Andrew Likierman, a good friend of André de Waal, wrote an interesting article in the Harvard Business Review about performance measurement pitfalls, which provides an excellent argument for the HPO diagnosis approach of the HPO Center.
Everyone agrees that organizations must measure their performance. For most executives, however, this is not something they enjoy spending time on. They would rather assign this task to employees who are good with numbers and spreadsheets, claims Andrew Likierman (London Business School). The result is usually a mountain of numbers and comparisons that say little about the organizational performance and may even lead to wrong decisions. This is unacceptable. Executives need to take responsibility for performance measurement and make sure that the organizational performance is measured properly. Naturally this is no picnic.
Likierman gives the five most common pitfalls in performance measurement:
- Measurements involving yourself. It does not matter whether you perform better than the plan or have stayed within budget, but that you perform better than the competition. Always compare your performance to benchmarks within the organization.
- Looking back: it does not matter whether this year’s figures were better than last year’s. A performance measurement system should tell you whether your decisions in the near future will be of any help. This means you need to look for gauges that will determine tomorrow’s profit (instead of those that measure yesterday’s or today’s).
- Blindly trusting figures. The problem is that ‘figure-driven’ managers often produce low quality data. Numbers never tell the whole story, often produce a distorted picture of situations and are vulnerable – intentionally or otherwise – to influence (such as how the figures are compiled).
- Numbers can be manipulated. It is virtually a daily occurrence in business life and virtually unavoidable: once you have chosen a certain metric, you invite people to manipulate it. It is better to accept this as a fact than to act as if it were otherwise. It helps to work with a variety of gauges. It also helps to link bonuses less strongly to attaining budgets and performance standards. After all, managers can manipulate these in all kinds of ways to make themselves look good.
- Holding onto metrics for too long: the development phases and circumstances within a company change, so the gauges – metrics – must change with them. Be very precise about what you want to measure, be explicit about which metrics measure that, and make sure everyone is clear about this.
Source: Harvard Business Review, October 2009
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