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7 Deadly Sins of Performance Measurement

        posted by , March 20, 2013

Be careful what you measure, you might just get it.

It's conventional business wisdom that objectives must be measured for performance. This usually makes sense. Generally, businesses should set quantifiable targets and measure results.

Definition: Performance Measurement

Performance measurement is the numerical analysis of strategy, objectives, programs, projects, processes, teams and contributors for monitoring and control of business performance.

The only problem with this idea is that firms often get measurement wrong. When performance measurement goes wrong — objectives, projects, programs, strategies and businesses fail.

These seven performance measurement pitfalls can be worse than measuring nothing at all.

1. Measuring the wrong thing

Measurement motivates people. When you put a target into someone's objectives they tend to focus on it. When you put a target into the MBO of everyone in your organization your entire organization will focus on it.

Targeting the wrong thing is a tremendous waste of resources.

2. Unbalanced performance measurements

The most common problem with performance measurement is unbalanced performance metrics.

People deliver what you measure. Anything you don't measure may be neglected. In many cases a team is measured by 5 or 6 numbers. The team's activities may involve hundreds of factors that are neglected because they aren't measured.

If you measure a sales team on revenue and customer satisfaction then margins will drop as they cut prices to achieve revenue. The team may drop unsatisfied accounts to improve customer satisfaction (when there was a chance to salvage the customer relationship).

Performance measurements are often too simple to measure the realities of performance. This leads to sub-optimal behavior and processes.

3. Measurements based on nonsense math

It's called the "nonsense math effect" (social psychology). People have a tendency to trust complex math even when they don't understand it.

Firms that attempt to balance performance metrics by including hundreds of factors in complex equations often end up getting the math wrong.

4. Measurements that people don't understand

Firms that measure performance with complex math that's correct but that employees and partners fail to understand.

Complex performance measurements have less effect on employee motivation than simple targets.

5. Targeting what you can measure over what's good for the business

Businesses commonly require every objective to be measured. This leads teams and individuals to avoid any objectives that are difficult to quantify.

A café may benefit from a more aesthetically pleasing decor. However, this may be difficult for the business to measure. So instead, the café may set an objective that's easier to measure such as upselling muffins to customers who purchase coffee.

Customers who are faced with an aesthetically unappealing café and staff who are constantly trying to upsell muffins will move on to the café next door.

The café next door focused on the customer experience (which can be somewhat difficult to measure).

6. Bad numbers over brilliant judgment

The human mind is able to make decisions based on thousands of factors and complex fuzzy algorithms (to put it in computer science terms). When human judgment is replaced with relatively simple measurements such as customer satisfaction the results are often negative.

The shift to management by measurement has lead to the decline of the leader manager.

7. Measurement vs Innovation

Business innovation is about exploring new ideas and following paths that achieve results.

Predefined targets can limit innovation. Innovation should be measured when it's well defined. The early stages of the innovation process can be disrupted by performance measures.

Einstein didn't set an performance measurement when he discovered the theory of relativity.

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