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The Future Of Performance Measurement

Wednesday 12 January, 2005
Today the problem is not that the wrong things are being measured, but that too much is being measured. Executives appear to be obsessed with quantification.

The list of things that would be nice to measure – in even a moderately sized business - is endless! And the result, in many cases, is that organisations fall into the trap of simply trying to measure too much. This issue is becoming such a significant one that some executives are now starting to question what value they are getting from their organisation’s measurement systems. These questions become even more frantic when the executives concerned think about how much their organisation’s measurement systems cost them to run.

Of course, just because you spend a lot on something does not mean that it is not worthwhile. The current spend on measurement, does not mean that organisations should stop or trim back their measurement initiatives. But it does mean that they should think carefully about how they can best utilise their measurement systems to ensure that they deliver maximum value. And it is to this issue – how to make measurement pay - that we will now turn our attention.

Making measurement pay

If you review recent writing and efforts in the field of performance measurement it becomes clear that significant effort has been devoted to improving measurement methodologies. People have sought and developed new methods of measuring financial performance – activity based costing, activity based management, economic profit, free cash flow analysis and shareholder value analysis – and new frameworks to balance financial and non-financial measures – the Balanced Scorecard and the Performance Prism.

Research has focused on how to design and implement such methodologies and frameworks. How do you decide which measures to use? How do you access the necessary data? How do you measure the softer dimensions of performance, such intangible assets and/or intellectual capital? How do you overcome the social, political and cultural barriers associated with performance measurement? How do you align measures with strategy? How do you ensure measures encourage appropriate behaviors?

Clearly these topics are important, but as we enhance our understanding of them we need to broaden the agenda and ask explicitly how do we make measurement pay. More specifically I believe we should:


  • Think in terms of performance planning not performance reviews

    In most organisations measurement forms the basis of performance reviews, which are historic or backward looking in nature and – either implicitly or explicitly – designed to put people on the defensive.

    I recently had the opportunity to evaluate a performance review presentation that someone in a large oil major had put together for the next board meeting. The presentation, which consisted of over twenty slides was scheduled to take half an hour, but basically said “everything in my area is fine”. Having reviewed the slides I asked the simple question – “if everything is fine, then why can’t you stand up, say everything is fine and then sit down again? That way you’ll only spend 30 seconds on this subject and the meeting can finish half an hour early, or alternatively the spare time can be devoted to a topic that needs it”. The response was one of horror– “We can’t possibly do that– we never do that”–

    Why? Why is it that in performance reviews people spend most of their time justifying why performance is as it is? They come to the review armed to teeth with excuses that explain why they are where they are. “We are only at 70% of our target because our suppliers let us down, or our customers have not yet confirmed their orders, or our competitors have introduced a new product”.

    Such discussions, which focus on why we are where we are, are irrelevant, or at least relatively unimportant in comparison to those discussions that focus on how we are going to get to where we want to be. But discussions about how we are going to get to where we want to be are not performance reviews they are performance planning sessions. They require executive teams to understand the reasons why performance is as it is and then focus on how they are going to make progress. Excuses become irrelevant. What matters in performance planning sessions is how we are going to deliver.
  • Ask for answers not for data

    Why do people get sucked into performance reviews rather than performance planning sessions? A significant reason is that far too often the meetings themselves are structured as performance reviews. Far too often we simply present raw performance data to executives and expect them to analyse it there and then. You would never conduct a scientific experiment that way. You never make a presentation to an audience without first analysing the data and understanding the messages it contains. Yet far too often in performance reviews we do. We give people figures on profitability by customer segment. We give them figures on absenteeism levels. We give them figures on productivity. But nobody in advance has been through the data and extracted the insights from it.

    David Coles, the Managing Director of DHL UK, used an excellent phrase to describe this in a recent presentation - “numerical crosswords”. He explained to the audience how his board used to spend all of their time at performance reviews trying to join up the pieces of the numerical jigsaw that they were presented with. Individual directors would be looking at performance report trying to draw spurious correlations between different events to offer explanations for unusual observations. When they realised this was what they were doing DHL UK, decided to change the structure of their board meetings and define specific questions that they want answer prior to them.

