The Grey Chronicles

2009.January.5

Seven Deadly Sins of Performance Measurement


The 7 Deadly Sins of Performance Measurement

The 7 Deadly Sins of Performance Measurement

Michael Hammer (2007) wrote: “Operational performance measurement remains an unsolved problem. Despite the relatively little attention it gets in the management literature, designing and using metrics to track and improve operating performance is one of the most persistent problems that organizations face.” The seven deadly sins of performance measurement [are]:

1. Vanity. One of the most widespread mistakes in performance measurement is to use measures that will inevitably make the organization, its people and especially its managers look good.”

Typical example in the area of logistics and order fulfillment: it is common to measure against the promised delivery dates; a better measure would be performance against customer request date.

2. Provicialism This is the sin of letting organizational boundaries and concerns dictate metrics.”

Marketing is usually measured in sales volume, which motivates the sales force to sell to any willing customer, regardless of discounts or concessions given. A sensible metric would be the value of the sales volume, rather the volume itself. Production is usually measure in production volume; a more accurate metric is the ‘time-to-market’ — the time from when the customer placed the order until it is delivered and processed at the customer’send according to guaranteed performance criteria.

3. Narcissism This is the unpardonable offense of measuring from one’s own point of view, rather than from the customer’s perspective. In reality, however, measuring narrowly inevitably leads to suboptimization and conflict.”

Production Planning performance might be based on whether products matched the stock on hand according to production plan, but not to whether the available products on stock matched what customers actually wanted to buy.

4. Laziness This is a trap that even those who avoid narcissism often fall into: assuming one knows what is important to measure without giving it adequate thought or effort. . . Companies often jump to conclusions, or measure what is easy to measure or measure what they have already measures, rather than go through the effort of ascertaining what is truly important to measure.”

Purchasing performance is often measured by the number of purchased requisitions served, but not the critical issue of how long it took from the time the requisitioner made the order to the time that the requisition was fully served. Using SIPOC, then identifying the the process output important to the customer could establish the minimally accepted performance level.

5. Pettiness Too often, companies measure only a small component of what matters.”

Finance performance is usually measured by how much it reduced costs, but sometimes lost sight of the fact that cost savings might be offset by the idling of production equipment and personnel.

6. Inanity Many companies seem to implement metrics without giving any thought to the consequences of these metrics on human behavior and ultimately on enterprise performance. People in an organization will seek to improve a metric they are told is important, especially if they are compensated for it—even if doing so has counterproductive consequences.”

Warehousing performance is usually measured through the inventory at the end of the month, which encourages the manager to clear goods out just before the end of the month and then rush to replace them at the beginning of the next month, thereby creating chaos and higher costs.

7. Frivolity This may be the most serious sin of all; it is the sin of not being serious about measurement in the first place. . . manifested by arguing about metrics instead of taking them to heart, by finding excuses for poor performance instead of tracking root causes, by looking for ways to pass the blame to others rather than shouldering the responsibility for improving performance. If the other errors are sins of the intellect, this is a sin of character and corporate culture.”

Arguments on the metrics occur when management did not do their own homework: plant capacity, human element and the customer.

“There are four steps to redeeming an organization . . . of the seven deadly sins and setting it on the path to sustained performance improvement.
1. to select the right things to measure, those aspects of organizational performance that are both controllable and important to achieving enterprise success;
2. to measure these things in the rights ways, through metrics that capture their essence in usable forms;
3. to embed these metrics in a disciplined process for performance improvement, to use them for treatment rather than autopsy; and
4. to create an organizational culture and value system that encourages the disciplined use of metrics for ongoing performance improvement rather than regard them as threats to be feared or opponents to be vanquished.”

To create a metrics-friendly culture, inspiring slogan such as "a minute delay causes the company to lose this much" do not help. It takes: personal role modelling, i.e., setting the exampl; sensible evaluation and equivalent tangible reward; implementation through training and postaudits of key decisions; commitment, and articulation such as talking about performance improvement, fact-based decision-making and carefully designed and meaningful metrics. Furthermore, every metric must have one—usually the process owner— or a group of individuals&#151managers of the various functions involved in the process—who are personally responsible and accountable for it.


Notes:

Hammer, Michael (2007). The 7 Deadly Sins of Performance Measurement [and How to Avoid Them]. MIT Sloan Management Review, Spring 2007. Cambridge: Massachusetts Institute of Technology. p. 19-28. back to text

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