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Are Your Performance Targets Distracting You From What REALLY Matters?

Contributor: Wallace Stump
Posted: 05/29/2012
Wallace Stump
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The visibility into performance that is provided from performance dashboards and scorecards is a mixed blessing that can often result in unintended behaviors, writes contributor Wallace Stump. Is your organization paying attention to the wrong things?

I love the scene in The Wizard of Oz where Toto is barking frantically at the little man behind the curtain while the wizard is shouting to "pay no attention to the man behind the curtain".

I think that we, as leaders, are sometimes distracted by our performance against targets just as much as Dorothy and her friends were captivated by the Wizard of Oz, not realizing, as Toto did, that the really important things are the less obvious factors that are affecting performance. We often forget what we were trying to accomplish in the first place.

Any continuous improvement effort requires a system for measuring and analyzing performance. Without a well-designed system of measurement, baseline performance cannot be detected and the effects of changes to the system cannot be evaluated, but having a system of measurement is not the same thing as having targets.

Wizard of Oz: If you’re focused on the wrong things, you might get swept away

W. Edwards Deming did not even believe that establishing targets was advisable. The eleventh of his fourteen points for management is stated as follows:

  • Eliminate work standards (quotas) on the factory floor. Substitute leadership.
  • Eliminate management by objective. Eliminate management by numbers, numerical goals. Substitute leadership.

Deming believed that continuous improvement is derived from working to improve process performance through leadership, by gaining a better understanding of common and special causes and their effects on the system, not through the achievement of nominal targets. He recognized that the achievement of targets is not important. Instead, leaders must ensure that everyone involved with the work gains an intimate understanding of the nature of the work being done, knows the effects that changing inputs will have on the performance of the system, and acts on that knowledge to improve the system.

Although Deming was primarily engaged in continuous improvement of manufacturing processes, the same approach should be taken with optimizing the performance of an organization. Organizations and assembly lines are both systems, with inputs and outputs and causes and effects, however an organization is far more complex than an assembly line. Attention should be paid to understand the interactions between the various departments within the organization in order to maximize performance, rather than establishing measurements that will serve to optimize performance of the individual segments with potentially negative effects on overall organizational performance.

One notorious example of optimizing one measure locally to the detriment of the organization occurs when we measure calls closed per hour in a call center, encouraging call center representatives to close calls as quickly as possible invariably results in pressure being placed on "poor performers". The result is customers being turned away with insufficient or bad resolutions with customers predictably calling back a second or third time. Not only is efficiency not gained, the resulting poor customer experiences are detrimental to future sales and customer retention for sales representatives and account managers. Offering bonuses for performance achievement only exacerbates this bad behavior (for obvious reasons!).

In most organizations today, operational excellence programs are designed around the establishment of measurement systems and performance targets for segments of the organization. These segment targets are then aligned to contribute to the achievement of the strategic goals of the business. Once all of the various metrics are determined they can be rolled up to provide performance metrics often in the form of a dashboard that can be used to evaluate performance.

In many cases this is taken even a step further so that a linkage is established between the established targets and compensation levels for the individual business leaders through the use of scorecards. Performance against established goals is then used for evaluating the contribution that managers are making towards achievement of the strategic goals of the company. The best performers are then rewarded appropriately through incentive compensation.

The visibility into performance that is provided from performance dashboards and scorecards is a mixed blessing that can often result in unintended behaviors. Perhaps the most common misuse of a performance dashboard is to use it as the sole basis for decision- making. As in our previous analogy, a little too much attention paid to the wizard and not enough to the man behind the curtain. We can be tempted to determine causes and effects based on our intuition and the performance results alone. These are no substitute for increasing our understanding of the work and identifying the root causes for performance problems. Rather than try to understand how changes in the system are causing our measurements to change, we can fall victim to the temptation to work from the numbers by making decisions without a full understanding of the system often resulting in unintended consequences.

When individual compensation is linked to performance targets we place even more emphasis toward achieving targets and it only gets worse when targets are linked to compensation for the entire team as peer pressure to meet the common goal can further distort behavior. It is a clear warning signal when an inordinate amount of the conversation in meetings within the organization is about success or failure against the targets rather than about the performance causes and effects.

As with any tool, the usefulness of an operational excellence program depends on the skill with which we can wield it. It is far better to use the measures derived as a compass to help guide us, rather than as a carrot and stick to pick winners and losers.

Editor's note: For further reading on this topic, PEX Network would recommend the following:

3 Deming-based alternatives to Management by Objective

Beyond Management by Objective: A Look at Hoshin Kanri Part I & Part II

Thank you, for your interest in Are Your Performance Targets Distracting You From What REALLY Matters?.
Wallace Stump
Contributor: Wallace Stump