Overcoming Skepticism In Performance Measurement Hci April 14, 2011 Final

Overcoming Skepticism in Performance Measurement

Dean Spitzer, Ph.D.President

Dean R. Spitzer & Associates Inc.

Human Capital Institute WebinarApril 14, 2011

© 2011 Dean R. Spitzer & Associates, Inc.

Let me introduce myself… I an organizational psychologist, business transformation consultant, and learning innovator with 40 years of experience in consulting, teaching, and research;

I am internationally recognized as an expert in many areas of organizational improvement, including organizational change, service design, service quality, performance measurement/management, human resource development, knowledge management, leadership, motivation, service quality, and other areas;

I am certified as a Performance Technologist and a Business Transformation Consultant;

I have been a professor at 5 universities; worked at several other Fortune 100 companies, including more than 12 years with IBM Corporation; I consulted with more than 50 other companies;

I have published 8 books and more than 200 articles; I have managed and successfully completed over 200

successful performance improvement and organizational change projects with public and private organizations throughout the world;

I have presented more than 100 keynotes, featured presentations, and workshops at professional conferences and meetings on five continents; I am passionate about, and committed to, knowledge sharing and collaboration

Hi! My name is Dean Spitzer. I am currently President of Dean R. Spitzer & Associates, Inc.

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Two Primary HR Challenges

“HR executives must meet two primary challenges if they wish to get and keep ‘a seat at the table’ when business decisions are made. The first is to support the organization’s business strategy more effectively…The second is to provide HR services more efficiently.”

[“How HR Leaders are Getting and Keeping a Seat at the Table,” Sibson Perspectives, January 2005]

An incredible HR opportunity: There are so many vital organizational issues that ‘fall between the cracks’


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Major HR Challenges

1. Organizational Effectiveness2. Change Management3. Compensation and Rewards4. HR Effectiveness Measurement5. Leadership Development6. Staffing

Recruitment Retention Succession planning

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Survey of Global HR Challenges: Yesterday, Today & Tomorrow, PriceWaterhouseCoopers, 2005


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You get what you measure,because what you measure is what you manage and reward

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No matter what is said, measurement and rewards tell people what the organization thinks is really important!


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Performance Management Model

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Expectations

Employee•Capacity•Knowledge & Skills•Attitudes & Motivation

Consequences• Positive• Negative

Work Process

Feedback

Performance Measurement

Resources Constraints


Strategy-Aligned Performance Management

Derive Value Drivers from

Strategy

Identify Strategic Measures

Identify strategy- aligned

Operational Measures

Continually test for strategic and operational alignment

Identify Performance

Targets

Develop Incentive Plans

Revise (as needed)

Business Strategy

Ongoing Performance Management

Operational Plans


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Management is based on measurement, and all other organizational systems are dependent on the measurement system

No organization can be any better than its measurement system

SalesResearch &

Development Production

Marketing

Customer Service

Quality

Logistics

Human Resources & Training

Management

Measurement

Compensation & Rewards Results

SalesResearch &

Development Production

Marketing

Customer Service

Quality

Logistics

Human Resources & Training

Management

Measurement

Compensation & Rewards Results

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Effective measurement serves many vital functions, including: Drives performance Clarifies expectations Focuses attention on what is most important Promotes accountability Is the basis of rewards (and punishment) Increases the visibility of performance Forges increased strategic agreement and alignment Increases the holistic perspective at all levels Provides timely early-warning signals and facilitates prompt and appropriate corrective actions

Increases the frequency and accuracy of feedback Motivates improvement Increases objectivity and the perception of fairness

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Performance measurement is powerful!"Measurement always improves performance." [Buckingham & Coffman, First, Break All the Rules, p. 236]

"...everything that is measured improves." [Scheuring, Handbook of Performance Measurement, p. 2-6.13]

"Good data, properly distributed, transform organizations." [Whitely, The Customer-Driven Company, p. 175]

"Measures have great power, almost like genetic code, to shape action and performance...Change the measures, and you change the organism." [Epstein & Birchard, Counting What Counts, p. 145]

