What most leaders get wrong when measuring the performance of the organization. At Cosmic Centaurs, we believe it is the role of leaders to manage the performance of an organization. That management requires consistent, timely measurement of performance which at the organizational level is much easier said than done - and McKinsey agrees with us. While measuring the performance of an individual is straightforward, leaders who understand their organization as a holistic ‘system’ are required to track a set of interdependent metrics and KPIs which can be complex and nuanced.
In this article, we list 5 things leaders overlook when measuring the performance of the organizations they lead.
1. Setting vague goals
Ambiguous and vague goals are in their simplest form immeasurable goals. While ‘meeting revenue targets’ may be easily explained in a high context, leaders who are intentional about uncovering the drivers of performance will need SMART goals: specific, measurable, achievable, relevant, and time-bound. These have depth, allowing leaders to look at each aspect of the performance in a meaningful way. For example, was the revenue target reached within the time frame? If not, why?
These insights enable leaders to make informed decisions on priorities and the way forward. Ultimately this leads to higher business performance and creates a greater sense of accountability for those responsible. If you need help setting clear goals, check out our OKRs worksheet.
2. Focusing on short-term results
“Business is all about learning to balance the short-term, medium-term & long-term,” -Tony Hsieh, Former CEO of Zappos.
Balancing these vantage points enables leaders to measure performance through time. Tracking progress for this month or quarter is Short-termism. It may give leaders a reassuring sense of progress on targets, but without a long-term view, they will overlook opportunities for growth and sustainability, and misdirect the allocation of resources or budget. Decisions made with only the short-term view insight cause Leaders to rush to fix one problem without addressing the underlying complexities. It's like rearranging the chess pieces without understanding the dynamics of the game; the result is often superficial change that doesn't address the heart of the matter.
By measuring performance over time and looking into the future to anticipate what will get in the way, leaders can channel their energies, knowledge, and imagination into actively influencing the trajectory of their organizations.
3. Benchmarking gone wrong
One common pitfall in performance measurement is the tendency to only compare business performance to internal targets or past performance. It’s not only about whether a company performs better than the plan or stays within budget but also how it fairs against the competition. Without a look at the industry and competitors, leaders inevitably measure performance in a vacuum. While a company may be improving year-over-year, are they outpacing the competition and gaining market share?
Here’s what this looks like in practical terms:
4. Not making a distinction between the business and the organization
When strategies are made in the boardroom, the final slide is often one that outlines what metrics will be used to measure revenue, margins, adoption rates, etc. However, these business strategies are developed without consideration of the organizational strategy. Leaders who are hyper-focused on the customer experience, without considering the employee experience that drives performance miss a key part of the puzzle. For example, the cost of employee disengagement to the global economy is $7.8 Trillion.
To help leaders understand whether their structure, systems, processes, culture, and people are enabling employees to create value and do their best work, we developed our proprietary assessment framework The Omnichannel OrganizationⓇ. Importantly, we look at how these align to the business strategy, creating a critical link between the employee and customer experience.
5. Disregarding qualitative data
Performance dashboards are by default populated with quantitative data, numbers, charts, and graphs, but qualitative data tells you the story behind those numbers. A purely numbers-driven approach might be straightforward, but it risks massively oversimplifying the analysis and missing vital contextual nuances that quantitative data alone doesn’t capture. For example, an executive may be pleased to see impressive revenue figures, but not know that this was driven by a toxic and competitive culture among sales reps, which poses an imminent threat to the sustainability of performance.
Qualitative data can be more challenging to capture. It requires time and effort, and while the findings cannot be generalized (much of qualitative data is subjective) they add a layer of insight to help leaders measure both the progress of the work and the ways of working. For more on how we approach data collection, check out our HBR article.
“Holistic leaders understand that their role isn't just about making strategic decisions; it's about maintaining visibility and influence over the entire system, ensuring that it functions as a cohesive whole. Ensuring that they are managing the collective performance,” said Marilyn Zakhour in her Cosmic Conference 4 Keynote.
At Cosmic Centaurs, we recognize the challenges that leaders face in navigating this complexity. Our team helps leaders of all organizations measure performance in a meaningful way. To learn more about how we might be able to help you avoid these common pitfalls, and track the metrics that matter book a 1-on-1 consultation with one of us.
