10/24/2017

Six methods to measure performance


Using data to evaluate performance allows incentives to be more closely linked with encouraged behaviors.
In this post:
1.   Three subjective and three objective methods to measure performance.
2.   An actual performance evaluation case based on the 180° feedback survey methodology.
3.   A proposal to evaluate performance more frequently, using objective measures.

If you can't measure it...

Surely you've heard someone say before:
If you can’t measure it, you can’t manage it
Although I fundamentally agree, this quote is falsely attributed to many people, which commonly happens with quotes like this.
As a critical thinking exercise, I'm going to try to get to the bottom of this ultra-famous quote's origin.
The quote is usually attributed to Peter Drucker. If you search in Google Images, you'll find a bunch of photos of Drucker with the quote stuck to him, as if it were coming out of his mouth:

(July 15, 2017) http://bit.ly/2tS0YWO
There's a small problem. Peter Drucker never said it.
The truth is that in my tiny 30-minute search, I wasn't able to find out who said it first. Ed Sekyota appears among the candidates, but the quote I found was from 2003.
This sentence is also attributed to Edwards Deming. The problem here is that Deming said exactly the opposite. His quote is:
It is wrong to suppose that if you can’t measure it, you can’t manage it – a costly myth.
Dr. Deming wrote a lot about the value of using data to help improve managing an organization.
His phrase is really:
In God we trust, all others must bring data.
You can fact check me on the Deming Institute web page: (http://quotes.deming.org/category/data.
Deming also cautioned that you can't measure every important thing, but regardless, you have to manage those "immeasurables."
My search for the origin of this quote ends here. In the post-truth world we live in, its authorship is insignificant compared with the excitement that this unwavering truth fills us with.

Performance measurement

Good performance can be objective (sales, billable hours) or clearly subjective, like 360° surveys.

Subjective performance measurement

Let's look at the most important methods.

1. 360° surveys

360° surveys are definitely the most popular tool to measure employee performance.
Studies suggest that more than a third of American companies use some type of multiple evaluation. Others state that 90% of Fortune 500 companies apply some type of 360° survey.
However, there's no lack of criticism about these kinds of evaluations.
To evaluate an employee's score, their colleagues, subordinates, customers, and manager are asked to give ratings on specific topics.
If you're not familiar with the lingo, the degrees of the 360º are distributed like this:
90º = Evaluation of direct managers
180º = Manager + Colleagues (peers)
270º = Managers + Colleagues + Subordinates
360º = Managers + Colleagues + Subordinates + Customers

2.  Net Promoter Score

More and more, companies understand that increasing profit is very good, but in extremely competitive environments, they need to have satisfied customers. They also know that their employees have a fundamental role in improving the customer experience.
In terms of experience, the line between consumers and employees is actually blurring. The new goal in the best organizations is to create brands that deliver a unique experience for current and potential employees and consumers.
(https://www.forbes.com/sites/jeannemeister/2016/01/07/consumerization-of-hr-10-trends-innovative-companies-will-follow-in-2016/#7e1536276b5a)
Hundreds of the biggest companies in the world like General Electric, Procter & Gamble, Telefónica, Apple, Allianz, JPMorgan Chase & Co., ING, and Microsoft adopted the NPS as the principal metric in measuring customer satisfaction. They have proven that growth and profits are directly related to converting more customers into promoters of their brand.
According to Wikipedia, in 2016, two-thirds of the Fortune 1000 companies have adopted this metric.
Along that same line, the mission of having motivated and happy employees also has its metric: the eNPS (employee NPS). I explained it in much more detail in Chapter 9.

3.   Forced ranking

Forced ranking, vitality curve, or popularly "rank and yank," is a very controversial management tool that uses very intense annual evaluations to identify employees with the best and worst performance through person-to-person comparisons.
Managers classify workers into three categories: the highest 20% are the "A" players, the people who will lead the company's future. They're given raises, stock options, and training. The 70% in the middle are the "Bs," the stable ones, who get smaller raises and are encouraged to improve. The 10% on the bottom are the "Cs," the ones who contribute the least. They don't get raises or bonuses, are offered more training, encouraged to look for another position, or they are fired.
General Electric, who fires 10% of its "C Players" every year, is probably the most well-known representative of this practice. Ex-CEO Jack Welch suggests that forced ranking helped increase GE's revenue to $130 billion in 2000, from $70 billion in 1995.

http://assets.amuniversal.com/71c08800a04d012f2fe600163e41dd5b

Up in the air

When talking about firings, the first thing that comes to mind is Up in the Air. Ryan Bingham (George Clooney) works for an HR consulting company that specializes in firing people. He makes a living traveling the United States firing people on behalf of the bosses of each company.
In the movie, Ryan's assistant, Natalie Keener, a young, ambitious 23-year-old screams...

Please, for the love of God, can I fire the next one?

Objective performance measurement

4. Sales

Sales are definitely the simplest way to measure performance. For obvious reasons, it can only be applied in departments where there is commercial activity.
Short sales cycles are the ideal territory for this metric.
However, when sales have a longer cycle like they often do in People Analytics sales projects, where you may need more than six months to sell a project; it's often necessary to use other additional metrics to evaluate the process. In general, you divide the sales funnel into phases and measure the interventions in each phase of the process: generating new contacts, phone calls, follow-ups, conversations, and sales.


5. Number of units processed

Think of a supermarket. How many products does a cashier scan in one hour of work?

Bloomberg, for example, counts the number of times that its 2,400 journalists press a key when writing their articles. Many companies measure the number of lines a programmer codes.
But there are a lot more: the number of web pages visited, instant messages sent, e-mails sent, open documents, log-ins, etc.

How many errors or how much they contribute

It's evident that measuring the processed units without looking at the quality indicators (how many errors made, how customers rate their experience) can end up being clearly insufficient or even deceptive.
- Think of a financial entity's team that reviews fraud cases. If they only count the number of evaluated cases, you have a deceptive performance measure.
A better way of measuring performance in fraud analysis is quantifying the economic impact of the intervention, that is, how much fraudulent money was detected? Looking at historical data, you calculate the average detected fraud before the specialized team's intervention. You measure again after the team puts anti-fraud activities into place. That way you have an actual contribution.

6. Lifetime Value

There are several studies on the average contribution per employee in tech companies.

Annual assessment vs. frequent assessment: transparency

Regarding annual or biannual evaluation, frequent performance scoring gives employees clear feedback about whether their performance is increasing or decreasing.
With this short feedback cycle, managers can reward hard work or rapidly take corrective measures if need be.
General Electric stopped using its legendary vitality curve ten years ago, the one that made them fire 10% of the worst of their staff of 300,000 employees.
GE is now introducing a new system that anticipates more frequent updates of its performance evaluations through an app.
With this decision, GE joins other important companies like Microsoft, Accenture, and Adobe, that have adopted a new focus that's based on more frequent review and feedback of employee performance.

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