Effective performance measurement is key to ensuring that an organization’s strategy is successfully implemented. It helps ensure better informed and more effective decision making at both strategic and operational levels.
However, some organizations still rely on using the traditional performance measurement systems which focus only on financial metrics such as profit, cash flow and return on capital employed (ROCE). Since most organizations link performance with reward, the risk of metric manipulation by some employees and managers is high.
In order to understand and manage organizational performance, managers need to be able to identify various factors that contribute to metric manipulation as well as the different types of manipulation an employee or manager is likely to use for deception purposes. Some of the reasons why managers manipulate metrics are:
1. To avoid the attention of superior managers or bodies: For example, where organizational finance from donor funds depends on achieving set targets and goals, managers are more likely to manipulate the metrics just to keep the funds flowing in.
2. They feel the metrics used are inappropriate or unjust: For example, during the budgeting process, resource allocation might be based on functional or departmental performance. As a result, some managers might not be happy with their resource or funding allocations, they will thus try to paint a darker picture to get more funding or resources.
3. They feel frustrated at inaccurate data and information: People are more likely to manipulate the metrics if they feel the data is misleading and untrue. For example, where senior managers structure the sales and marketing budget without consulting the lower level or middle managers, these managers might feel that, based on available market and customer information, the targets are unachievable. As a result, they are likely to manipulate the metrics.
4. To achieve a target that triggers a large bonus: In some ways this promotes excessive risk taking as can be learned from the recent global financial crisis. Where reward is linked to performance, people will manipulate their metrics and make performance look better than it is just to maximize income.
5. The risks of being caught and punished for metric manipulation are very low: Where there is no direct supervision by senior leaders, people are more likely to manipulate the metrics for as long as it takes since they risk losing nothing.
6. The metrics are for external use and not for internal managerial use: This is so especially for public listed companies who are keen at impressing investors and increasing their share prices. As a result, managers feel the metrics are externally imposed and have little value to the organization.
In order to reduce the risk of metric manipulation and improve their organizational performance management systems, senior managers should use targets and measures that are valuable to all stakeholders, train employees on the use of performance information and metric manipulation, ensure that the current performance related pay systems do not increase the possibility of manipulating metrics, introduce random monitoring processes and encourage adherence to appropriate codes of ethics.