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What is needed first: good measurement systems or good measures?

December 9, 2013

I am one of the first to confess that there are many problems with performance measures.  In some cases, the placing of incentives on achieving specific targets can lead to diversion of effort to making the numbers rather than achieving results for the organisation, commonly known as gaming – for example minimising inventory at the expense of performance.  On other occasions, performance targets may be weakly expressed, meaning little effort is required in order to achieve them, for example targets based on maintaining last year’s performance.  Sometimes, performance measures are incomprehensible, and on other occasions they are meaningless, for example counting the number of pieces of advice a civil servant presents to a Minister.  And often times, performance measures are not in place long enough to establish a trend and permit benchmarking.

The obvious response is that someone, often the CEO or CFO directs someone to ‘fix this’ by devising better performance measures.  And certainly, efforts by the person tasked with such an endeavour are welcome.  But ‘heroic action’ is often not enough.  As per the organisational maturity model, this represents the lowest level of maturity.  Without understanding the forces that affect performance measurement, such reform can be both incomplete and temporary. 

So we need to look a little deeper at the causes of defective measures.  We need to consider not just the measures themselves, but  the influences that drive behaviour at a personal and organisational level.  The major influences I have seen that affect performance measurement at a systemic level are:

  • Organisational type – the nature of the products and services delivers.  Some are more amenable to quantification than others
  • Leadership style and organisational ethos.  This includes the nature of incentives, the weight put on process as opposed to outcome, and whether decision-making is more rational or judgemental.
  • Ownership of the performance measurement system – is this at the organisational level, the sub-organisational level, or is it imposed from the outside?
  • How performance measures are used – just to comply with imposed requirements, as a key driver of performance, or somewhere in between
  • Context: nature of the environment. For example, is the environment stable, or dynamic? Highly competitive or not? Exposed to public scrutiny and influence by stakeholders or not?
  • Internal mechanisms: How the system is designed, coordinated and resourced, including provision of training on the system.  The fundamental issue here is whether there is central design or coordination, or more a bottom-up approach
  • How the measurement system is reviewed – e.g. not at all, internal review, external review.

The bad news is that many of these features are not easily changed, implying that it is difficult to improve the performance measurement.  But some can be adjusted, and by taking into account those that are fixed, you can focus on achievable change..

© Numerical Advantage 2013

http://www.numericaladvantage.com.au

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