Performance measurement systems often fail, and the reason for this is simple. Organizations, in both the private and public sectors, are being run by management who have not yet received any formal education on performance measurement.
This is the first in a series of six blog posts by guest blogger and Decision Day 2013 Key Note Speaker David Parmenter examining the six most common myths related to performance monitoring.
Performance measurement systems often fail, and the reason for this is simple. Organizations, in both the private and public sectors, are being run by management who have not yet received any formal education on performance measurement. Unlike accounting and information systems - where rigorous processes have been formulated, discussed, and taught - performance measurement has been left as an orphan of business theory and practice.
There is a long journey ahead in order to get performance measurement functioning properly, but to start we need to challenge the myths they have been built on. In my Decision Day session, I’ll be illustrating six of the most common myths of performance measurement which need to be challenged. I’ll be addressing these myths in their own blog posts in the coming days and weeks to give you a little taste of what will be happening at Decision Day. Let’s start with the first myth today.
Myth #1: Most measures lead to better performance
Measurement initiatives are often cobbled together without the knowledge of the organization's critical success factors and without an understanding of the behavioral consequences of a measure. It is a myth of performance measurement that most measures lead to better performance. Every performance measure can have a dark side, a negative consequence, an unintended action that leads to inferior performance.
In order to make measures work, one needs to anticipate the likely human behavior and minimize the potential dark side of the performance measure. The key is to find the dark side and then tweak how the measure is used so that the behaviors it will promote are appropriate.
I suspect well over half the measures in an organization could be encouraging unintended negative behavior. Dean Spitzer's book "Transforming Performance Measurement" provides a vast array of examples of dysfunctional performance due to poor measurement. Below are some examples of dysfunctional activities promoted by the inappropriate use of performance measures.
- Experienced social workers in a government agency will work on the easiest cases and leave the difficult ones to the inexperienced staff because they are measured on the number of cases closed.
- An Australian city rail service penalized train drivers for late trains, resulting in drivers skipping stations in order to achieve on-time schedules.
- A UK accident and emergency department was measuring timely treatment of patients. The nurses then delayed the ambulances from offloading until the doctors could see them, thus achieving a zero time difference. Within hours of implementation of this measure, ambulances were circling the hospital as the ambulance bay was full. The follow-on result was obvious: ambulances arriving late at an incident.
- A fast-food restaurant manager was striving to achieve an award for zero wastage of chicken. The manager won the chicken efficiency award by instructing staff to wait until the chicken was ordered before cooking. The long wait time that resulted meant a huge loss of customers in the following weeks.
- A company that was measuring product that left the factory on time had a 100 percent record, yet 50 percent of customers complained about late delivery. The reason was that nobody cared about what happened next after the product left the factory.
- Sales staff met their targets at the expense of the company, offering discounts and extended payment terms, selling to customers who would never pay. You name it, they did it to get the bonus!
- Purchasing departments awarded for receiving large discounts started to buy in too large a quantity, creating an inventory overload.
- Stores maintained low inventory to get a bonus and had production shut down because of stock outs.
In his book, Spitzer stated that "people will do what management inspects, not necessarily what management expects." That’s a very poignant point. The greatest danger of performance management is dysfunctional behavior. As Spitzer says, "the ultimate goal is not the customer—it's often the scorecard." Spitzer has heard executives, when being candid, say "We don't worry about strategy; we just move our numbers and get rewarded." To help assess the potential damage in your organization, I have developed a checklist, which I’ll review in my Decision Day session.
Next on the TARGIT blog: Myth #2: All measures can work successfully in any organization, at any time.
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Leading expert in the development of winning KPIs
Dubbed the “King of KPIs,” David Parmenter is known for his thought-provoking and lively sessions that have led to substantial changes within organizations around the world. He is behind some of the most forward-thinking concepts regarding business planning. David was the keynote speaker at TARGIT Decision Day 2013 in Copenhagen and Tampa, Fla., and f..