"Most often when we see illogical behavior, the fault is in the measurement system, not in the employees." [Brian Joiner, Fourth Generation Management, p. 242]

"Changing the way we measure changes everything." [Meador, The Dance of Change, p. 299]

"An organization's measurement system strongly affects the behavior of people both inside and outside the organization." [Kaplan & Norton, The Balanced Scorecard, p. 21]

"The essence of a corporate culture is the firm's measurement system." [Strassman, The Business Value of Computers, p. 73]

"The mere action of defining measures of success will change behavior positively or otherwise." [Thorp, The Information Paradox, p. 164]

"Metrics are to a business what the five senses are to humans - systems of feedback that improve our capacity to adapt and excel over the long run." [Kiuchi, "What We Learned in the Rainforest," Barrett-Koehler, 2002, pp. 152-153]

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Measurement is ubiquitous and intuitive

We spend a lot of time every day measuring things. In fact, we are almost always measuring things: dates, time, size, weight, speed, temperature…and the list goes on and on. In our personal lives, we spend a lot of time every day measuring things. At work, there is even more measurement.

Some form of measurement is involved in almost everything we do in life, even if we aren't explicitly aware of it. Consider some common examples of measurement tools and indicators:

Time and date measurement (e.g., calendars and clocks)Weather measurement (e.g., forecasts, temperature, wind speed and direction, humidity, barometric pressure)Geographical measurement (e.g., location, distance, and direction)Medical vital signs (e.g., body temperature, pulse, blood pressure, etc.)Financial measurement (e.g., currency, paychecks, checkbooks, budgets, investments)Consumer measurement (e.g., prices, size and weight, quality measures)Political measurement (e.g., election results, voter attitudes, campaign financing) Sports measurement (e.g., scores and individual and team statistics)Academic measurement (e.g., grades, competencies, credentials)Transportation measurement (e.g., speedometer, odometer, altimeter, fuel gauge, warning lights)

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Type text

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Unfortunately, most performance measurement systems are in poor shape

"Only 35 percent of respondents rated their performance measurement systems as effective or very effective." [American Institute of Certified Public Accountants, Performance Measurement Survey]

"…a recent study found that only 29 percent of the interviewed executives said they would bet their job on the measures of customer satisfaction they had available to them; only 16 percent said they would bet their job on the measures they had of employee performance." [Resolving the Measurement Paradox]

"…most executives today are making do with inherited and outdated measurement systems that warp and distort their business strategies." [Frederick Reichheld, The Metaphysics of Measurement, Bain & Company Essay #2]

"…as you move down in the organization, you will find that often over 50 percent of the metrics being used have little relevance to company results." [Amir Hartman, Ruthless Execution, FT Prentice-Hall, 2003]


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Budgeting

Sales

Operations

Customer Service

Human Resources

Marketing

Finance

Learning

One of the biggest problems in organizations is lack of alignment among ‘measurement systems’

Organizations with poor performance measurement will be poorly aligned, with functions pursuing their own self-interest and often working at cross-purposes

ProjectManagement

InformationTechnology

Not only don’t most organizations have a single integrated measurement system, but the disparate measurement systems don’t even communicate!


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In most organizations, financial measures are the only organization-wide ones

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“The CFO is the shadow CEO.” – corporate executive


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Most organizations are drowning in data


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Measurement in most organizations is a mess!

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In The Agenda, Michael Hammer puts it this way: “A company's measurement systems typically deliver a blizzard of nearly meaningless data that quantifies

practically everything in sight, no matter how unimportant; that is devoid of any particular rhyme or reason;

that is so voluminous as to be unusable; that is delivered so late as to be virtually useless;

and that then languishes in printouts and briefing books, without being put to any significant purpose....

In short, measurement is a mess."

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Measuring the wrong things

Measuring `looking good,' rather than `being good’

Measuring too much

Sub-optimization (measuring in functional silos)

Cheating/gaming

Using measurements to set targets and make judgments without adequate knowledge of the system

Unfortunately, bad measurement practices proliferate in almost every organization

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On a personal level, how people “experience” measurement is the key to how they will respond to it

For most people measurement is viewed as, at best, boring busywork; at worst, it's seen as the antecedent to negative consequences. However a few "get it" and use the power of measurement to excel

"I could hardly pass math in elementary school!"

