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Directional or vector measures provide the additional information of direction and velocity of change occurring in the attribute or variable measured. Vector measures over­come some of the problems inherent in traditional static measurements. First, it provides the additional informa­tion of direction and rate of change. Second, a series of measurements provides the opportunity to use statistical techniques to determine the standard deviation in the observed measurements. This will allow comparison of the actual measurement sample with the sample used to derive the standard to determine if they are the same or if statisti­cally significant deviation is taking place. Third, much of the information conveyed by vector measures is in the directional component of the measure. There is less need for exact quantification as in a static measure as long as relative quantification can be shown. Thus, extreme accuracy and precision are not as important. This can be valuable when the factors being measured are "softer" and more subjective.

The final characteristic to be discussed is the effect of performance measurement on behavior. Drucker states that measurement in an organization can be neither objec­tive nor neutral. By that he means simply that measure­ment affects behavior. This is certainly why we measure people, to encourage them to perform to certain standards and goals. This is what is called the intended consequences of the performance measurement.

However, because performance measures are usually only indirectly related to the goals they pursue and because people will modify their behavior to maximize their perfor­mance against the measure, performance measures often lead to unintended consequences as well. For example, if the surrogate measure for customer service is number of units delivered on time, people may deliver large orders at the expense of small ones or deliver orders when quality problems still exist with the product in order to maximize their performance against the measure, even when the actual resulting customer service is negatively affected.

The difficulty with static measurements against standards is that people will learn, over time, how to manipulate the measurement result of an indirect measure while not affecting or negatively affecting the actual behavior char­acteristic the measurement is intended to encourage. The result is irrational behavior, such as end of the month push to meet sales goals, spending needlessly to use up a budget, sacrificing quality and service for price and effecting local cost reductions that lead to overall process cost increases.

The above analysis, then, leads to some conclusions about the characteristics required for an effective performance measurement system:

• Precision should be no more than required by the inherent accuracy of the measure.
• Accuracy must be measured usingboth the mean value and the standard deviation to define the distribution of both the standard and the actual measure.
• Statistical validity can be improved by using groups of actual measurements compared to the goal rather than individual measurements.
• Vector measures must be used to supplement the infor­mation derived from static measures and to improve the statistical accuracy of the performance measure.
• The less quantifiable the characteristic to be mea­sured, the more important vector measures become.
• Groups of measures rather than single measures must be developed to minimize the unintended consequences of the performance measurement system.
• The measurement system must be constantly audited to identify signs of dysfunctional behavior resulting from the unintended consequences of people "working to the measure" and not to the goal. Measurement systems must be adjusted as necessary to minimize this from happening and to adjust for changing orga­nizational circumstances.

To be Continued