Effective Performance Measurement Isn’t just about Precision

Posted: March 1, 2007 in Powerful Ideas

Performance measurement is the art and science of determining the degree and nature of progress towards meeting organizational and business goals. It’s all about generating the right type of systemic “feedback” so that managers can stay on track to achieving goals and objectives.

However, the operative term here is “art”. No matter how precise one’s metrics, there can never be absolute certainty that we are actually measuring the right things. In fact, many organizations devote inordinate amounts of resources and emotion to being highly precise about precisely the wrong things. Consequently, it is critical that executives and organizations develop a systematic approach to performance measurement. Let’s look at an example.

A marketing director wants to measure customer satisfaction as a measure of performance in implementing a new marketing plan. After much thought, he decides that the best way to do so is to track the total number of phone calls by the customer support department. An outside firm is hired to develop a system and it helps the company to implement a very precise mechanism for counting the number of customer calls. After three months, the marketing director gets a chart of customer calls and notes that the customer support department is answering 30 percent more calls. There is only one problem: The most recent customer satisfaction survey shows that customers are no more satisfied with the support they are getting from the company.

This is a clear illustration of measuring the wrong things with great precision. In other words, measuring improvements in customer satisfaction by tracking customer phone calls in a highly precise manner has proven to be highly inaccurate. It would have made more sense to track customer satisfaction ratings. After much time, effort, and money, the company has to revamp its approach to performance measurement for this strategic objective.

An analogy to performance measurement can be seen in marksmanship. In the latter, accuracy is the degree to which the aim is correct and precision is the degree to which that accuracy is reproducible. A shooter can be very precise without necessarily being highly accurate. In other words, you can have a perfect aim for the center of a target but the center of impact of the rounds fired can be off by a considerable error. This would indicate a lack of accuracy. Furthermore, the rounds can be tightly grouped about that mean point of impact, even though the center of impact is off by a considerable degree. This would indicate a lack of precision.

Just as in marksmanship, the key to effective performance measurement is both accuracy and precision. As highlighted in the marketing example above, organizations often develop wonderfully precise metrics that are measuring, at worse, the wrong things or, at best, irrelevancies.

Here are seven key steps that you and your organization can take now to create effective strategic and tactical performance measurement systems:

  1. Determine the strategic or tactical objective(s) you want to achieve.
  2. For each objective, identify the types of information that would tell you how you are progressing in achieving it.
  3. For each type of information, identify one or two means of gathering it and develop mechanisms for doing so.
  4. Prioritize the information requirements and the mechanisms for gathering them. This becomes the basis for the performance measurement system.
  5. Ensure that the system isn’t just identifying “positive” information, but also “negative” information. In fact, negative feedback has much more value than positive feedback (Why I Love Negative Feedback).
  6. Observe the effectiveness and efficiency of your system and adjust as necessary to provide the information needed to meet your objectives.
  7. Ensure that members of the organization are rewarded and assessed on the basis of how well they improve the performance measures.

© 2010 Richard Martin. Reproduction and quotes permitted with proper attribution.

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