It's true! You doget what you

measure!

Around here, measurement means accountability, and

accountability means punishment!




measure!



“Confused” “Threatened”

“Gamer”




measure!






measure!



“Confused” “Threatened”

“Gamer”

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So much measurement is being used to for self-serving purposes

"Most often when we see illogical behavior, the fault is in the measurement system, not in the employees." [Brian Joiner, quality expert and author]

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An auto industry financial analyst said she spent 75% of her time finding ways to justify decisions that had already been made.


Some common examples of ‘measurement dysfunctions’

Measurement of cost leading to poor quality Measurement of errors leading to less innovation Measurement of call time leading to poor customer

service Measurement of individual achievement leading to less

collaboration Measurement of profits leading to expense deferrals Measurement of headcount leading to costly and

ineffective use of temporary and contract labor Measurement of productivity actually measuring how

much of the wrong things people can produce Measurement of everything related to production,

except the delivery to customers

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You get what you measure, so make sure you’re measuring the right things!

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Measurement System

Measurement is imperfect

Flaws

Flaws Flaws

Flaws Flaws

OpportunityMotive

Manipulation = f (Opportunity, Motive)

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It is easy to manipulate measurement (and too often the organization doesn’t really want to know the truth).


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Most measurement is perceived as a negative force

Traditional Measurement

Monitoring

Reporting

Control

Justifying

Judging

Triggering rewards/punishment

Negative accountability

Positive Measurement

Visibility

Communication

Feedback

Understanding

Prediction

Learning

Improvement

Positive accountability

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"Many measurement practices and systems signal distrust through their emphasis on monitoring and control." - Jeffrey Pfeffer


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No wonder there is a great deal of fear and skepticism about performance measurement!

• Used against us from a very early age• Parental measurement• Measurement in school• Measurement in the community• Measurement at work

• Perceived as manipulative• Causes a fixation on what is being rewarded• Induces fear• Used primarily to monitor and control• Focused on the past (retrospective)• Rarely used for purposes that are perceived as positive

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Most people don’t even want to be involved in measurement

Too difficult, time-consuming, and tedious. (“It’s too much work.” “It’s

boring.” “By the time we do the measurement, the data is obsolete.”);

It’s someone else’s job. (“I just leave it to the accountants and other

specialists.”);

Lack of understanding (“It makes me feel stupid.” “I don’t know what to

do with the data.”);

Lack of resources (“I can’t do everything!”);

Bad experiences (“It’s been used against me.” “We already did it, and it

didn’t work.” “It’s used unfairly.”);

Lack of confidence (“I don’t trust the data.” “It’s too subjective.” “It’s too

political; people just use the numbers they want.”);

Lack of involvement (“Why should I do it? Nobody wants my input.”).

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Measurement tends to be threatening and is resistant to change

Self-Actualization

Esteem

Belonging

Safety

Physiological

Self-Actualization

Esteem

Belonging

Safety

Physiological

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“Measurement is one of the most sensitive issues in any organization.” - Eliyahu Goldratt

“Why would I want to change the measurement system that has rewarded me so richly?” - IBM Vice President


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The confusion between ‘measurement’ and ‘evaluation’ causes particularly big problems

Measurement

Evaluation (Judgment)e-value-ation

Action

Too often evaluation and its consequences prevent learning from measurement

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Very poor measurement underlies most performance ratings Most employees do not trust performance appraisals…and

actually hate them. Deming called performance appraisal one of “the deadly

diseases of management.” The system that people work in may account for 90 or 95

percent of performance and yet performance appraisal only considers the individual.

Only 29 percent of employees feel that they are adequately recognized for good performance. (Mercer Management Consulting)

“The only way to prevent teamicide is to simply give everyone on your team a gushing review. But, if you do have any choice in the matter, I'd recommend that you run fleeing from any kind of performance review, incentive bonus, or stupid corporate employee-of-the-month program.” - Joe Spolsky

Performance Appraisal

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Understand what measurement is actually saying

Measurement A

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Time Interval

Un

its

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The purpose of measurement is to assist in making more effective decisions and creating knowledge and wisdom

Take Action

Decide

Interpret

Analyze

Select

Collect

Review

Commit

Plan

Learning about, and from, measurement is crucial to increasing organizational intelligence


Measurement can be used negatively or positively

Measurement should facilitate improvement; it shouldn’t be about absolute performance.

