You probably know that I’ve been involved in performance measurement since the 1970s. Given all the attention that is being paid to this topic today it’s ironic that we don’t seem much closer to a general theory than we were fifty years ago. I believe the problem lies in posing the wrong question. 

In any performance review program the process focuses on what people should be doing and how we can assess or appraise their success in doing it. The assumption is that if everyone does what is on their list of objectives our organization will be successful. To me that is a simplistic view.  Let me explain.

Measurement of anything is grounded in one or more of five elements. They are:

* Cost. What does it cost to do the task or process under study?

* Time. How long is the cycle time from beginning to end of the process?

* Quantity. How much was produced (with a given amount of resource input)?

* Quality. How “good” is the result (did it meet expectations or specifications)?

* Reaction. How do the people involved or touched by this feel about it?

Evaluation of the outcome depends on a combination of the above. In some cases the most important requirement is cost. In other cases it could timeliness or productivity. In the case of services quality and human reaction are usually more important.

In any event, evaluation is dependent on the five elements above just as mathematics is dependent on knowing how to add, subtract, multiply and divide. We can’t solve a math problem at any level from 1 + 1 = 2 all the way to the most abstract calculus exercise without those fundamentals. However, answering any of the five elements above obviously has not helped us solve the performance appraisal or assessment conundrum.

As is often the case when we can’t seem to find the answer to our problem we have ignored the more important issue. The ultimate point of evaluation is not to measure what happened. It is to find out what difference the performance made. Performance measurement programs seldom do that. As I said above, the assumption is that if people do what they are charged with doing, we will achieve our organization’s goals. In effect, what we are assessing is activity and internal results. However, success depends on what external effects these internal actions have caused.

Take a simple case such as recruitment. Which element is more or most important? Is it average cost per hire, time to fill requisitions, number of requisitions filled or how well the new hires matched the requisition specifications? The answer is of course, It depends. It depends on which outcomes have the greatest effect on the organization in the either the short term or the long term.

Here is a real case. A company hired the best college grads available. All the kids had SATs and GPAs in the stratosphere. Yet, within two years almost all of them quit. The company didn’t have the type of product that interested these brainiacs. What difference does it make what level of talent we hire? Are the people we’re hiring the right types for our product/service line?

Here is another. A retailer wanted to be more competitive by improving its customer service. It spent millions on training. Still, it didn’t gain market share. Why? Because it rewarded store managers for inventory management; always having shelves fully stocked. That came from their old model of low cost efficient operations. While that is a good idea and does help service, it’s not the key to superior customer service and high level satisfaction. But what gets rewarded gets done. The managers were still thinking low cost and didn’t ensure that they were properly staffed during peak hours. As a result, there wasn’t enough staff to serve customers. 

In order to answer the, What Difference Does It Make?, question we have to go beyond measuring activity and internal results. We need to do an analysis of which internal conditions make the most difference in the marketplace. Enter predictive analytics. Yesterday’s models usually won’t serve today’s imperatives.

Some people will say, we know what is right based on our many years of experience in the business and in this industry. I had a prospective client approach me to advise them on the development of a new management model; one that would be appropriate for the next decade. To make a very long and uncomfortable story short they insisted on using the profile of past successful managers as their example of what the new, future manager should look like. Suffice to say, I didn’t take the assignment and two years later their sales and employee retention figures were both going in the wrong direction.

If you want to stimulate and reward top performance turn around and look outside. Granted, we certainly have to do our jobs well to improve our organizations. But more importantly, we have to serve the market, make a difference there, if we want to be competitive.