1.5 performance measurement promotes effective management

Effective management is based on a foundation of effective measurement, and almost everything else is based on that. Bain & Company director emeritus and customer loyalty expert Frederick Reichheld unequivocally put it this way: ‘‘Measurement systems create the basis for effective management.’’

Measurement determines what management does, and it works — through management — to touch every part of the organization, including compensation and rewards.

Organizations are conglomerations of many systems. Measurement is actually the most fundamental system of all. When the ‘‘measurement system’’ works well, management tends to manage (and reward) the right things — and the desired results will occur. The measurement system — for good or ill — triggers virtually everything that happens in an organization, both strategic and tactical. This is because all the other organizational systems are ultimately based on what the measurement system is telling the other systems to do. Unfortunately, as we will see, most organizations do not have one integrated measurement system, but rather many measurement systems located in functional ‘‘silos’’ and not well interconnected.

I am continually amazed how many leaders pursue the wrong things — and it almost always comes down to what is being measured. The wrong measures tend to trigger the wrong activities — because they represent what people ‘‘see.’’ Then these wrong activities generate the wrong results — no matter how well-executed the activities are. Most individuals and organizations don’t get what they want because they don’t measure what they really want!

If your measurements are out-of-whack, everything else will be as well. This is a real problem, because no organization can be any better than its measurement system. Here is just a small sample of bad things that happen to good companies that don’t measure well:

• Strategy isn’t well executed, because managers and employees don’t know what the strategy means for their jobs.
• Operational performance can’t be appropriately managed, because management becomes (at best) a set of educated guesses.
• Priorities are vague and conflicting, and goals can’t be set because goals require the right measures.
• People don’t understand what’s expected of them, and when they do figure it out, it’s often too late.
• Managers don’t really know how well their functions, their people, and their initiatives are performing. There’s frenetic behavior, lots of activity, but little seems to get accomplished, and nobody really knows what is paying off, and what isn’t.
• There are Herculean efforts at problem-solving and performance improvement, but problems don’t really get solved and nobody really knows which improvements are working or what caused the problem in the first place.
• The wrong things are rewarded, and the things that should be rewarded are not.

Do any of these symptoms sound familiar? Nothing is more frustrating and futile to observe than the chaos and waste that proliferates in a poorly measured organization.