ARTICLE REVIEW:

THE 5 TRAPS OF PERFORMANCE

MEASUREMENT
Group 8 - Sec E
Diwakar Kumar (2014PGP114)
Harshad Sachani (2014PGP131)
Kiran S (2014PGP164)
Milind Kumar Naik (2014PGP203)
Navneet Naveen (IPM2011055)
Ragasudha (2014PGP188)
Sanchit Garg (2014PGP322)

INTRODUCTION

In the article, The Five Traps of Performance

Measurement, the author talks about what are
the most common traps in measuring performance
and how some old organizations have managed to
avoid them

It also states how executives can effectively

measure the performance of the organization

TRAP ONE
Trap: Looking solely at companys Y-o-Y performance and
creating a judgment

Companies often make the mistake of measuring their performance

by looking only at themselves

It is important to measure how well you are doing against your

competitors

The difficulty lies in finding out relevant data for comparison in real
time

One way is to ask customers

E.g. Enterprise, a car-rental firm, uses an index to measure

customer repeat purchase intentions. They randomly call up
customers and take their feedback to estimate the index value

Another way to get data is to go to external professionals outside

the organization

TRAP TWO
Trap: Focusing on the past numbers and trying
last years numbers

to

beat

A performance measurement system should assess the decisions

based on their viability in achieving future profits

Companies need to look for measures that lead business ahead

rather than those that had lagged in the past

E.g. U.S. Health Insurer, Humana, outperformed its rivals on

saving expenses by offering incentives for screening based on its
past analysis that sickest 10% population accounted for 80%
costs

Other vital factors here are quality of managerial decision making,

companys presentation in official communication and competitor
analysis for best practices

Companies way of presentation in official communication often

signals the management style of top executives

TRAP THREE
Trap: Putting faith in Numbers

Numbers driven managers often end up producing reams of low

quality data.

Companies ask customers to include personal data and watch

them while customers fill out the forms. This leads to
consistently favorable outcomes.

They often use the measure which is used by others and it may
not fit them.

E.g. Net promoter Score is more relevant to baby food

manufacturer than to an electric supplier.

Issues about employee satisfaction and profitability

Application of financial metrics to nonfinancial activities.

Ex: ROI to evaluate training programs.

TRAP FOUR
Trap: Relying on Metrics to measure performance

Employees can easily manipulate the metrics to swing it the way

they want

Ex: Billable hours

To overcome this problem, companies need to have a large number

of metrics to evaluate performance
E.g. Clifford Chance used seven different metrics

Metrics should have Varying sources and time frames

Meeting budget should not be seen as an indicator to high

performance

TRAP FIVE
Trap: Not changing the metrics with time and
growth

Performance assessment systems depend upon the size and

maturity of the organization. So, it needs to be changed as the
business evolves

Companies need to spot the right metrics at the right stage of

their growth

Companies need to change the metrics depending upon the

external environment