Take the threat out of measurement, and amazing things can happen!

Unfortunately, most people have a lot of experience with the “negative side” of measurement.

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Both participants and spectators love measurement in sports and games.

Measurement at work is often perceived negatively.


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The “Context of Measurement” makes all the difference and it is as important as the measurement itself

Measurement System • Measures• Measurement process• Technical infrastructure

MeasurementLeadership

MeasurementResources

History ofMeasurement

MeasurementConstraints

MeasurementCommunications

OrganizationalClimate

Measurement Expectations

People• Attitudes• Motivation• Capabilities

CONTEXT OF MEASUREMENT

Measurement System • Measures• Measurement process• Technical infrastructure

MeasurementLeadership

MeasurementResources

History ofMeasurement

MeasurementConstraints

MeasurementCommunications

OrganizationalClimate

Measurement Expectations

People• Attitudes• Motivation• Capabilities

CONTEXT OF MEASUREMENT

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© 2011 Dean R. Spitzer & Associates, Inc.33

There is a serious “measurement leadership” gap

Who is currently leading measurement in your organization?Who are the key measurement stakeholders in your organization who can become “measurement leaders”?

Improving measurement is one of the highest leverage things any organization can do.


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Types of measurement

Informational measurement: When measurement is used as a source of information for organizational members to improve management and the work being done, it is enormously valuable

Motivational measurement: However, when measures are tightly linked with rewards or the threat of punishment, the informational value of measurement becomes subordinated to its use for inducing people to do specific things

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Danger of Rewards

‘Extrinsic’ Rewards can:

Be manipulative

Destroy cooperation

Ignore complexity and blindly promote simplistic behavior

Discourage risk taking and creativity

Undermine interest and intrinsic motivation

Become entitlements and ‘takeaways’ if not given

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Alfie Kohn, “Punished by Rewards: The Trouble with Gold Stars, Incentive Plans, A's, Praise, and Other Bribes”


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Rewards also increase the potential for dysfunctional measurement

The greater the rewards and the tighter the linkage, the greater the likelihood for dysfunction

“Many companies are shooting themselves in both feet with their reward systems. They pay on results that are easy to measure rather than the right results.” - Frederick Reichheld

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“In complex human systems, there are always many ways to make things look better in the short-term.” - Peter Senge

“Measuring is a powerful tool. But some things are not easy to measure and may even be impossible to measure directly and the very act of measuring can often cause distortions or unintended side effects. Measures used without due care and consideration can be misleading and dangerous.” – David Gurteen


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Rewards increase the potential for measurement dysfunction (examples)

Vasili Alexeyev, world champion weight lifter Measure rewarded: Number of world records broken Behavior: Increased weight a gram at a time!

Fast-food restaurant manager Measure rewarded: “Chicken efficiency” (the ratio of number of pieces of chicken sold to those thrown away)

Behavior: Waited until customers ordered chicken before cooking it! Training manager

Measure rewarded: Learner satisfaction Behavior: Focused on running enjoyable courses

IT service sales executive Measure rewarded: Sales closed Behavior: Sold ‘solutions’ that could not be delivered at the price

Software developer Measure rewarded: Lines of code Behavior: Produced a lot of code with a lot of errors

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Rewards increase the potential for measurement dysfunction (examples)

Warehouse manager Measure rewarded: Low cost Behavior: Maintained dangerously low inventory of spare parts

Shipping department Measure rewarded: Productivity (pallets loaded) Behavior: Shipped pallets whether the pallet contained 1 or 50 items

Manufacturing company Measure rewarded: Monthly sales volume Behavior: Offered excessively high incentives to customers

Purchasing department Measure rewarded: Price discounts Behavior: Bought unnecessarily large lots

Airline executive Measure rewarded: On-time performance Behavior: Moving planes away from gate to wait on tarmac

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There are many routes to rewards; measurement tells people what they are

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Rewarding the wrong behaviors is the most wasteful thing that any organization can do.


