How to effectively measure organizational performance, and the common traps to avoid
Measuring employee or organizational performance can cut both ways. It can play a valuable role in improving organizations – or it can stand in the way of necessary change.
Used effectively, measurement can provide vital feedback that shows whether approaches being used are moving the organization toward its goals. It can assess whether staff training, teamwork, empowerment, process improvement, re-engineering or other trendy ideas are producing real results.
But it can also cut into organization morale, slash team effectiveness and wound quality improvement efforts. Here are four of the most common measurement traps I see in organizations:
Managing results
The bottom line is history. It shows today’s consequences of yesterday’s management decisions, but is an unreliable predictor of how today’s decisions will affect tomorrow’s results.
Results can’t be managed any more than you can turn back time. Like a score, they form a historical record of how you did. In competitive sports, you improve your score by improving your play in key strategic areas.
Improvement starts by identifying and measuring the critical few service or product production processes and support systems that have the biggest impact on your results. But if you’re driving through the rear-view mirror of bottom-line results, you won’t see the swamp until you are sinking in it.
Inside-out measurement
Too many measures are designed to meet internal needs. They may satisfy management’s command-and-control paranoia by tracking every activity and minute of the day. Or they’re designed to serve accounting, information technology, human resources or other support departments.
What’s missing in this measurement mania is the customer. High-service providers measure from the outside in. They begin by measuring what’s important to customers. Next on the priority order are the needs of those serving the customers. Then attention shifts to the people producing products or serving the servers. The measurement needs of managers and support departments should bring up the rear of this customer-server-producer train.
The measurement stick
Just as important as what’s measured, is how the information is used. In many organizations, team members and managers resist measuring accuracy rates, cycle times, rework or customer satisfaction because they’ve been beaten with this information.
A mountain of evidence shows that 85 to 90 percent of errors originate in the organization’s structure, system or process. Yet all too many executives look for who, rather than what, went wrong.
To counter growing complaints from distributors, one manufacturer began measuring its rate of incomplete orders. Managers discovered mounting back-order levels, wrong parts shipped and clerical errors. More than 60 percent of the “pick orders” didn’t match the distributors’ invoices.
The solution was to replace the shipping department manager. The new manager promptly disciplined, fired and “motivated” clerks and shippers to shape up. After a temporary improvement, the rate of incomplete orders settled in slightly below their previous level.
The company finally focused its measurement, problem-solving and improvement activities across a wider spectrum. It looked at the entire sales, order-entry, picking-and-packing, inventory-control, accounting and invoicing process. Only then, did incomplete orders plunge by nearly 300 percent.
Confusing knowing and doing
Weighing yourself 10 times a day won’t take off the pounds. No matter how sophisticated, your measures are only indicators.
Improvement happens by pulling people together throughout your organization to analyze and improve key processes and support systems. What the indicators say are much less important than what’s being done with the information.
Measurements that don’t lead to meaningful action aren’t just useless – they’re wasteful.
Measurement is an essential tool for improving organizations. Choosing the right tool is important, but how skillfully the tool is used determines its effectiveness.
Jim Clemmer’s practical leadership and personal growth books, workshops, and team retreats have helped hundreds of thousands of people worldwide improve personal, team, and organizational performance. Jim’s website, JimClemmer.com, has over 300 articles and dozens of video clips covering a broad range of topics on change, organization improvement, self-leadership, and leading others. Sign-up to receive Jim’s popular monthly newsletter, and follow his leadership blog. Jim’s international best-sellers include The VIP Strategy, Firing on All Cylinders, Pathways to Performance, Growing the Distance, The Leader’s Digest and Moose on the Table. His latest book is Growing @ the Speed of Change.