Summary by James R. Martin, Ph.D., CMA
Professor Emeritus, University of South Florida
Ridgway begins by saying that quantitative performance measurements are useful tools, but indiscriminate use and undue confidence and reliance on them results because of inadequate knowledge related to the effects and consequences of their use. He discusses cases where all quantitative performance measurements, including single measurements, multiple measurements and composite measurements, have caused undesirable consequences for the over-all organization performance.
Some of the single measurement problems mentioned include:
1. A case where public employment interviewers were evaluated based on the number of interviews. This caused the interviewers to conduct fast interviews, but very few job applicants were placed.
2. A situation where investigators in a law enforcement agency were given a quota of eight cases per month. At the end of the month investigators picked easy fast cases to meet their quota. Some more urgent, but more difficult cases were delayed or ignored.
3. A manufacturing example similar to the above situation where a production quota caused managers to work on all the easy orders towards the end of the month, ignoring the sequence in which the orders were received.
4. Another case involved emphasis on setting monthly production records. This caused production managers to neglect repairs and maintenance.
5. Standard costing is mentioned as a frequent source of problems where managers are motivated to spend a considerable amount of time and energy debating about how indirect cost should be allocated and attempting to explain the differences between the actual and standard costs.
All of the measurements mentioned above motivate effort, but in these cases the effort was wasted or detrimental to the organization.
Ridgway points out that multiple measurements have been recommended by many authors. For example, Peter Drucker listed the following measurements in his 1954 book, The Practice of Management: Market standing, innovation, productivity, physical and financial resources, profitability, management performance and development, worker performance and attitude, and public responsibility. Drucker used the term "balanced stress on objectives" to make his point that multiple measurements were needed.
The problem with multiple measurements, according to Ridgway, is that the individual is forced to judge whether an increase in effort to improve one area of performance will improve the overall performance, or reduce the performance in some other area to more than offset the improvement in the first area.
Composite measurements are where the separate quantities related to a set of measurements are weighted in some way and then added or averaged. There has to be an explicit weighting of the various criteria. One potential advantage of a composite measurement over multiple measurements is that with multiple criteria, pressure to improve one area might be relieved by reducing effort on some other criteria. A composite measurement tends to reduce the motivation to reduce effort in one area to improve another area of performance.
Ridgway discusses two situations where composite measurements were used. One example involved a composite measurement used by the American Institute of Management to evaluate and rank the managements of corporations. He did not mention any problems with this case, but these measurements were external to the company's involved.
Another composite measurement used by the Air Force is said to have caused tension, role and value conflicts, reduced morale, inter-crew antagonism, communication distortions and various other problems. Ridgway makes the point that even composite measurements tend to cause undesirable consequences for the overall organizational performance. He sums up by saying that the motivational and behavioral consequences of performance measurements is inadequately understood and recommends more research so that behavior may be oriented towards the organization's goals.
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