Measurement is the lens through which we see a company’s performance. It is potentially one of the highest-leverage transformative activities any company can use. But too often performance measurement is broken or misunderstood.
Humans are goal-oriented. Our instinctive focus on goals drives us forward. Measurement was created to help us achieve our goals and therefore it is fundamental to our success.
Measurement is literally everywhere in modern life. The alarm clock that wakes you in the morning, the weather forecast that guides what to wear, the fuel gauge and speedometer to help you drive to work (if you are still doing that!), the tests to check your health and the money to help you buy things.
If we did not have the capacity to measure, life would be shambolic. We would pick up our children late from school late, run out of fuel at random times, let our health deteriorate unchecked and our finances would be a mess.
If measurement is so pervasive and important in our personal lives, this suggests it is even more essential in the complex world of organisations. Companies have hundreds if not thousands of moving parts – measurement is one of the main tools that can make all the parts function.
Good measurement elicits information more objectively, comprehensively, accurately and at a greater speed than human perception. The ultimate reason for measurement within organisations is to manage systems and strategy more effectively i.e. to improve performance. Building and maintaining your winning position in business is getting harder and harder as the world gets ever more complex. Managing your business without measurement is like driving your car in the dark with no instruments.
Effective performance measurement is not an option for businesses, it is a necessity.
I have written two essays on this topic, this one and 5 Steps To Make Sure You Measure The Right Things in Right The Way because it is so important and I find it so frustrating to observe the time and effort wasted with poor performance measurement. So many opportunities are missed, and so many mistakes are made due to poor performance measurement. In his book Accountability Leadership, Gerald Kraines stated that between 60-70% of a company’s potential effectiveness is unfulfilled.
This essay is really about motivating you to look at measurement with a new lens. We will look into what performance management is and the power of performance management. Then we will dig into the common mistakes or bad habits leaders and companies fall into and what the solutions there are to combat them.
As always I have supplemented my knowledge and experience with experts including Dean Spitzer (Transforming Performance Measurement), Stacey Barr and Jerry Z. Muller (The Tyranny of Metrics). Thanks to them for putting some deep thoughts into this important topic.
What Is Performance Measurement?
There are so many different terms used in the performance management field: ‘KPIs’, ‘OKRs’, ‘lag indicators’, ‘lead indicators’, ‘metrics’ and many more. Confusing.
The number of different terms is in itself an issue but the bigger problem is all the different meanings people attach to them. What are KPIs and OKRs? If you do a Google search or ask my very fast, bright and slightly bland intern, ChatGPT, you get multiple definitions. There are no standardised universally accepted definitions. The important thing is that within your organisation there is common agreement about the terms you use.
Stacey Barr in her book, Prove It! How To Create A High-Performance Culture and Measurable Success, defines a performance measure as “a comparison that provides objective evidence of the degree to which a performance result is occurring over time.”
Performance measurement increases our understanding of the complexity in our companies and accelerates our identification of the patterns or evidence, so we can continuously improve the processes or systems which are striving for the results we want.
To truly know how a company is performing and whether it is improving over time you must get the evidence. And, how do you get evidence? Through measurement. You then need to interpret the evidence and figure out if you are on the right track or whether you need to iterate your activities, processes or systems to achieve your goals. Measure, interpret and iterate continually.
What Is The Power Of Performance Measurement?
If you are struggling to believe in the power of measurement read this quote by Dean R. Spitzer in his book Transforming Performance Measurement:
“What if I were to tell you that one of the most important keys to your organisation’s success can be found in a very likely place – a place many of you consider to be complicated, inaccessible and perhaps even downright boring? What if I were to tell you that this key to success is already one of the most ubiquitous and impactful forces in your organisation? It’s there, waiting for you to tap into it.
The key to success is MEASUREMENT.
Measurement done right can transform your organisation. It can not only show you where you are now, but can get you to wherever you want to go … measurement is fundamental to high performance, improvement, and, ultimately, success in business, or in any other area of human endeavour.”
The real power of performance measurement is that it nudges us to achieve more of our goals quicker and with less effort. It does this by forcing us to focus our attention on what matters most to our company’s success. And it informs us how well or not we are doing on this journey of continuous improvement. It also has a galvanising effect on us to find better ways of doing things.
