The seven pitfalls of performance measurement

Managers who measure performance often encounter similar problems during each phase of the process. The following article, taken from our Harvard ManageMentor service, outlines seven pitfalls to avoid.

Confusion over number of metrics

Avoid relying on just one metric to measure your group’s overall performance. Also resist any urge to create a long list of metrics to measure everything you can think of that relates to your group’s performance. The goal is to identify the activities that will have the greatest direct impact on your group’s performance—and develop metrics for those activities.

If you’ve defined three or four major objectives for your group, each of those will likely be translated into two or three critical success factors. Each CSF, in turn, will be translated into one or more performance metrics. Thus, four objectives may ultimately translate into as many as 24 metrics. If the number of metrics grows much larger than this, you’ll expend too much energy tracking data and will lose the big picture.

Unaligned metrics

Ensure that the objectives and metrics you define support your company’s and unit’s strategic goals. Too many managers decide to measure aspects of their group’s performance that have little connection to higher-level goals.

For example, a call-centre manager might take a keen interest in his group’s ability to process customer phone calls quickly. The manager tells his employees that he’s measuring how quickly they process and complete calls—and bases their performance evaluations on this metric. You can be certain that employees will work hard to get callers off the line promptly. But if the company has defined a strategy involving cross-selling, hustling callers off the phone as fast as possible could easily undermine the corporate strategy.

Overly aggressive targets

It’s tempting to think that setting aggressive stretch targets for your metrics will get your employees’ competitive juices flowing and generate unprecedented performance. While that’s a possibility, aggressive targets can also demoralise your employees if they lack the resources to meet the targets and if they view the targets as unreachable and unrealistic. You want to set targets high enough to inspire your direct reports to reach for better performance—but not so high that employees conclude they can’t possibly reach them.

Setting overly aggressive targets can backfire in another way—by motivating unethical, possibly even illegal, behaviour. For example, in America, tough sales and revenue targets have led to serious problems in the insurance industry, resulting in a federal investigation of company practices.

Risk of manipulation of performance data

A company’s or unit’s selection of metrics can sometimes lead managers to ‘game’ the system so as to meet the targeted performance. For example, consider a car company that aims to be ‘the best-rated customer service car company in the industry’. This company will have metrics related to customer satisfaction, customer loyalty, and the number of customer complaints.

New-car salespeople who work in this company know that their compensation depends on what customers write in the feedback forms that corporate headquarters sends them after a sale. Immediately upon closing a deal, salespeople may coach the customer on how to fill out the form. They may even appeal to the customer’s compassion: ‘My income depends on what you say on the form. I hope you’ll help me.’ Result? Annoyed customers who feel manipulated by desperate salespeople—and a lack of valid feedback to the company about its salespeople’s performance.

Here are additional examples: Your direct reports (or even your peers in other departments) may purposely low-ball targets so they can easily exceed them and get bonus compensation and recognition. Or a sales team leader may exaggerate the tough selling environment so you’ll set low sales targets and he can look like a star performer without having to work too hard.

The lesson here is that measurement systems can change employees’ behaviours—sometimes in ways a company never intended! Avoid this scenario in your own group by making sure to do the following before you set targets:

• Take time to find out how your people might be altering their behaviours in order to meet targets you’ve set for the performance metrics you’re using.
• Consider whether these behaviour changes might be causing unintended—and unwanted—consequences for your group and your company.
• If you ask some of your direct reports to provide input on target setting, try to verify the rationale behind their suggestions. Don’t just take them at their word; ask them what sources they’re using to form their opinions about targets, and verify the reliability of those sources.

Difficulty validating your data

Validating data means assessing their accuracy and reliability. Some data—such as revenues or expenses—are easily validated because they’re objective and regularly audited. For example, you can tabulate invoices generated by your group to determine whether the revenue figures for your group are correct. Or you can review accounts payable figures to judge the accuracy of expense information. Data provided by outside sources—such as organisations that track companies’ market share—can also be considered valid.

Other data are more difficult to validate. Consider employee morale, a new product’s innovativeness, and customer satisfaction. Such things may be important indicators of your group’s performance. But how reliable are the data you gather on these metrics? Because such data are subjective, they can be easily manipulated by individuals seeking to make their performance look better than it really is—as explained in the above car salesperson example.

Still, subjective data are important. In fact, leading indicators are often predominantly subjective (customer surveys and employee morale, for example), and are valuable because they can help your organisation proactively manage performance. However, avoid relying on just one subjective metric as the indicator for a critical success factor. A single subjective metric won’t give you a comprehensive enough picture of what’s going on.

Inappropriate responses to performance shortfalls

When you see actual performance data that falls far short of your target performance, avoid the following inappropriate responses:

• Knee-jerk interventions. Don’t overreact to every performance shortfall. You might intervene too quickly—such as by firing someone, or launching a large-scale, expensive change initiative that doesn’t address the real reasons behind the shortfall. Instead, take time to investigate what may have caused the performance shortfall and to consider a range of possible solutions to the problem.
• Lowering your targets. The simplest way to close gaps between targeted and actual performance is to lower your targets so they’re easier to reach next time around. But that approach misses the point of performance measurement. Sometimes a target may in fact be too aggressive and merit revision. But in other cases, the more appropriate response is to identify reasonable changes in processes, organisational structures, and other aspects of your group to bring actual performance up to targeted performance.

Failure to regularly reassess your objectives and measures

Things change. The economy shifts. New competitors emerge. Your company or unit modifies its strategy. Your customer base changes. Technology advances. What was significant to your company’s success three years ago may no longer be significant today.

Your performance objectives and metrics need to be relevant to current business conditions, yet you also want to keep metrics as consistent as possible over time so you can compare historical performance. The solution? Regularly assess changes in your external and internal environment. And strive to maintain a balance: keep objectives and metrics consistent where possible and appropriate, modifying them only if necessary to reflect changing realities.

Avoiding the pitfalls described above is critical to measuring your group’s performance accurately. When you collect data that truly reflect what’s going on in your group, you can manage your own and your employees’ performance more effectively. In another performance measurement, Core Concept in HMM, you’ll find an example of how one manager moved from measuring to managing performance.


This article was taken from CIMA’s comprehensive database of training information, Harvard ManageMentor. HMM is available to members in the CPD Solutions section of the website. HMM has much more on performance measurement and many other areas of development.

September 2006