The Idea in Brief
• Most senior executives find performance measurement difficult if not threatening, and they’re reluctant to engage with it in a meaningful way. As a result, companies routinely fall into five traps.
• Specifically, they use themselves rather than competitors as benchmarks, focus on past indicators of success, overvalue numbers at the expense of qualitative measures, set easy-to-game metrics, and cling to systems that have outlived their usefulness.
• This article addresses each of the traps in turn, offering advice about how to avoid them and examples of organizations that have successfully done so.
In an episode of Frasier, the television sitcom that follows the fortunes of a Seattle-based psychoanalyst, the eponymous hero’s brother gloomily summarizes a task ahead: “Difficult and boring—my favorite combination.” If this is your reaction to the challenge of improving the measurement of your organization’s performance, you are not alone. In my experience, most senior executives find it an onerous if not threatening task. Thus they leave it to people who may not be natural judges of performance but are fluent in the language of spreadsheets. The inevitable result is a mass of numbers and comparisons that provide little insight into a company’s performance and may even lead to decisions that hurt it. That’s a big problem in the current recession, because the margin for error is virtually nonexistent.