    They now ask their performance analysts to come to the board meeting armed not with raw data, not with excuses, but instead presentations which address questions of fundamental concern to the board – e.g. are we going to hit budget this year, how are our customers feeling, how are our employees feeling. The analysts role at the board meeting is to present their answer to the question. The board’s role is to probe the quality of the analysis and once they are comfortable with it decide what they are going to do to move performance in the desired direction.

    In changing the structure of their board meetings the board of DHL UK has been able to eliminate the defensive behaviours associated with performance reviews and encourage the creative dialogue associated with performance planning.
  • Build the capability of performance analysts

    In adopting this new structure and format DHL recognised that they had to upgrade the skills of their performance analysts. But at least DHL had performance analysts. Many organisations do not and in these cases they need to appoint them. These performance analysts need not only to be able to manipulate performance data, but also interpret it and present it in a way that engages and provides insight to others.

    Research being undertaken in the Centre for Business Performance into this issue has resulted in the development of a concept we are calling 'The Performance Planning Value Chain', which effectively encapsulates a systematic process for extracting insights from performance data.

    The analogy underpinning 'The Performance Planning Value Chain' is that of a journalist. If you think about what a journalist does when presenting a story he or she is very careful to identify the “hook”, or headline that will capture the reader’s attention and then flush out the detail in the small print. Rarely do we do this with performance reports. Rarely do we ask our performance analysts to tell us the headline. In fact, rarely do we ask our performance analysts really to analyse data. Instead we expect them to spend all of their time pulling, collecting and collating data.

    This issue becomes even more important when the focus of measurement is shifted to systems not functions. The reality of organisations, as every executive knows, is that they consist of complex inter-dependencies.

    Marketing relies on Operations. Operations relies on Human Resources. Human Resources relies on Finance, etc. Yet when it comes to measurement we often ignore these inter-dependencies. Marketing looks at the marketing and customer satisfaction data. Human resources looks at the people data. Operations looks at the operational data, etc. It is as if we have functionalised measurement, just as we have functionalised everything else in organisations. Yet the functionalisation of measurement is a mistake.

    If there is a downturn in employee satisfaction, everyone assumes this will have an adverse impact on customer service. If the operation becomes too inefficient everyone knows this will impact the financial results. The reality of organisations is that the activities being undertaken in different parts of them interact and we have to recognise this interaction if we are to get the most from our measurement data. Rather than operating in functional silos we need to use our measurement data to understand the big picture, the big story of what is happening inside the organisation. And this requires us to equip performance analysts with the skills needed to cope with understanding this complexity.


To date the field of performance measurement has focused on two specific issues – (i) designing measurement systems and (ii) implementing measurement systems.

The first stream of work is concerned with making choices about what to measure, how to measure it, what frameworks to use, etc. The second stream of work is concerned with overcoming the political, social and cultural barriers associated with measurement, as well as the technical ones. These two streams of work are clearly important, for unless they are addressed, it is impossible to develop and implement a robust measurement system. But I believe that we now know how to address these issues. You can hire consultants and attend courses designed to help you through these minefields. The problem is that measurement is worth nothing unless it is acted upon – unless we move into the world of managing through measurement.

Author Credits

Professor Andy Neely is Director of the Centre for Business Performance at Cranfield School of Management and Managing Partner of The Performance Practice, a consultancy specialising in performance measurement and management. He has been working in the field of performance measurement since the late 1980s and is widely recognised as one of the world’s leading authorities on the subject. Many of themes explored in this article are also discussed in his most recent book - “The Performance Prism: The Scorecard for Measuring and Managing Business Success”, published by Financial Times/Prentice Hall in May 1992. For further details on the work of the Centre for Business Performance, visit: www.cranfield.ac.uk/som/cbp
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