This post is an extract from Dr Dean Spitzer’s book, Transforming Performance Measurement: Rethinking the Way We Measure and Drive Organizational Success. With more than 30 years of experience helping organizations worldwide achieve superior performance, Dr Dean Spitzer is regarded as one of the leading performance measurement experts.
Performance measurement has evolved over the past several decades. As a result, organizations need to transform their performance measurement systems so that new ways of measuring can become part of the measurement culture of the organization. The first step in developing new measures requires management to have a clear understanding of what needs to be measured and a willingness to ask tough questions that can expose problems within the existing measurement systems.
Asking tough questions helps managers to develop a new way of thinking, view things differently and propose suggestions for improvement. Not doing so will ultimately prove detrimental to the future growth and prosperity of the organization. Although the world has changed significantly, the measurement of performance in many organizations has pretty much remained the same. For example, there has been little progress in the way performance appraisals are conducted in various organizations.
Many existing measures are seriously constraining performance and preventing breakthrough performance improvements and yet still most organizations are reluctant to try anything new. It is therefore important for senior executives to understand that positive change is impossible without changing the measures that underlie management. Unless people start measuring differently, it is difficult to change their way of thinking and behaviours.
Although change is good, the implementation part never comes easily. People by nature dislike change and as a result, many performance measurement change programs are often resisted. Most organizations tend to default to easy-to-measure things despite data being readily available. Instead of using the data that is readily available to gain strategic insights and create value, many organizations continue to collect the data they already have without considering why they are doing it, and whether the data is providing any real value. This focusing on the wrong things means management are unable to identify and measure the key drivers of business value.
While organizations do a great deal of measuring, a lot of value is not being effectively measured or managed, and this needs to change. To stimulate creative thinking about make use of emergent and transformational measures, business leaders should:
- Avoid measuring just about everything. Performance measurement must be reconceived as something that the organization does, not as something it has, like a set of metrics. Unfortunately, for some organizations, there seems to be a scorecard or measurement index for just about everything with most of the measures taking a pure economic view because the indicators are easy to quantify. This reliance on quantitative indicators often leads to misleading conclusions and strategic incoherence.
- Search for new truths. Many organizations are measuring too many things that don’t really matter, and not measuring many that do. It is therefore important to view measurement as a continuous “search for truth”, and not as “the truth.” Thus, management need to regularly review the organization’s business model and strategy in order to understand what really matters.
- Focus on usefulness. Transformational measurement is not so much about reliability or accuracy as it is about relevance and usefulness. It is much better to have the right measures in their formative stages than completely accurate measures that are wrong.
- Overcome skepticism. Managers must not expect their emergent measures to be perfect from the onset because performance measurement innovation requires tolerance error and ambiguity, especially during the initial stages.
- Avoid a rigorous attitude. Excessive rigour undermines innovation. Begin with creativity, and add validity and reliability over time.
To experience improved business performance and increased competitive advantage, it is imperative that management define measures that help people see things differently. An experimental attitude is essential. If the management team makes a decision to change the organization’s performance measurement system, the new measures need to be tried out on a small scale before spreading them widely. This helps determine whether they are promoting the right behaviour and discouraging the wrong ones, and also whether they have any unintended consequences. If the emergent measures are not working as desired, they can either be revised or discarded. If they are working as desired, they can then be adopted throughout the organization as transformational measures.