What Are The Top Four Most Common Performance Measurement Mistakes? And How To Solve Them
Measurement is a proxy for the real thing. It’s the map, not the territory. It will never be a perfect representation of the truth.
In order to understand what good practice is, it is often useful to know what bad practice is. Here are four of the more common mistakes leaders and companies make when it comes to performance measurement along with suggested solutions.
Bad Habit #1 – Action-Oriented Measures And Goals
Activity measures are very commonplace. Here are some examples:
- Number of team members hired
- Number of sales calls
- Number of training courses implemented
Whether something is done or not doesn’t necessarily tell you if you have achieved the goal you want. Activity measures give the illusion of progress. People confuse completion with success.
Ticking off what you have done or reaching a milestone is project management not performance management.
Solution #1 – Results Focused Measures and Goals
Activity measures are usually derived from action-oriented goals. For instance:
- Implement the new CRM software by August
- Train all staff on unconscious bias and the benefits of diversity
- Introduce one new product by December
Performance is about how well you achieve a result, not what you do to achieve that result. These types of goals lend themselves to be measured in trivial ways e.g. milestones. You may well have trained your staff in unconscious bias but it’s worthless if they are not using the training in their day-to-day work. Activity measures are not good proxies for results measures.
Before you set your measures you need to know what results or outcomes you are looking for. Articulate the impact you want in a statement and then choose the projects and actions to get there.
The objective is not to favour performance measurement over project management but to combine the two in the right order.
Bad Habit #2 – Use Measurement To Reward And Punish
Why do so many of us dislike measurement? Because managers use performance measures to fire or punish people. Get paid less or more, get promoted or not. “If you do this (behaviour) or achieve this (result), you will get this (reward or punishment).” A rod to hit us with.
When you feel judged, blamed or pushed, you feel threatened which can lead to:
- defensiveness and underperformance
- manipulation or gaming in order to hit the targets
- setting targets you know you can achieve
Accountability is not the issue. What managers hold team members accountable for is the issue. Often the constraint on the achievement of the goal is the business system rather than the performance of the individual. So we are being judged on something which we have little control over.
For many managers, the whole purpose of measurement is to motivate people to do or not do something. It can work particularly well in money-focused environments and in the short term. But as W. Edwards Deming, the quality guru, said people will do what they need to meet their targets “even if they have to destroy the enterprise to do so.” I have personally seen this happen!
Here are some examples of judgement-induced measurement of dysfunction:
- Software engineers spend excessive time perfecting the product before releasing the product (so their software quality colleagues don’t find any defects!)
- Salespeople booking their sales at the right time for them i.e. process orders are delayed because they have already met their month’s sales targets
The performance measure can become the focus of attention. Measurement for measurement’s sake rather than paying attention to the information that measurement can provide.
Using measurement to reward or punish may not end up destroying a business but it will fail to achieve the ultimate objective of performance measurement – better organisational performance.
NB I believe measures can and do help individuals improve their personal performance – when the individual chooses their goals and how they will monitor them. Measures don’t work for individuals when they are chosen by someone else and used to judge and control them.
Solution #2 – Use Measurement For Evidence and Information
If you change the purpose of measurement to information gathering and improving things, team members are much less likely to behave dysfunctionally. In fact they will learn to trust measurement and the information it provides.
If you give your team members accountability for a business process (or part thereof) along with autonomy in the three areas listed below you are much more likely to get organisational improvements.
- Monitor i.e. decide what evidence they should seek, how they will get hold of the evidence and the measures they will focus on
- Interpret i.e. set and interpret the targets
- Initiate i.e. make the changes to the activities/systems/process in order to close the performance gap
This equates to constructive accountability i.e. where people feel empowered to search for the right feedback and to make the changes if required. They see measurement as a tool to help them learn to improve business processes, not a rod to be beaten with or controlled.
Bad Habit #3 – Measure What’s Easy
Data is in fashion. Measurement too. But data is not measurement. Measurement uses data to produce evidence on whether you are going in the right direction towards your goal.
What we measure gets done is the mantra.
But too often we are measuring the wrong thing in the wrong way. Why do we know this? Because performance is not improving in many organisations.
