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Abolishing the myths

Myths surrounding performance management are limiting the effectiveness of key performance indicators in business says David Parmenter, who sets out the facts.

I have been working with businesses to improve performance measures for over 20 years, and in that time I have seen minimal encouraging progress.

For many businesses, deriving measures is often viewed as an afterthought; they are regarded as something we fill into a box to say we have achieved a goal.

But key performance indicators (KPIs) exist for a higher purpose: helping align the staff’s daily actions to the organisation’s critical success factors (CSFs). Here, I address the myths that influence our thinking about performance measurement and, of course, KPIs in our organisation. In a subsequent article I will talk about a radical treatment to cure KPIs.

In order to get KPIs to work, we need to challenge the myths they have been built upon. Consider these five myths of performance measurement:

  1. Most measures lead to better performance.
  2. All measures can work successfully in any organisation, at any time.
  3. All performance measures are KPIs.
  4. By tying KPIs to pay you will increase performance.
  5. There is a need to set annual targets.

Measurement initiatives are often cobbled together without the knowledge of the organisation’s critical success factors and without an understanding of its behavioural consequences. It is a myth of performance measurement that most measures lead to better performance.

Every performance measure can have a dark side, a negative consequence, an unintended action that leads to inferior performance.

This is an abstract from an article which first appeared in Finance & Management Faculty magazine issue 212 July/August 2013.

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