connected with the motivation system on an operational level, but disconnected from the strategy management. Evaluate the potential risks from performance measurement setting. The one way to find out that the performance measurement setting is ineffective is by looking at the behavior and culture the KPI is driving. If behavior and culture are off, and politics is becoming more and more dominant, then you know that performance indicators are perhaps just not the right one to achieve business effectiveness. Build an intuitive dashboard to monitor the performance via better visualization. Always attempt to identify areas in which measurable improvements can be realized, providing demonstrable value is essential, in some instances, these areas have been low-hanging fruit. The organization performance management dashboard usually includes:
(1) Well selected metrics and performance measures
(2) The organizational P&L
(3) Employee Turnover/ Attrition percentage
(4) Key challenges and relevant information
(5) Top accomplishments for strategy execution

To avoid varying performance measurement pitfalls, ensure that digital performance measures are both qualitative and quantitative, and implement whatever mechanisms you need to be able to gather the relevant information. Your measures should cover all areas that contribute to business success. Hence, don’t just play the number game, but connect the contextual dots and focus on the overall business objectives and strategic goals.


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