Measuring success

A surprisingly large number of companies fail to recognise the importance of measuring operational performance effectively.

by MIT Sloan Management Review
Last Updated: 23 Jul 2013

High performers need to constantly check how they are doing against key criteria and make adjustments and improvements on an ongoing basis to raise their game. An organisation that does not do this will be dependent on managers who make decisions based on gut instinct. Sometimes this may work, but in the long run it is likely to lead to under-performance and decline.

A better-run company will reward managers who use proper metrics and ensure that others do the same, whether they meet that year's performance expectations or not. Equally, managers who meet expectations but have not used the right metrics in a diligent and proper manner should not be rewarded.

There are seven possible reasons for the failure to measure performance properly: vanity, provincialism, narcissism, laziness, pettiness, inanity and frivolity.

For instance, vain managers use measures that make them look good, especially when their bonuses depend on getting a high score. One metals refiner measured the amount of raw material turned into a saleable product. Then a new manager changed the metric, so that they measured the quantity of high-grade raw material versus low grade. The result was that the score declined from 95% to 70%. Naturally enough, the staff affected were unhappy, but the company had revealed a more realistic picture of its performance.

There is a four-step model to getting performance measurement right. First, select the right elements to measure. Focus on what creates customer value and look for the processes that drive the desired outcome.

For example, a fashion retailer looked more deeply into what made customers buy its products from its shops. It wanted to increase revenues and initially assumed that advertising was the key process to achieve the desired end. It discovered that employee scheduling was more critical; customers need staff to help them and in many cases there was not sufficient 'customer coverage', especially at weekends.

The second step is to measure things in the right ways. Some companies over-complicate the measuring process when there is a simpler method. The fashion retailer, for example, considered using radio frequency identification (RFID) tags to measure the number of customers who entered its shops and bought its products. In the end, it posted high school students outside the premises. They counted the people who went in and then counted those that came out carrying shopping bags.

Third, companies need to embed the measuring system they choose by putting the correct senior manager in charge. Finally, the metrics must become part of the culture of the company. This is not just about managers acting as role models or showing commitment. It is also about rewarding those managers who stick to it through thick and thin.

The 7 deadly sins of performance measurement and how to avoid them,
Michael Hammer with Carole J Haney, Anders Wester, Rick Ciccone and Paul
Gaffney,
MIT Sloan Management Review, Spring 2007

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