PROBLEMS WITH TODAY'S PERFORMANCE MEASURES
4. The measures may not be equally applicable across the organization. Sometimes, measures may be selected to be used across several similar entities, such as plants within a division, or departments within a plant. Suppose a measure of customer service, such as percentage of orders shipped on time, is chosen. If several departments or plants use this measure, and the group includes make-to-stock as well as make-to-order environments, the level of what constitutes acceptable performance may vary. While it is possible
to set different levels for each unit measured, companies should take care not to view them all as having the same service level requirement.
5. It may be difficult to obtain actual results that can be compared with the performance goals. A reason that companies continue to use some traditional measures, such as labor efficiency, machine utilization, and even percentage of defects, is because they are easy to measure. On the other hand, some newer performance objectives that involve customer satisfaction or worker involvement or empowerment are more difficult to measure, and we have not yet developed universally accepted measures that can be routinely generated by our measurement systems. As a result, we may attempt to use surrogate measures that often are not acceptable substitutes.
6. Performance measurement systems may lack flexibility, making it difficult to change the measures used. It takes a long time to design comprehensive information systems. If these systems are to provide the performance measures, they may be difficult to change. Certainly, companies will tend to use the results because of the investment in the system and will tend to discourage the growth of unauthorized reports. Many companies have not yet resolved the issue of information system flexibility.
7. Present performance measures may stress control, not
improvement. Present day programs such as TQM and JIT stress continuous improvement. In the past, performance measurement systems tended to stress control around some measurable norm, rather than improvement to some new undefined level of performance. Standard costs, along with their corresponding variances, have been used for control purposes. Today, more companies are using target costs for set
ting goals for attainment, leaving standard costs primarily for accounting purposes.
8. Many performance measurement systems have no way of distinguishing between the vital few and the trivial many.
Today, companies place more emphasis on doing the right thing, or choosing the activities that will achieve the
greatest benefits for the company (strategic effectiveness). This is in contrast to doing the thing right (operational efficiency). Measurement systems tend to be indiscriminate among measures: the persons using them must assign priorities to the activities.
9. The persons being measured may not accept the basic concept of performance measurement. While most persons recognize the inevitability, and even desirability, of being measured, they universally want the measures to be fair. Too
10. Some measures may promote local, or departmental, goals instead of global or company goals. When production departments are measured by labor efficiency, they attempt to maximize labor efficiency, and may be less interested in minimizing inventory, although an integrated program of inventory management may be of great benefit to the total company. The blending of cross-functional goals into workable performance measures is an important objective of performance measurement systems.
There are other criticisms of today's performance measures; however, the ones listed above will be the basis for evaluating the applicability of the balanced scorecard approach and how the use of key indicators will be applicable as an interim step in the performance measurement process.
To Be Continued