Seven Fatal Flaws of Performance Measurement

The Seven Fatal Flaws of Performance Measurement by Joseph F. Castellano, Saul Young, and Harper A. Roehm

Performance measurement systems are used to establish specific goals, align employee behavior, and increase accountability. Organizations often use these systems to set targets for component units (e.g., individuals, profit centers, divisions, plants). Each unit is expected to develop its own goals consistent with overall targets. This process, sometimes called a “roll-up,” reflects the premise that if all units achieve their targets then the overall goals will be met. The methods used by most companies to establish these numerical targets often involve the use of stretch targets or benchmarking best practices.

Once the targets are established, most organizations measure the performance of component units by comparing targets to actual performance for certain time periods. Variances from expected results are noted and explanations are required. The popular business press trumpets the efficacy of the above approach, but this methodology has serious flaws. In fact, the design and use of performance measurement systems in most organizations suffer from a number of fatal flaws that can undermine an organization’s ability to use its measurement system to improve processes and make better decisions.

The proper role of measurements should be seen in the context of helping employees connect with the overall aim of the organization. Management must gather and analyze information that will help employees become better contributors to the firm’s purpose.

The articles does an excellent job of explaining the flaws in how performance measurement is applied (both in Management by Objective (MBO) and performance appraisals).

Related: Performance Without AppraisalJeffrey Pfeffer on Evidence-Based PracticesProblems Caused by Performance AppraisalThe Danger of Forgetting the Proxy Nature of Data

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