How to Improve Performance Measurements

Instead of using one single measure, multiple measures could be used when defining and aiming to achieve the desired effect. Customer complains: fairly important to consider because it would allow the manager to assess whether “…” is actually a significant problem in contributing to financial performance – a common mistake encountered when constructing a performance measure (Ittner & Larker, 2003). Also: involving some form of reward or sanctions => psychological theories: people will choose how to behave depending on the outcomes they expect as a result of their behaviour and - people are most motivated if they believe that they will receive a desired reward if they hit an achievable target. The reward may take the form of some kind of bonus, or fringe benefits such as discount or gifts, while the sanctions may simple be the threat of a performance appraisal based on demonstration of poor performance, or even the idea of losing out on the reward could be enough to act as a sanction to poor-performing workers. However: effectiveness depends on nature of job: garbage collection is a mechanical task, monetary incentives are more likely to work, unlike in the case of Amazon, for example, where focus is placed on psychological factors such as challenge or purpose to motivate employees besides good compensation.

Expand scope of employees’ engagement in design of measures. Example: discuss cause-effect links within the organization, e.g. by letting middle managers participate in the development of the performance system and in the course of this set up a cause-effect map together => motivational effects. But telling managers how to get to the financial target might go against the idea of empowerment: managers might follow non-financial performance measures to procedurally, in a bureaucratic way; managers might also disagree with causal links and think there’s a better way to get to the same result => while encourage potentially innovative thinking, can also cause conflict and time to reach conclusions => presentation and regular feedback on the links between different indicators is important in order to increase managers’ commitment to achieve the represented goals. For instance, as part of the periodic performance report, it could be useful to include information on the correlation between indicators. Overall, any modification of the new measures should include a discussion of their potential costs. For instance, how much does it cost to track each driver in order to analyse the average time of completion of garbage collection?

Put more emphasis on goal clarity and empowerment into account. Multiple performance measurement systems made of several causally linked performance measures don’t automatically improve managerial performance. Goal clarity: communicating goals more effectively; empowerment: helping managers relate their own values to these goals and helping them make the measures more meaningful. Why? Start with

...