This is the second in a series of blog posts by guest blogger and Decision Day 2013 Key Note Speaker David Parmenter examining the six most common myths related to performance monitoring.
In my first post, I discussed why performance measurement systems so often fail, and touched on the first myth of performance measuring: most measurements lead to better performance.
Myth #2: All measures can work successfully in any organization, at any time
Contrary to common belief, it is a myth to think that all measures can work successfully in any organization, at any time. The reality is that there needs to be, as Dean Spitzer has so clearly argued, a positive "context of measurement" for measures to deliver their potential.
To this end I have established seven foundation stones that need to be in place in order to have an environment where measurement will thrive. The seven foundation stones are:
- Partnership with the staff, unions, and third parties
- Transfer of power to the front line
- Measure and report only what matters
- KPIs are sourced from the critical success factors
- Abandon processes that do not deliver
- Understand human behavior
- Ensure an organization-wide understanding of what constitutes a KPI
These seven foundation stones are explained in length in Chapter 8 of my book "Key Performance Indicators for Government and Non Profit Agencies."
Myth #3: There is a need to set annual targets
It is a myth that we know what good performance will look like before the year starts and, thus, it is a myth that we can set relevant annual targets. In reality as Jack Welch says, annual targets lead to constrained initiative and stifled creative thought processes. They promote mediocrity rather than giant leaps in performance.
All forms of annual targets are doomed to fail. Far too often management spend months arguing about what is a realistic target, when the only sure thing is that it will be wrong. It will be either too soft or too hard. I am a follower of Jeremy Hope's work. He and his co-author Robin Fraser were the first writers to clearly articulate that a fixed annual performance contract was doomed to fail in their book “Beyond Budgeting.”
Far too often organizations end up paying incentives to management when, in fact, you have lost market share. In other words, your rising sales did not keep up with the growth rate in the marketplace.
As Hope and Fraser point out, not setting an annual target beforehand is not a problem as long as staff members are given regular updates about how they are progressing against their peers and the rest of the market. He argues that if you do not know how hard you have to work to get a maximum bonus, you will work as hard as you can.
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