Dr. Goldratt famous saying “Tell me how you measure me and I’ll tell you how I’ll behave” shows one dark side of any measurement: it impacts the behavior of the people involved, actually the behavior of the whole system. The hope of management is that the impact would be positive: people will do their best to achieve the best results. Unfortunately in most cases the opposite is happening. Just to illustrate another problematic side we don’t always keep attention to: when the prime measurement is to make money then some managers might break the law and other moral rules in their quest for making more money. The 2008 crisis is just an example of the impact of money as a prime, measurement.
The Theory-of-Constraints (TOC) went deep into the clash between the local performance measurements and the global ones, showing how the local disrupt the global. This is certainly one of the most concerning issues and a lot have been written and presented on that issue. However, performance measurements pose several additional negative branches (potential negative consequences).
The key objective of performance measurements is showing a full picture of the current performance in order to lead the required actions for improved performance.
A devastating side of all performance measurements is the personal interpretation of them. Management, actually many lower level people in the organization, are actually measured by these measurements whether they have succeeded or failed in their job. This linkage causes the devastating effects that lie behind the famous comment by Goldratt. I like to state an effect that looks obvious to me:
Performance measurements, at best, represent the current state; they do NOT answer the question “how come?”
In order to conclude what to do next, performance measurements, expressing the current state, are absolutely necessary, but they are definitely not sufficient. An analysis has to be carried to explain the results. I’m aware that “explanations for poor results” have bad reputation, but that is part of the big problem. The poor results have to be openly recognized in order to identify the core cause. An explanation like “the people involved were dumb” should lead to immediate questions how come incompetent people were given that particular job!
What makes performance measurements even more problematic is the tendency to outline a target for them. There are two basic negative characteristics of determining targets:
- Parkinson Law claims “work expands so as to fill the time available for its completion”. The same law applies to any quantitative target. The simple rational is: outperforming the target is bad for the future of the individual, because next time the target will be set higher. So, the best case is to reach the target – no more and no less. Almost all means are allowed, including lowering the target to be reasonable, and then definitely not trying to achieve more. I have seen several cases where the organization claimed that 90% of the tasks finish exactly on time. This statistically impossible result gives evidence that Parkinson Law works.
- Determining the target is a problematic issue in itself. Sometimes targets are determined by hope and prayers. Sometimes there is a certain rational for the top target, but then all the lower levels are given targets that are, more or less, arbitrary with the sole requirement that they have to support the higher level. These lower level targets are those that middle-level management try their best to restrain.
The idea behind setting targets is determining “success” or “failure” of people involved. On one hand the idea is to push people to excel. On the other hand it creates fear, mistrust and manipulations. This is a typical generic conflict. The basic assumption that without given clear and quantitative targets people would not do everything they can to accomplish their missions at the highest level is, to my mind, flawed. The tricky point is that it is a self-fulfilling prophecy. When people are used to targets, stopping the targets leaves people wonder what they should do, which drives them to do a little, but definitely not too much. Only a very clear message from management would make a change, and it’d take time to be believed.
Another problematic side of performance measurements is their dependency on the time periods. Suppose that this year the organization has to produce considerable stock because of an expected peak demand at the start of next year. The annual T is relatively low, while the OE, maybe containing overtime, is relatively high. Next year T will get much higher. Question: would management be aware of the causality? If not, would Operations support producing stock for next year, when the TOC accounting practices do not reward any increase in inventory?
How can we deal with the negative ramifications of performance measurements?
I think this is the critical question for any organization striving to become ever-flourishing. To call the solution “Leadership” is to underestimate the obstacles and relying on a vague term as if it is a solution. I think that implementing a structure for management decision making, where predictions are based on ranges, rather than a blind commitment to a number, where the potential risks are openly discussed and the management team eventually reach consensus – until the next management meeting where the actual signals are observed and the discussion might be opened again. This should be a procedure that is not over-depended on the charisma of a specific leader.
In short, a procedure that truly respects uncertainty, recognizing mistakes without automatic blaming, and trying to correct them is a solution that could work.
3 thoughts on “The problem with Performance Measurements and how to deal with them”
Range targets is something to consider…. I like that Eli.
I have numerous targets upon which I’m judged by the business owners, a significant volume of those are specific numbers and they’re also generated by “office dwellers” who have no understanding of the actual workflows that we deal with each day. They simply provide a target number and then our actual number and instruct us to reach the target.
This takes none of our daily activities or priorities into account. … it simply makes them feel like they’re doing their job; pumping out measures.
When bonuses are paid to staff for reaching a sales target, it can be very frustrating to miss the target by a few hundred dollars and therefore receive nothing. Having a monthly budget range which perhaps results in a scaled bonus might be a good alternative.
One way to minimize the negative consequences is to avoid tying bonuses or any kind of piece-rate pay to them. Piece rate pay will tend to ‘gamify’ any number. And, by ‘gamify’ I mean encourage gamesmanship!
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Love it! Thanks, Eli.