NOT UNDERSTANDING THE MICRO LEVEL COMPLEXITIES

Why good understanding of the nature of work is crucial…

Our performance measures are highly customized for ONE reason – every environment, every person, every task and every target – are all unique. A sales executive in one organisation may be measured by the number of vehicles he sold that day, another may be measured by the number of clients who stayed more than 20 minutes in the showroom and another may be measured by the number of clients who rate the sales service as ‘satisfactory’. Every sales environment is different in its intended objectives, its nature of products and method of sales and its dependence on returning customers.

Similarly, functional areas require their own output and outcome measures. Some units may require more complex measures. For example, the assembly plant takes a bigger role in improving production efficiency than the engineering department that does design and planning for long term productivity increase. Similarly, departments such as the Human Resources and Research & Development will be more responsible for growth in know-how and expertise within the organisation compared to sales and marketing divisions.

People in different types of work differ in terms of the required competencies and capabilities. Some peoples’ work is better measured in terms of its originality and complexity (work that is creative in nature) while others’ work is better measured via punctuality and consistency (work that is routine and repetitive).

WEATHER MEASURES EVERYWHERE

Although everyone shares the overall goals of the organisation such as profitability, customer rating, returns on investment etc, not everyone can influence these top level outcomes in the same degree. However, current trend is to feature the high level goals such as profitability and sales uniformly across all the departments, units and teams. While it is true that everyone must take ownership in realizing these goals, every different unit has its own distinct work area and everyone influences these goals differently. For example, does the truck driver have the same control over sales as the counter staff? Does the procurement executive have the same control over costs of purchase as the engineer who recommends the purchase?

Standard measures which feature on every department’s scorecard with the same weightage are known as ‘weather measures' , ie measures that cause people to be evaluated based on outcomes that they have absolutely no control of due to their scope of work and nature of their deliverables- it is like rewarding someone when the sun shines and punishing them when it rains and hoping that such measurement will align various teams/units/departments' effort to the organisation’s interest.

OLD MEASURES IN NEW ENVIRONMENTS

Due to the rapid change in the way businesses are run, new areas of measurements are emerging. Preemptive indicators are becoming increasingly important as early indicators for potential future operational and production problems. Others like growth indicators have taken a wider scope, measuring the outputs and outcomes of research, development and innovative initiatives as they determine future competitiveness and hence, new revenue and profit streams. There is also an increasing emphasis on customer satisfaction measures, including the now emerging 'feel good' indicators which are a set of highly customised emotional/psychological type of evaluations. Unlike the typical KPIs which are build on simple numbers and ratios, these more advanced measures require a robust and comprehensive framework, design and measurement methodologies. Have we incorporated these into our scorecards?

PROMOTING QUICK-GAINS BEHAVIOUR

Are your performance measures encouraging quick-gains behaviour?

A major developmental decision made 4 years ago could be making huge returns now. A planning delay today could cause huge capacity issues 12 months down the road. Work is delivered and assessed in the same period, but its consequences appear many months later. Which teams take accountability and which ones take the rewards? Are your performance measures very short-term orientated? Are you encouraging people to make quick wins all the times and by doing so, create repercussions on long term interest of the business? One thing is sure, if business performance measures do not measure long term impact, it will encourage quick-gains behavior which will misalign employee’s effort to stakeholders’ interests.

NOT MEASURING CREATIVITY AND INNOVATION

Most performance measures are only output orientated, calculating projects closed, packages delivered, machines repaired OR financially driven – profitability, return on investment, growth of sales, etc. These measures cannot assess the intensity, complexity, creativity and revenue and growth impact of individual initiatives that are subjective and developmental in nature, such as the setup of the company’s website, the planning of the new sales strategy, the structuring of company’s debt instrument, the nationwide launch of a new advertisement campaign, the design of a new hotel front, the report on carbon footprint in a new industry, the study of a newly discovered animal species, the development of policies on nuclear power, the writing of creative literature, research on an advanced engine technology, release of a new music album, business expansion strategy-making, healing of patients with varying degree of illnesses, coaching of a football team or management of a band.

Most of the time, poorly designed performance measures are the reason why innovation and creativity is neither measured nor recognized, let alone rewarded. As a result, businesses losses its existing and potential pools of ideas and creative solutions, which if effectively tapped and translated into production, could result in streams of future revenue opportunities and various new areas of growth. That is why we need output-impact performance measures, which are dynamic and highly customisable and enable development and innovative initiatives to be easily captured, assessed, rated and finally given its due, creating the impetus for better and more impactful innovative initiatives across businesses.

NOT SEEING THE FULL PICTURE

Is cost cutting a desired objective? Do we reward people when they cut costs? Does cost-cutting mean that the business is now better run and will perform better in future? Do organisations know how to measure the actual effect of cost cutting – in many circumstances, benefit of the cost reduction is lost in compromised product quality, poor service experience, reduced employee morale, higher maintenance costs and recurring capital expenditures.

This is why overly simplified, narrow measures can actually be more detrimental than having no measures at all. Therefore, it is important to have a cluster of measures that can assess an action from all angles and rate the action according to its ability to achieve the targets across many related outcomes. This will not only avoid misleading information to decision makers, it will also provide to reflect the actual value that is delivered to the organisation.