Wednesday, August 7, 2019

The Pitfalls of Performance Measurement

Performance Management is not a bunch of paperwork, but a combination of management approaches leading to constantly improving business results.

The purpose of managing performance is about setting performance metrics to evaluate the status of strategy management, making objective assessments of business results, and understanding performance measurement contextually. However, measuring business performance is both art and science. In well-established organization across the vertical sectors, there are complex business rules, policies, processes, and performance systems that govern how people operate. The more meaningful and important thing you want to assess, the harder it can be measured. Here are “seven sins of performance measurement.”

Vanity - using measures devised solely to make managers look good or encourage people gaming the measurement data. Performance management is never just about numbers, and measurement is not for its own sake. The goal of measurement management is about providing guidance to help improving future decision-making and action taking. If the management manipulates numbers to make themselves look good or encourages people gaming the measurement data, it will mislead stakeholders, contaminate business culture and diminish multidimensional business value. It’s also important to explicitly communicate the intention behind metrics and make sure that the well-defined set of metrics can enforce information-based communication and lead to continuous improvement.

Provincialism - letting departmental boundaries dictate performance measures. Every function within the company perhaps has their own set of performance measurement. But ultimately, performance measurement and management should focus on achieving the strategic goal of the company, not just the individual, team, or functional performance, but to ensure the business as a whole is superior to the sum of pieces. Provincialism will enforce the silo wall and cause unhealthily internal competition. Also, don’t just scratch the surface to manage the numbers, always understand the whole story behind the scenes. The performance measures need to motivate teams to achieve more, and functional measurements should be directly aligned with the strategic goal of the business  so that top business executives would keep track of the key business success factors for ensuring the seamless strategy execution.

Narcissism - measuring from your own point of view instead of the customers'. It is undoubtedly dynamic time, every forward-thinking organization intends to run a customer-centric business. In reality though, measuring via convenience - from an inside-out operational management lens is still the common practice in many companies. The consequence is that the business keeps spinning, without improving customer satisfaction or increasing the brand value of the company. Metrics need to evolve to something that matters to the internal users or end customers, at the same time that “customer sentiment” needs to get put into something more tangible. Both quality and quantity measures are important because shipping the wrong products on time and within a budget doesn’t benefit anybody, particularly the organization. Companies need to understand the maturity of customer-centric performance measurement practices at the overall organizational scope. The goal is to develop or improve related business competency for improving customer satisfaction.

Egotism - assuming you know what’s important to measure. The problem with measurement is that more often, the metric is very subjective. People have different opinions on how to measure or how to read the measure, or overall how to make it work. Egotism might lead to ego-centricity which is a behavior that is motivated by a belief that one's ego is of greater importance than others' are. Like many other management disciplines, Performance Management is a collaborative effort, it’s important to keep communicating and take a systematic approach, put the cohesive effort into getting the correct measurements, collecting the relevant information, analyzing it, evaluating it, and determining what needs to be improved. Humble attitude and scientific methodology are both important. 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.

Pettiness - measuring only a small portion of what matters because you’re fixated on details. Keep in mind performance measures are stories, not just data, financial indicators in many business situations only cover part of the story. Neglect to measure something important will create blind spots for business management to make effective decisions or drive progressive changes with speed. Measuring only a small portion of what matters stops the management from seeing the full picture of what’s going on in the business and limits their view on how to accelerate business performance and unleash its full potential. Ideally, your measures should cover all areas that contribute to business value creation including service quality, employee engagement, business competency, customer satisfaction and financial outcomes. to ensure that the measures are both qualitative and quantitative, and implement whatever mechanisms you need to be able to gather the data and improve performance management effectiveness.

Inanity - measuring the wrong thing causes bad consequences flow: Wrong selection of performance measures could get the devastating effect to the business because it distracts the management to get the right things done effectively, or even causes the long term damage by fixing the wrong problems or encouraging poor behaviors. To avoid the pitfall of measuring the wrong things, people in the organization need to know and understand why the data are being collected and analyzed, as well as what decisions will be made based on the data. The one way to find out that the performance measurement setting is ineffective is by looking at the behavior and culture the KPIs are 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. 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 even the business circumstances have changed a while ago. It will decrease business effectiveness and decelerate business speed.

Frivolity - this happens when leaders don’t take metrics seriously. It is important to track the right metrics and know what to do with them for making performance improvement by taking a step-wise approach. Fundamentally, the management needs to determine why they are doing it, which strategic business goals or objectives are they trying to reach, as well as how to make things happening. Performance metrics should directly link to the ultimate business goals they want to achieve at the strategic level. From a performance management perspective, a balanced scorecard helps business executives laser focus on understanding critical business issues in a tangible way and determining to fix issues effectively. A well-defined scorecard should contain a good mix of long-term strategic value measures along with performance drivers to keep track of the progress in the short term operational value in spite of capturing multiple perspectives, to enforce a healthy “measure - understand- improve” performance cycle.

Performance Management is not a bunch of paperwork, but a combination of management approaches leading to constantly improving business results. Performance management should take a multidimensional approach, to connect all important dots with multifaceted perspectives. Select the right set of indicators of business improvement, innovation, and investment, really focus on key metrics that correlate to better business outcomes and measure them effectively.


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