The ABCs of Performance Measurement

In a previous article, I discussed how to set clear, aligned, and individualised goals with your team. Once you've done that, it's time to work with them on measuring their progress so that you can improve performance and build accountability. You can do this by establishing a performance measurement system (PMS). This is a set of metrics used to measure the current efficiency and effectiveness of your team's processes and to forecast these for the future. The measurements you use will be the basis of your ongoing accountability—you’ll use them to determine whether your team is on track to meet their goals, you'll reward team members when the measures exceed expectations, and you'll impose consequences when they fall short. Measures also send a message to your team about the larger goals and strategies of your organisation and encourage behaviours that are in line with them. Since metrics are crucial indicators of past and future performance, it's important to make sure that you're measuring the right things in the right way. The criteria for good measures can be summed up in the ABCs—they should be actionable, balanced, critical, detailed, and employee-driven.

A for Actionable

Measurement for its own sake has little value—the value comes when measurements are used to implement actions that improve performance. This means that performance needs to be assessed against predetermined criteria and that, in response to that assessment, there needs to be a plan of action. [1] Be clear with your team about what steps you will take and what steps you expect them to take when a measurement is falling short of expectations. Then, follow through and hold them accountable. It's also important that your team feels like their performance metrics are in their control, yet studies show that this is true of only two in ten. [2] If your team members can't connect what you're measuring with concrete actions they can take, they're unlikely to be receptive to accountability or motivated to improve their performance. [3]

B for Balanced

No single metric can give a clear view of your team's performance, and neither can a set of metrics focused on a single area. A PMS needs to be balanced in several ways to affect meaningful change:

• Balance financial and operational metrics. Financial measures have traditionally been the focus of PMSs. These are important because they indicate whether your strategies and processes are effective in improving the bottom line. [4] But operational measures (including quality, internal process, customer satisfaction, and many others) are equally important because they indicate and drive future performance.
• Balance leading and results indicators. Operational and financial measures are one example of leading and results indicators (which you can read more about here). [5] It's important to strike a balance between the two. Results indicators look backwards to measure results—as well as financial performance, they might include customer ratings, number of sales, or rates of absenteeism. Leading indicators, on the other hand, are the determinants of results—they might include measurements of quality, reliability, or innovation. [6]
• Balance executive and stakeholder perspectives. Many PMSs emphasise that metrics should be designed to support the strategic objectives of the organisation. [7] This is important, and if you're managing a small team you need to make sure that your goals and measures are aligned with the larger interests of the organisation. But it's also important to consider the needs and desires of your specific stakeholders, including employees, customers, and shareholders. To achieve long-term success, your processes need to be aimed at outcomes that will deliver value to all stakeholders while supporting the needs of the organisation. [8]

C for Critical

A PMS should include as many, and only as many, measures as is necessary to support the key strategic objectives of your organisation and team. Measurement costs money and time, so it's important to ensure that what you're measuring and the frequency with which you're measuring it is actually improving performance and contributing to profit. [9] Consider the larger objectives of your organisation and the role your team plays in achieving them. Then, decide what factors are most critical for your success and measure those. By focusing on the most critical measures, you'll avoid unnecessary and costly measurement and you'll clearly communicate the team's priorities. [10] You'll be able to hold your team accountable for the aspects of their performance that most impact outcomes. It's also necessary to be flexible and review your performance measures regularly as strategies and priorities change. Getting rid of measures that aren't serving your team will free you up to focus on those that are.

D for Detailed

Once you've identified the most critical areas of performance, it's time to specify exactly how you're going to measure them. You need to define what success and failure would look like and determine the value of each measure that would signify unacceptable performance. [11] These measures need clear targets and timeframes as well as clearly defined processes by which performance will be measure and evaluated. This includes detail about how accountability will be carried out—how progress will be communicated, the steps that will be taken if performance falls short, the rewards for meeting targets, and how you will provide coaching and feedback. [12] Accountability will only be effective when your team has a detailed understanding of what is expected of them and what they can expect from you.

