Transforming the Context of Measurement

I have devoted my entire professional life to helping organizations improve their performance.  For years I consulted and wrote on organizational motivation, but found that no matter how powerful the rewards were, they were no better than the measurement system upon which they were based. About seven years ago, after years of study, I had a ‘eureka moment’ at which time I realized just how powerful measurement is for all aspects of organizational functioning.  Although most people passively acknowledge the validity of the old adage “what you measure is what you get,” few appreciate, or act on, its profound implications. Measurement is actually the most foundational management system in any organization, because it triggers virtually everything that happens. Because of this, no organization can be any better than its measurement system. If your measurement system is out-of-whack, everything else will be as well. After surveying hundreds of organizations of all types and sizes, I was shocked at just how broken performance measurement systems were in every.  Unfortunately, as a result of ignorance about performance measurement, many executives try to fix everything else in their organizations except measurement, and find that the problems are never solved – because the source of so many other organizational problems is, in fact, the measurement system.

While there are organizations that were doing some things right, none I studied had an end-to-end measurement system that I would consider exemplary. I found that every organization was full of serious measurement problems (e.g., measuring too much, measuring the wrong things, measuring to ‘look good’ rather than ‘become better’, sub-optimization, rewarding the wrong behaviors, managing to the numbers, gaming, cheating, etc.).  Reengineering guru Michael Hammer, in his book The Agenda, put it this way: “An organization’s measurement systems typically deliver a blizzard of nearly meaningless data that quantifies  practically everything in sight, no matter how unimportant; that is devoid of any particular rhyme or reason; that is so voluminous as to be unusable; that is delivered so late as to be virtually useless; and that then languishes in printouts and briefing books, without being put to any significant purpose….In short, measurement is a mess!” It was my realization of the centrality of measurement to all aspects of organizational effectiveness and the tent of the “measurement mess” that led me to write my book Transforming Performance Measurement.

The basic thesis of the book is that organizations need to not only continuously improve performance measurement, they need to transform it.  In my book, I identify four factors that are crucial for at least beginning the transformation. They are: (1) Focus, making sure your organization is measuring the right things, especially the intangible value drivers; (2) Integration, increasing the linkage between performance measures, especially bridging the divides between functions, in which each function has its own measurement system and all the different functional measurement systems are not connected; (3) Interactivity, the importance of increasing and improving communication around performance measurement (organizations are now investing so much in performance measurement technology, but don’t know what to do with the data once they collect it, much less how to turn the data and information into knowledge and wisdom); and (4) Context, everything that surrounds the measurement system, such as organizational climate, employee attitudes/expectations relating to measurement, measurement leadership, resources devoted to measurement (including measurement education), etc.

Contrary to conventional thinking, the real challenge of performance measurement is not so much related to the technical aspects of doing measurement as it is about creating an optimal environment for measuring performance. Take a look at the purpose of measurement: How is measurement predominantly used in your organization? If people have experienced measurement as being primarily manipulative – to monitor, control, punish, and even reward – it is likely that they will continue to be cynical, defensive, and self-serving about measurement.

As Jacques Warren has so correctly stated in the June 2012 issue of this newsletter, “Metrics are politics.”  This is not necessarily bad; it is just a fact.  And it is a major reason why the context of measurement must be transformed.  Measurement is easy to manipulate – especially for those who are richly rewarded for obtaining ‘good’ numbers and know how to ‘play the game.’  Dysfunctional use of measurement is not just due to defects in the measurement system, but to the motives of people who are trying to make measurement work for them or their unit, rather than for the benefit of the organization as a whole. One of the biggest contextual problems with measurement is that it tends to be confused with ‘evaluation’, as it is in performance appraisal. True measurement should strive to be an objective process that is concerned with knowing the truth about a situation, while evaluation is about making value-judgments. It is human nature for the emotional reaction to evaluation to be defensive and self-serving.

Another crucial contextual factor is communication. Unfortunately, there tends to be very little open, honest, transparent, and highly interactive communication around measurement in most organizations.  Without effective measurement communication, it is unlikely that the right measures will be selected, or that there will be appropriate interpretation of measurement information, the right actions chosen, valuable feedback obtained, and increased measurement maturity and organizational intelligence achieved.

No matter how great the measurement technology and how smart the technical experts, no organization can be any better than the capabilities (knowledge, skills, attitudes, and motivation) of the ‘consumers’ of measurement to use it well. While scorecards and dashboards might be wonderful from a technical perspective, very few employees (or managers, for that matter) know what to do with information presented.  What actions should we take, or not take?  What should we be learning from the data?  In every organization I investigated, measurement literacy varied between non-existent and abysmal! Most organizations have thousands of measures but do nothing to improve the measurement literacy of their managers and employees. For example, most strategic and operational leaders don’t have a clue about what variance is and what is means, don’t realize the dangers of aggregating (e.g., averaging) data, and don’t understand the relationships and trade-offs among the numbers they make critical decisions on.  Just think of how much money your organization invests in measurement technology compared with how little it invests in developing the capabilities of people to use the data and information generated by the technology!

Leaders set the tone for everything that is done in an organization, and yet it is both sad and ironic that “measurement leadership” isn’t even taught in business schools. Without strong measurement leadership, no major improvement in measurement is likely to occur, and therefore there is unlikely to be very much organizational improvement. Because most people think of measurement as being a highly technical subject, responsibility for measurement is usually delegated to technical measurement experts.  Who are the measurement leaders in your organization?  Who, if anyone, is responsible for aligning measures across the organization?  Can you think of one organization that has a Chief Measurement Officer?

Transforming performance measurement is not easy. Nothing is more resistant to change than the measurement system, because the measurement system is so deeply ingrained in the organization’s DNA (or culture) and the incumbents have benefited so much from it; it is the ‘golden goose.’ In addition, because very few people understand performance measurement, at least from a strategic perspective, they are unwilling to take on the challenge of changing it.

The best way to at least begin changing a culture is to make some high-leverage and visible improvements. Here are five initiatives you can implement immediately to begin transforming the context of performance measurement in your organization:

 Identify potential measurement leaders (people who understand the importance of measurement) and equip them with the capabilities they need to help take the organization’s measurement system to the next level.

  1. Provide education and training about performance measurement for all those who use measurement. Every organization should have at least one course, but probably a sequence of courses, on measurement (not just financial measurement) and how to use measurement data to improve the quality of decision-making.
  2. Identify a few egregious measurement dysfunctions and begin addressing them. Most of the dysfunctions of performance measurement systems are hidden, so it is important to bring them out into the light. Openness and transparency about problems will make a big difference in attitudes toward measurement.
  3. Start using measurement more for learning and improvement. Nothing will transform the context of measurement more quickly than even subtle changes in how measurement is used. Take the threat and reward out of measurement, and amazing things can happen!
  4. Improve performance appraisal, by focusing on it on feedback, learning, and improvement, and less for punishment and reward.