How Broken Is Performance Measurement At Your Firm?

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How Will You Measure Your Life?

Most organizations, especially large ones, have too many performance metrics to deal with. Some firms are adding more metrics to their enterprise performance measurement system (EPMS), hoping to improve strategic alignment, better monitor/report business activities, and make proactive decisions.

However, most performance measurement systems are half broken and need improvement. 

This article breaks down the performance measurement system into its players, and value exchanges among the players, before manifesting both in the form of a value flow map. The article concludes with pointers to rethink performance measurement, and suggests why you should care.

Players

Corporate: Senior management who is responsible for making strategic decisions.

Metric user: An employee (e.g. manager) who utilizes the metric for strategic alignment, monitoring and reporting of business activities, as well as decision-making. 

Metric generator: An employee (e.g. engineer) who performs the actual work that generates metric-related data for collection. 

Metric collector: An employee (e.g. manager or appointed personnel) who collects metric-related data. 

Metric processor: An employee (e.g. manager or appointed personnel) who processes metric-related data. 

Information technology (IT): IT group that provides the necessary hardware and software infrastructure to enable metric collection, processing, and interpretation.

Value Exchanges

Strategic intent: Communication of intent and purpose.

Investment: Strategic allocation of resources in terms of time, effort and money.

Work output: Work-in-progress and/or finished products and services.

Information flow: Flow of unprocessed or processed metric-related data. Data processing can be fully automatic (i.e. data entry followed by computer-generated reports), or semi-automatic (i.e. data entry followed by some form of human processing).

Technology: Hardware and software infrastructure that enable metric collection, processing, and interpretation. 

Combining the players and value flows, a typical value flow map consists of three different levels: (1) Corporate level; (2) Program/Project/Department level; and (3) Execution level. 

Food For Thought

- What if the generator, collector and processor happens to be the same person? Will he "game" the system such that he is handsomely rewarded by reporting good metrics? While it makes performance measurement more efficient by employing the same person for generator/collector/processor, the possible unintended consequences must be identified upfront, and mitigating plans/actions must be in place and enforced. Separating generator/collector/processor makes performance measurement more effective, but how many firms are willing to incur the additional costs and effort?

- Do all the players get the right intent and adequate investment? Links between metric user and IT are usually weak, especially when performance measurement is not a revenue-generating activity. Does intent get propagated to all the players? It's probably strongest from corporate to metric user, but much weaker elsewhere. 

- There are two routes for information processing: (1) Automatic processing where data is processed by computers after data entry; and (2) Semi-automatic processing where some form of human processing is required after data entry. Firms are usually better with (1) than (2). How timely are these automatic/semi-automatic reports? Can they help to make proactive decisions? Decision-making is often reactive or at best timely in nature.

- Corporate and metric user get performance feedbacks through performance reports. How fast does this  get to the metric generator (i.e. employee who performs the actual work)? Such delays can be greatly reduced by making performance feedback readily accessible to the execution level. 

Why Should You Care?

If the flows of strategic intent, investment, information and technology can be strengthened, the quality of work output will certainly increase. 

How motivated will you be if you know that some parts of the performance measurement system are dysfunctional? Will it affect your ability to take preventive and/or corrective actions? Does it affect your performance bonus? Does it frustrate you?

How good is the performance measurement system at your firm? 

Thanks very much for reading. 

Work Cited

K.S Teo, "Enterprise Performance Measurement System: Metric Design Framework and Tools," Engineering Systems Division, Massachusetts Institute of Technology, Master Thesis 2013.