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Measurement is done in organizations for various pur­poses. The primary measurement system is usually the one that results in Financial Statements such as Profit and Loss Statement and Balance Sheet. While these are neces­sary and useful for the purpose for which they are intended, their intended purpose is primarily external to the man­agement of the organization. They are structured accord­ing to Generally Accepted Accounting Principles (GAAP) and, often, have little relationship to meaningful perfor­mance measurement. At best, they are too summarized to be useful and, at worst, they provide a very limited and often misleading picture of the performance of the organi­zation. No examples need be given here of organizations whose financial statements indicated successful operation right up to the point when they had a drastic, and seem­ingly spontaneous, change in fortunes. Thus, the less internal people see and use financial statements to manage the business, the better.

Brian Maskell, in Performance Measurement for World Class Manufacturing, indicates several categories of per­formance measurement in addition to financial measure­ment. Among them are delivery performance, process time, production flexibility and quality. Thus, any tool useful for evaluating or auditing existing or proposed performance measurements must take into account several factors:

• It must be able to statistically evaluate the accuracy of the measure and any standard associated with it.
• It must identify and evaluate the need for a vector component of the performance measure.
• It must be able to relate the indirect measure with the standard or goal it attempts to motivate people to attain.
• It must be able to understand the intended behavioral consequences of the performance measurement and anticipate unintended consequences.
• It should evaluate each individual measure and mea­sures in related groups, since the behavioral result of measuring performance with a group of measures is not the sum of the result of each individual measure.
• It should evaluate the degree to which individual performance measures and the performance measure­ment system fulfills Drucker's eight requirements.
• It must be a continual process since the requirements of the performance measurement system will change as the needs and goals of the organization change in response to new markets, technologies, cultures and organization structures. To this end, existing perfor­mance measurement systems, in addition to being continuously audited, should be subject to the admoni­tion of Drucker to test everything you do in an organi­zation at least every three years with the question "If we stopped doing this, what would happen?"

The mechanism for doing this starts with a clear under­standing of the goals of the organization and how these goals are impacted by the activities of the various teams within the organization. This step, along with all the other steps in this process, cannot be accomplished by top man­agement or financial management in a vacuum. It requires participation and agreement among all who will partici­pate in measuring and being measured.

Next, the existing performance measures must be analyzed against three factors. This must be done not only for individual performance measures but for combinations of performance measures. These three factors are:

• Their applicability to the agreed upon goals of the organization.
• Their fulfillment of Drucker's eight requirements.
• Review of their characteristics of accuracy, directional measurement and the consequences that will result from the use of the performance measurement.

Although this seems like a difficult and time-consuming process (It is!), much of this, such as the understanding of organization goals, should and will be a part of any major organizational change, and, thus, is not additional to what is already happening within the organization. The basic purpose here is to integrate the changing of the perfor­mance measurement system into other changes already underway or contemplated.

In going through this process organizations will find that many of the measures current being used are, at best, a meaningless waste of resources and, at worst, counterpro­ductive. Even so, there will often be resistance to eliminat­ing these measures since 1) many managers have learned to manipulate them to their own advantage, either for financial/promotional reward or as excuses; and 2) many have substituted the use of these measures and the result­ant reward/punishment system for a true understanding of the business process in which they are involved. Often those who will be evaluating the measurement system are the very ones who benefit most from its retention. It takes strong top management leadership to insure that the performance measurement system focuses on organization goals.

In summary, performance measurement systems must replace individual performance measures that were imple­mented because they relied on the only information avail­able. These systems must go far beyond financial measures and encompass all of the characteristics that lead to a successful, goal oriented organization. Those being mea­sured must be key participants in the process since the work they do (knowledge based work) cannot be measured without their willing complicity. These systems must focus on organizational effectiveness, not just functional effi­ciency. A clear understanding of the behavioral conse­quences is necessary to implement a successful perfor­mance measurement system. Finally, performance mea­surement systems must remain fluid and changing with the ever changing needs of organizations to motivate people to accomplish their goals.