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March 2013


Thinking about Performance Measurement

I grew up in New York. There were several questions we used to routinely ask each other: "How ya doin?", "How you been doin?", "How ya gonna do?" From my current vantage point, I would ask a fourth question that we didn't ask each other back then: "Are ya gonna stay in business?" Everything I will say about performance measurement is summed up by these four questions.

That said, I would like to explore the area of performance measurement in more detail this month. I will look at the responsibility for performance measurement, evolution of performance measurement, attributes of good measures, pitfalls in performance measurement, and finally, use of performance goals and projections.

Responsibility for Performance Measurement

Performance measurement is the responsibility of an organization's senior leaders. That does not mean that they have to do the regular gathering of key data, but they need to choose the key measures, regularly review them, and use them to lead and guide the organization. Senior leaders also need to set the culture for measurement. They need to engage employees in that culture and set the tone that measurement guides organizational change and improvement. They also need to make clear that a key purpose of measurement is not to punish individuals when results need improvement.

Evolution of Performance Measurement

I recently came across an interesting research article from the British Academy of Management on the past and future of performance measurement (Bititci, U., et al., [2012], "Performance Measurement: Challenges for Tomorrow." International Journal of Management Reviews, 14: 305–327). The authors looked at the evolution of performance measurement from 1900 to 2020 and beyond and asserted that measurement has been characterized by an evolving set of themes: productivity management (1900–1940), budgetary control (1930–1970s), integrated performance measurement (1970–2000), and integrated performance management (1990–2020). They then speculate that the next phase may be network performance measurement (integrating suppliers and collaborators). They also comment on the rate and scale of change over the same time period, characterizing the transitions from slow and incremental; to fast, predictable, and incremental; to turbulent and discontinuous (today); to disruptive and transformational (the future). While the future of performance measurement and change is not yet known, the trends certainly seem to bear out the conclusions drawn by Bititci et al. To prepare for that future and survive today, a robust performance measurement system is needed.

Attributes of Good Measures

I believe there are nine key attributes of good measures, starting with the way results are scored in the Baldrige Criteria for Performance Excellence.

1. LeTCI (or let's see)—The acronym stands for levels, trends, comparisons, and integration. In the Baldrige scoring system, good measures must show the current level of performance on a meaningful scale. Good measures show how performance has trended over time on a time scale that is relevant to seeing changes in performance. Comparisons indicate how you are performing relative to key competitors, industry averages, and benchmark performance, as appropriate. Finally, integration demonstrates the extent to which your measures address important performance requirements and support organization-wide goals.

2. Measures should be comprehensive—They reflect a systematic approach to everything that is important to your organization's success. In the Baldrige results category, we look for product/service performance, customer-focused performance, operational performance (including workforce, leadership, and process performance, as well as ethical and legal compliance), and financial and marketplace performance.

3. Measures should be accurate and timely—Data are useless if they are inaccurate or not available soon enough to use them in decision making.

4. Measures should provide a basis for decision making—If the data and information are not informing decisions, you are probably not collecting the right information. Choice of top-level measures is critical, which is why it is the domain of senior leaders. A corollary to decision making is that key measures must also support decisions about resource allocation.

5. Measures should be strategic and operational—Measures need to address progress on strategic objectives and associated action plans. They also need to address ongoing operational performance. Measures need to address in-process performance, process output, and outcomes. Measures need to include leading and lagging indicators—those that predict future outcomes as well as those that track current performance.

6. Measures should be understandable—Users must be able to take action based on seeing the data. If the measures are very convoluted or abstract, they will not be useful.

7. Measures should be shared and cascaded—Data should be shared with your empowered workforce and suppliers and partners so that they can contribute to improvements and organizational success. Organizational-level measures should have counterpart or component measures at the business unit, divisional, and work unit levels. Measures can also cascade to individual employee scorecards.

8. Not all measures are numeric—Qualitative information is also important to an organization, including the perceptions of employees, customers, and your community. Qualitative information includes information on legal and regulatory compliance as well as financial audit performance.

9. Measures should be reassessed—Economic and competitive conditions change. Performance requirements change over time as well. Measures need to be scrutinized to see if a change is needed. If data are no longer providing any discriminating power between normal performance and outstanding performance, they need to be re-evaluated. While trend data are important, and speak to consistency in measures, you should not be locked in to no-longer-relevant measures.

Pitfalls in Performance Measurement

If one obeys all the attributes of good performance measures, it is unlikely that you will be hit by any of the pitfalls. But just in case, I have summarized four common traps that can derail good performance measurement.

1. Using targets and rankings as a key driver of measurement—Focusing on targets and rankings can unintentionally incentivize people to focus on that one metric, possibly even distorting overall organizational outcomes. Simple examples are school rankings that cause teachers to teach just to the tests or a time target for delivery of pizzas that causes risky driving behaviors by pizza deliverers, especially if they are personally held accountable for on-time delivery.

2. Too many or too few top-level metrics—If an organization has too many organizational metrics, they will not be consistently tracked or will be overwhelming for use in decision making. The corollary is if a measure is not being used to drive decisions, then the measure may not need to be tracked, at least at the senior-leader level. The opposite is too few measures for making systemic organizational decisions. At the extreme, this can be one measure: financial performance. But driving this measure alone could lead to undesirable consequences, such as loss of employee or customer satisfaction and engagement. At the extreme, this one measure alone could inappropriately encourage unethical behavior, just to make sure that the financial goals are met.

3. Knee-jerk reactions—Acting too quickly could result in fixing the wrong problem. When a negative result is encountered, root-cause analysis should be done before proposing a fix.

4. Wrong cycle time for trend measurements—The cycle time for measuring trends should relate to the process cycle time for that unit of measurement. If the measurement cycle is longer or shorter, you may miss key events or misinterpret the meaning of the data.

Performance Goals and Projections

Performance projections are an underutilized management tool. As estimates of your future performance, they should be based on an understanding of past performance, rates of improvement, and assumptions about innovations and changes in the external environment that impact your organizational performance. Performance projections state your expected future performance. Performance goals state your desired future performance. To the extent that projections fall short of goals, they may indicate key challenges for your organization where breakthrough improvement or innovation is needed. Where breakthrough improvements were already planned as part of your strategy, your goals and projections may overlap.

If you want to see role-model use of performance management, join us on April 8–10, 2013, at the 25th Annual Quest for Excellence© conference. I am sure it will measure up to your expectations!
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Dr. Harry Hertz photo

Dr. Harry Hertz, Director
Baldrige Performance Excellence Program

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