Performance management and the folly of targets

Dr Pietro Micheli on the seven myths of measurement

Use of performance measurement and management systems (PMS) has been steadily rising in the past two decades. These days firms could be collecting data on a spectrum of things from employee satisfaction through productivity and business leads, to vehicle movements and health and safety.

Organisations introduce such systems to implement and communicate strategy, support decision making, align behaviours, report to regulators and, ultimately, improve performance. While PMS can do these things, often flawed assumptions and slavish adherence to measuring numbers can have the opposite effect. These flawed assumptions I call the seven myths of performance management:

Myth 1: Numbers are objective A PMS should help you gather, analyse and communicate data on both organisational and individual performance. Such data should be objective. But my research shows that performance data is in fact ambiguous and open to interpretation. So, while data should be robust and relevant, managers’ efforts should be devoted to fostering similar interpretations.

Myth 2: Accuracy and precision PMS should be treated as an investment in which benefits outweigh costs, rather than something that should be of the best possible quality. This balance can only be ensured by connecting measures to objectives. So the question is not: is our data as accurate and precise as possible, but: are we getting data that is good enough for our purposes?

Myth 3: Added value Few would challenge the assumption that gathering and analysing data is a value added activity. But actually those few would be right. Value is generated when data is used, unfortunately this is quite rare! Think of areas which are increasingly being measured, but where, because of loose connections between strategy and indicators, targets and indicators end up being expensive pieces of furniture.

Myth 4: Alignment Managers and employees should be aligned to achieve the main organisational goals, especially when staff turnover is high. However, efforts to create alignment often result in bureaucracy and negatively impact on staff morale. Rather than cascading PMS in a top-down fashion, and rigidly connecting objectives, targets and indicators, sufficient discretion should be left over which targets to aim for.

Myth 5: Motivation Think of this: we start from a difficult situation in which performance is unsatisfactory. The usual reaction is to quickly introduce a series of measures and rewards to incentivise employees to do their best. Unfortunately, instead, people get “measure fixated”: they are very clear about what they have to do to hit the target, but they often miss the point, ie, the underlying objective. To avoid this vicious cycle, organisations should involve people as much as possible while introducing a new system, carefully monitor its use, and introduce rewards, if necessary, only once the system has been tested.

Myth 6: Enabling change The introduction of new targets and indicators can kick-start the implementation of new strategic objectives and promote different ways of working. The reality is that PMSs have often acted as obstacles rather than enablers. In a sector where business structures and regulation are continuously changing, rather than introducing tons of indicators, we should have a selected number of them and review the PMS regularly.

Myth 7: Improvement The ultimate goal of introducing a PMS is to improve organisational performance. But does this really happen? Yes, but not if the PMS is mainly used for monitoring and reporting. Take the case of sustainability measures. While measuring social and environmental aspects is certainly important, most companies are simply reporting information externally — making no difference to either how they operate or on their results. PMSs can, and do, make a difference when they are used to promote learning, for example through benchmarking, understanding processes and trends, and communication between units.

So, in conclusion, rather than introducing rafts of indicators, targets and rewards we should empower people at different hierarchical levels, build flexibility in these systems and use them for learning, rather than control purposes.

Dr Pietro Micheli is an associate professor at Warwick Business School