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There are five keys to the effectiveness of rewards

1. Contingent on the right performance

2. High value to the recipient

3. Timely

4. Appropriately presented

5. Perceived as fair

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Make sure you’re rewarding the right things

If You Want… Then Reward… Not…

Profits Profitable sales Any sales revenue

Teamwork Collaboration Individual efforts

Quality Process improvement Lack of defects

Training effectiveness Skills used on the job Course satisfaction

Innovation Creative ideas Conformity

Customer retention Customer loyalty Lack of complaints

Safety Safe behavior Reported accidents

Productivity Acceptable production Total production

Problem Solving Problems found and solved

Problems hidden

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3. Timely



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How to maximize the value of rewards and recognition

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• Personally appropriate• Generationally appropriate

Employee’s feeling of being recognized

Extent to which the reward symbolizes the accomplishment; how memorable

Anticipatory impact,control over behavior

Financial worth of the reward


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3. Timely



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The value of rewards is discounted by delay


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3. Timely



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Most rewards are given impersonally


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3. Timely



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The magnitude of rewards is comparative;unfair rewards & recognition is a major demotivator


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Rewards & Recognition

Rewards and recognition are often dealt with outside of the context of Performance Management

Inadequate attention is given to the importance of measurement You can’t reward and recognize what you don’t measure or

measure well

Rewards and recognition is often done poorly because people think that it’s easy

Doing it well will pay huge dividends – becausewhat you reward is what you’re ultimatelygoing to get and how you reward is going tohave a profound impact on morale

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What To Do

Recognize the difficulty of the challenge of measurement and rewards

Realize that there is no easy answer or quick fix Measurement and rewards are deeply engrained in organizational DNA and are resistant to change

Become more aware of the problems we have discussed relative to measurement and rewards

Be particularly aware of how easy it is for measurement dysfunctions to occur Help your organization understand that measurement and rewards are inextricably linked Identify particularly egregious existing measurement/reward dysfunctions; make them visible Help your organization become more aware of the dangers of allowing those with ‘vested interests’ establish measures

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What To Do (continued)

Estimate the costs of measurement/reward dysfunctions Create a business case for change

Take a holistic “performance management” approach to measurement and rewards View performance holistically and in the overall organizational context

Emphasize the importance of cross-functional alignment Become more of a strategic business partner

Become more knowledgeable about the organizational strategy and value drivers Measure what is most important to the organization as a whole, not just to isolated functions

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HR should fill the “measurement leadership” gap, if no one else steps up to do so

Identify other potential measurement leaders Make measurement leadership part of your leadership development curriculum Obtain senior leadership support for this effort

Be sensitive to employees’ “measurement experience” Be an example of the effective use of measurement and rewards

Use the principles discussed in this presentation in the HR organization

Increase the positive use of measurementUse measurement more for learning and improvementMake performance appraisal more of a feedback and learning process

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Upgrade “measurement literacy” in the organization This might be one of the most important opportunities for HR leadership in the future

Increase the dialogue about measurement and rewards Build learning and dialogue opportunities into the organizational learning schedule

Develop an organizational action plan for improvement

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References

Dean R. Spitzer, Transforming Performance Measurement: Rethinking the Way We Measure and Drive Organizational Success, N.Y.: AMACOM, 2007

Dean R. Spitzer, SuperMotivation: A Blueprint For Energizing Your Organization from Top to Bottom, N.Y.: AMACOM, 1995.

Bob Nelson & Dean R. Spitzer, 1001 Rewards & Recognition Fieldbook, N.Y.: Workman, 2003.

Dean R. Spitzer, “Power Rewards: Rewards That Really Motivate,” Management Review, May 1996.

Dean R. Spitzer, “How to Develop a High-Motivation Compensation System,” Performance & Instruction, October 1995.

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Thank you!Dr. Dean Spitzer

[email protected]

www.deanspitzer.com

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Overcoming Skepticism In Performance Measurement Hci April 14, 2011 Final

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