Performance measurement ≠ performance management

An article in the Economist caught my eye over the weekend which looked at the impact of signposting accident blackspots on road safety. Signposting is believed to improve road safety; the thinking is that if you know you’re on a road with a bad safety record, you’ll adapt your driving. I found the article interesting since this way of thinking parallels performance measurement systems in organisations: If you give employees KPIs and demonstrate their importance by managerial interventions, then you get better results, right?

Wrong.

In the case of accident blackspots, the research showed that signposting fatalities increased the likelihood of further accidents.?

Let’s unpick this – since this phenomenon is also true in organisations. There is a lot of evidence (including my own research) that the more emphasis you put on a measure, the less meaningful it becomes. Indeed, rather than driving improved performance, high-stakes measurement leads to endemic ‘gaming’ which distracts participants from the job at hand.?

In the UK healthcare there are many examples of metrics which destroy value instead of creating it. For example, in an A&E department, emphasis is placed on treating patients quickly. So if a patient is waiting to be treated on a trolly, there’s an incentive to reclassify it as a bed. Then you can fool the system into thinking they’ve been admitted to hospital and thus you've met your waiting time target since they’re no longer (officially) in the A&E department. Hospital managers love to show that they’re hitting targets, as do politicians; this leads to systemic gaming where the numbers get better even if performance doesn’t

In industry, creating meaningful measures that drive the right performance is notoriously difficult. The KPI mindset works well in factories where you can observe the activity of the worker and the quality of their output. However, measures often destroy value in knowledge-based industries.?

I did some consulting work for a large IT company that had an annual review system that placed individuals in deciles. The system was simple, easy to communicate and well-meaning. If you were in the top decile, expect to get promoted, if you’re in the bottom decile then expect to be shown the door. It worked well, except for one thing; IT consulting requires teamwork; teamwork requires co-operation and trust; co-operation and trust breaks down when you’re incentivised to prove you’re better than everyone else in your team. Indeed, in a high-stakes environment where your livelihood depends on you proving yourself, the antecedent conditions needed to work well as a team are designed-out by the performance measurement system. Why share valuable knowledge, help someone solve a problem you’ve already found a solution to, or acknowledge the good work of others if it reduces your promotion chances?

I worked at a university that wanted to increase the number of research papers produced by staff. It set up a reward system that paid by results. I was invited by a senior and respected academic to join a research team he was setting up. He’d publish according to his agenda, with me as a contributing author. The problem was that only the first-named author got the (quite substantial) bonus payment for publication. When I pointed this out, the lead said he’d be happy for me to use the data to publish my own research. I asked if he’d be willing to contribute. Perhaps unsurprisingly he declined. A classic example of a measurement and reward system which disincentivised collegiality and destroyed the value-creation process it was intended to promote.?

Knowledge-based organisations need to understand the limitations of performance measures, and the impact of poorly planned reward systems. It is necessary to understand that if one measure isn’t working, then adding in two or three extra ones to ‘fill the gap’ won’t help. Rather, it’s necessary to look for rounded performance management systems which are collaborative, provide employee guidance and which incentivise the things that make a difference, such as collegiality.

The problem with “big data analytics” is that it is becoming easier and easier to track finer levels of detail about what is going on in your organisation. There’s a saying in the farming community; ‘you don’t make pigs fatter by weighing them more often’. Similarly, you don’t make drivers safer by telling them how likely they are to die. And in organisations you don’t make people better by measuring the life out of them. Rather you need to create systems, processes and a culture which incentivises long-term value creation.