INFOMAXIUM
Many organizations lose competitive advantage every time their employees meet or exceed personal performance metrics. Although it may not be apparent at the end of a fiscal quarter, or even several quarters, focusing exclusively on a few key objectives, such as revenue and cost controls, or even number of hits on a web site, can cause significant damage to an organization's health by the behaviors that are being instilled in employees and the corporate culture that is being created.
Performance metrics are intended to drive behavior all levels of an organization. This, in fact, happens, however, the impact is not always positive. Performance metrics have traditionally been used by management to prioritize specific targets for an employee through a combination of rewards, indifference, and punishment. Failure to meet a core metric or set of objectives automatically means that an employee has had a bad period, generally reflected in a lower performance rating or bonus - or worse. The incentive for an employee is to clearly meet the objectives at the exclusion of everything else.
We have always been taught that laser-like focus and discipline are critical prerequisites to achieving any sort of success. With the modern organization, this only addresses half the picture. [Running a modern organization successfully requires a culture that can adapt to change.
The combination of indifference and punishment are powerful motivators. Lots of things important to an organization can suffer in this pursuit. excluding other objectives that are also important. This happens when organizations focus exclusively on a set of discrete objectives that exclude all other creative and common sense ideas from consideration. Organizations must continue to focus on core metrics, but can no longer afford to exclude. Metrics that lead to exclusion are a bad thing. The problem is that it is not always apparent from a distance.
Mike Flynn
To see how exclusion can become a problem, consider how performance metrics are generally assigned to employees in most organizations. The process is usually driven top-down throughout the organization. The executive define the overall parameters and each manager identifies the few things that they want their employees to achieve for an upcoming time period - usually one to four quarters. These become discrete metrics on a personal plan whose achievement can be answered with a simple 'yes' or 'no' at the end of a time period. This approach does not consider the changing nature of the current and foreseeable marketplace.
Without a metric where 'almost' is good so long as something else is also accomplished, is not implemented, the corporate culture will not inspire employees and their managers to find better ways to do things. The price is paid in terms of low productivity, human suffering, and lost opportunities for the corporation. With the business climate making massive adjustments every few months, this is an unrealistic expectation. Employees are being caught in a situation where they are meeting objectives for their own sake, and perhaps not for the health of the organization. Exclusion leads to several problems including: lack of investment in the future & people, reaching for high targets, and innovation.
Performance metrics do not change with changing environments or other circumstances. Metrics are also designed to focus on a set of activities that are important for bringing results to an enterprise. If selling cars is the business of the organization, there is no point in having key salespeople out there selling tires.
Metrics often provide an excuse or a hedge to both managers and employees. Managers can use metrics to justify negative or positive evaluations without detailed explanation or consideration of new events or extraordinary circumstances. Employees can similarly rely on metrics to drive all their own actions. Impact on employee behavior can be described in several terms: interactions with other employees, the morale of the organization, communication, contribution of new and fresh ideas. In particular, savvy employees and managers are incented to define metrics that can be achieved. If there is no room for missing a metric, is there not an incentive to set a low target and always beet it?
Employees often begin to meet metrics as a Boolean need, rather than understand what the purpose really is. If an activity is not in the metric list, no focus or explanation is needed. One of my colleagues relates an incident where he was building a partnership with another vendor that primarily sold product. Trying to reach a common ground, the colleague offered to identify opportunities where lots of product could be sold. The response was that the director only wanted to sell services and was not interested in discussing product sales. Not to denigrate the director in anyway, he was acting according to the metrics provided to him. Surely the right answer for an organization is to pass on a lead to the rest of the organization, while the employee pursues the core metrics.
Several areas end up being neglected or excluded as a result of the metrics commonly assigned to employees in many organizations. These include teamwork, customer service, cross-group cooperation, low targets, expense controls, mentoring and coaching. Negative impacts on any of these areas have a direct impact on the bottom line of the organization. Whether this shows up in the same quarter or in a future quarter, the reality is that the organization will be impacted negatively.
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For example, if you have a metric that requires customer satisfaction to be a certain target, depending on how you reward employees, you may end up in a situation where employees may do everything they can to avoid finding unhappy customers. An anonymous survey, some employees may not sell to a customer or even accept the challenge of building the knowledge required to service such customers in the future. This will hit the bottom line in the future if the customer base needs to be expanded to include these customers.
Would you rather have an employee meet a target in the current quarter or miss it by 10%? Most of us would want to meet the target. However, if meeting the current target meant damaging your ability to meet or exceed future targets, what then? What if missing the target by 10% this quarter meant laying the foundation for beating next quarter's target by 30% with the cost of money being low, then a medium term view is not as straightforward. Short term incentives are encouraging employees to take the short term view and not maximize the health of the business.
Many discussions on organization health are framed in terms of short and long term prospects. There is another important timeframe, namely, the medium term that needs specific attention. Another problem is that things can fall through the cracks. Measuring employees on a discrete set of measures. Unconditional focus on specific measures, such as revenue or expenses, at the exclusion of others. Discrete metrics need to be selected carefully, otherwise too many opportunities fall through the cracks.Many organizations are being hurt by assigning restrictive performance metrics.
Organizations must re-examine the way in which they assign metrics. Given the rapidly changing economic climate of the changing economy, what may have been a good management approach is leaving many organizations behind. In a world where a few creative ideas can drive a company to major success, no employee should be ignored. A review of the last couple of years shows how rapidly the business climate changes. Companies that want to adapt to changing markets must also be prepared to support their employees. Employees that are not able to look for better ways to do their job will not make the right decisions. Flexible metrics versus rigid metrics is the key to a successful organization that can change with the times. Measuring employees on a specific set of discreet metrics is time honored. Having discrete metrics assumes that these metrics are and will always be the right ones. Performance metrics drive employee behavior. Choosing the proper metrics is vital for longterm success of the company. Selecting the right combination of metrics is important.
Employees who are encouraged to meet specific metrics at all costs - either through promotions or economic encouragement, sometimes let go of bigger opportunities. Metrics must be flexible. IT is certainly easier to measure success. Even the stock market has decimalized trades to reduce the amount that falls through the cracks.
Surely running a successful business is about many things. Making money in the short term, but equity in the longterm.
It is no surprise that rewards dictate how employees behave, yet metrics are often selected to reward less-then-optimal behaviors in terms of the company's future.
Even in tough economic times, getting the most out of employees is important to the growth of the organization. This can only be done with the right combination of incentives.
Should performance metrics be used as frameworks rather than hard targets?
It is not a matter of losing focus, but rather on focusing on all the elements that are important to the organization. Any type of discrete metrics evaluation system will
Instead a range of metrics must be used to properly evaluate performance, with built in flexibility to offset unique circumstances.
Of course too much flexibility is also a problem. Not meeting any objectives does not help the business. We're really talking about non-discrete metrics.
Providing focus is important, however, without flexibility, thinking is too short-term. Why should we penalize employees who are doing the 'right' things for the intermediate and longterm growth.
Widening the range of performance metrics requires careful scrutiny. There is risk. Measuring non-discrete metrics is a challenge to be sure.
Running a company is not an easy job. Nobody ever said that it would be easy. Investing in the future is certainly not easy. However, getting the performance metrics to measure employee performance is crucial to longterm success. In an economic climate where every competitive edge is important, organizations can no longer afford to discourage creative, 'out-of-the-box' thinking. Many project managers tell me that they get worried if no one is identifying problems on a project. The same may be true with performance metrics. If your organization is always achieving every target, are they missing something else?