Performance Measurements
Segment 1 of 3
PART I.
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As the requirements of an organization change, traditional measurement systems no longer provide the information necessary to be competitive in a global marketplace. The objective of this paper is to explore why traditional measurement systems are inadequate, even counterproductive, and to look at some alternatives that motivate organization participants at all levels toward organizational goals. Peter Drucker, in a recent article in The Wall Street Journal, stated that information technology has provided the means of collecting vast amounts of data, but, in order for data to be converted into information it must be organized for the task, directed toward specific performance and applied to a decision. Many managers don't know what information they need to do their job and how to get that information. Others don't understand how the availability of that information has changed their management task. Finally, few managers know what information they owe to the organization to insure its success. Chester Barnard, in his 1937 book, The Functions of the Executive, recognized the difference between efficiency, that is, doing things right and effectiveness, that is, doing the right thing. However, information systems have historically measured only efficiency and largely ignored effectiveness. There are compelling reasons for this: 1) our ability to gather information in a timely manner has been limited, 2) efficiency measurements are much easier to identify, 3) efficiency data is much easier to gather and 4) efficiency measures are much easier to quantify. This emphasis on efficiency has led to a subtle transformation of performance from the "greatest benefit (effectiveness) for the least cost (efficiency)" to the "greatest measurable benefit for the least measurable cost." This has resulted in three significant problems:
Efficiency without effectiveness is like working on the budget while the building is on fire. If this seems extreme, consider these common examples of efficiency driven measures found in many companies:
These examples point out clearly that controls often lead to performance that is not beneficial, indeed often detrimental, to the organization. How does this happen? No one deliberately sets out to establish measures that degrade organization performance. To understand how this happens, it is necessary to understand some characteristics of controls. Because organizations are social systems and social systems cannot be measured outside of themselves, controls can be neither objective nor neutral. What gets measured affects how the organization behaves. This is a critical characteristic, little understood by traditional measurement systems. Certainly many measurements are instituted to influence behavior (increase production, meet a schedule, etc.). However, there are both intended and unintended behavioral change consequences of controls. This accounts for the some of the behavior mentioned above. To be Continued STAY CONNECTED To stay current on bullet-proofed manufacturing solutions, subscribe to our free ezine, "The Business Basics and Best Practices Bulletin." Simply fill in the below form and click on the subscribe button. We'll also send you our free Special Report, "Five Change Initiatives for Personal and Company Success." Your
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