E for Employee-driven

Similarly to goal-setting, involving your team in establishing their measures will help your team to take ownership of them and see how their actions affect their outcomes. In other words, it will help make your measures actionable. Studies also show that measurement is most efficient and effective when the people doing something are the people measuring it. [13] Putting measurement into the hands of your team helps them to feel like they're in control of their performance rather than feeling controlled. When people see themselves as carrying out the instructions of others, they lack a sense of responsibility for their outcomes. On the other hand, when people feel in control of their performance, they're intrinsically motivated to improve it and receptive to outside feedback and advice. [14] Employee-driven measurement doesn't mean that there is no external evaluation—in fact, data from a variety of sources including your own observation, higher-level employees, peers, and customers is important for gaining an accurate view of performance. [15] But your team will perform best when they're involved in the process.

As Ian Robson's research concludes:

'The most effective forms of organisation... are most likely to occur when the group of people involved in a process are monitoring a small number of measures that are critical to the sucess of the process.' [16]

That is, measures are most effective when they are employee-driven and critical. We can add to this that they should also be actionable, balanced, and detailed to enable your team to take accountability for improving their performance.

References:

[1] I Robson, ‘From Process Measurement to Performance Improvement’, Business Process Management Journal, vol. 10, no. 5, 2004, pp. 511-512.

[2] B Wigert & J Harter, ‘Re-Engineering Performance Management,’ Gallup Inc, 2017, p. 30.

[3] M McDonald, ‘Do Your Measures Make Employees Mad? Or Motivate Them?’, 2018, https://www.gallup.com/workplace/231659/performance-measures-motivate-madden-employees.aspx.

[4] R S Kaplan & D P Norton, ‘The Balanced Scorecard—Measures That Drive Performance,’ Harvard Business Review, 1992, https://hbr.org/1992/01/the-balanced-scorecard-measures-that-drive-performance-2.

[5] K Khan & A Shah, ‘Understanding Performance Measurement in the Literature’, African Journal of Business Management, vol. 5, no. 35, 2011, p. 13415.

[6] A Neely et al., ‘Performance Measurement System Design: Developing and Testing a Process-Based Approach’, International Journal of Operations & Production Management, vol. 20, no. 10, 2000, pp. 1122-1123.

[7] S Tangen, ‘Performance Measurement: From Philosophy to Practice’, International Journal of Productivity and Performance Management, vol. 53, no. 8, 2004, p. 727.

[8] A Neely et al., ‘The Performance Prism: The Scorecard for Measuring and Managing Business Success’, Knowledge Interchange Book Summaries.

[9] Tangen, ‘Performance Measurement: From Philosophy to Practice’, International Journal of Productivity and Performance Management, vol. 53, no. 8, 2004, p. 728.

[10] R S Kaplan & D P Norton, ‘The Balanced Scorecard—Measures that Drive Performance,’ Harvard Business Review, 1992, https://hbr.org/1992/01/the-balanced-scorecard-measures-that-drive-performance-2.

[11] I Robson, ‘From Process Measurement to Performance Improvement’, Business Process Management Journal, vol. 10, no. 5, 2004, p. 515.

[12] A Neely et al., ‘The Performance Prism: The Scorecard for Measuring and Managing Business Success’, Knowledge Interchange Book Summaries.

[13] I Robson, ‘From Process Measurement to Performance Improvement’, Business Process Management Journal, vol. 10, no. 5, 2004, p. 512.

[14] I Robson, ‘Implementing a Performance Measurement System Capable of Creating a Culture of High Performance,’ International Journal of Productivity and Performance Management, vol. 54, no. 2, 2005, pp. 141-142.

[15] T Dewett, ‘Performance Management: Setting Goals and Managing Performance,’ 2019, https://www.dhirubhai.net/learning/performance-management-setting-goals-and-managing-performance/next-steps?u=2126025.

[16] I Robson, ‘From Process Measurement to Performance Improvement’, Business Process Management Journal, vol. 10, no. 5, 2004, p. 513.