Too many measures are used to look good in the eyes of the leaders – good news highlighted, bad news hidden.
There is often excessive and inappropriate measurement as well as too little measurement of what’s important.
Too often people reach for the easiest things to measure. For example, call centre staff are often measured on average customer wait time. This causes team members to rush through their calls without much consideration of where the customer’s issues have been solved satisfactorily.
Measuring the wrong thing is not usually intentional and is more often down to a lack of knowledge about the system being measured. But it brings a high cost to companies – actual cost and opportunity cost.
Solution #3 – Measure What Matters
Selecting the right measures is not easy but if you succeed it will create material leverage for your company.
As Napier and McDaniel say, “Much of the power of leadership is bound up in what leaders pay attention to. Measurement is focused attention.”
As a leader it is tempting to believe everything is important but if you are going to win against the competition you need to focus on what really matters. Routine measures (e.g. revenues, costs, profits, cash, customer satisfaction) are necessary but if you want to stand out and not become commoditised, you need to decide what not to measure as well decide what truly counts.
The starting point for measuring what really matters is to ask yourself what success looks like for your company. And how you create value from your resources and deliver value for your customers. Figuring out your key value drivers is the key to unlocking and measuring what matters.
For example, Southwest Airlines’ business model is to keep costs down for their customers and fill up their planes. Rather than copy the measures of most other airlines, they decided their key driver was low ‘cost-per-passenger.’ The primary driver of this was high airplane utilisation and quick turnaround time. Turnaround time became Southwest’s most transformational measure i.e. the lever that most positively affected their performance. It resulted in 25% lower costs compared to traditional airlines.
Bad Habit #4 – Siloed or Competitive Measurement
Most companies are made up of functional silos. Each function wants to grab its own share of resources. As a result, people tend to see the world through the lens of their function, role and measures.
Different teams and functions have their own set of goals and measures. And to a degree this makes sense. You want the marketing team to attract the right audience and the sales team to convert the leads. The HR team to focus on employee engagement. The IT department to focus on the implementation of the new CRM software. The finance team to focus on controlling costs.
But you can end up with a bunch of unrelated and competitive measures with people pulling in different directions. And functions and teams operating at cross-purposes. Teams might be achieving their own targets without understanding what their success means for the success of the company.
Solution #4 – Systemic or Collaborative Measurement
Cross-functional collaborations are ever more critical in today’s complex business world. Teams, functions and companies are systems all living within wider systems. To succeed in the long term you need to think systemically which means you need organisational integration. And organisational integration is unworkable without performance measurement integration.
The starting point for integration is to cascade strategy throughout the organisation, so that everyone can see their part in it. Normally the strategy is cascaded down through the business functions but there is potentially a better route – cascade through the business processes i.e. your flow of activities and tasks in logical steps that deliver services to customers. These processes are cross-functional because they flow in and out of different business units and teams.
According to Stacey Barr there are three steps to cascading strategy through the organisation’s process:
- Identify and map the cross-functional core processes
- Each process team examines the strategic goals and sets the process outcome goals
- Each sub-process team with each core process examines the process goals and sets sub-process goals.
The key advantage of this approach is that there is less competition for resources as resources are seen in the context of the end-to-end processes, and it focuses the attention on process design which is usually where the performance issues lie.
A Culture Where Performance Measurement Is Embraced Will Lead To Success
Arie de Geus, a business strategist, describes companies as living working communities who “like all organisms … exist primarily for its own survival and improvement: to fulfil its potential and become as great as it can be.”
Performance measurement is a key leverage for companies to fulfil their potential and to shift from surviving to thriving. As I stated in my essay, Craft Your Winning Strategy With 5 Key Questions, finding unique ways to measure how your business and management systems are performing is key to maintaining and building your competitive advantages.
At the core of great performance measurement is learning. Companies which create a learning culture will be the ones more likely to succeed. Cultures where there is more inquiry than advocacy. Cultures where you hear team members ask these types of questions about performance measurement:
- Where do these numbers come from?
- What do these measures actually mean?
- What are we learning from these measures and what changes have we made from our learnings?
Cultures where measurement’s purpose is to learn how to elevate performance to benefit the whole organisation are the cultures that will breed long-term business success.