What you measure in your business can have profound effects on your employees’ behaviors and your business results.  Unfortunately, the effects may not be positive.

Jim wanted to get away from the day-to-day responsibilities of his business in order to spend more time on strategy and new marketing plans.  Yet, he wanted to monitor its performance and encourage his employees to do their best even without him working right alongside them.  Therefore, Jim did what many managers do.  He established a set of performance measures.  He chose the percent of inquiries that made initial purchases and the percent of initial purchasers who committed to some additional service.

Each month Jim reviewed the measures with his employees.  They competed to see who could produce the best results, which is what Jim wanted.  Over time, though, Jim noticed that the average revenue per customer fell.  What’s more, getting existing customers to buy new service offerings proved difficult.

Jim’s measurement system fell prey to what the sociologist Robert Merton described as the “Law of Unforeseen Consequences.”  Focusing on certain outcomes undermined achieving others.  This is why many business owners and employees find performance measurement frustrating.  Here are some steps to get a positive performance system working for you.

  • Be clear about you really hope to accomplish.

Think through what’s important for your business.  When Jim did this, he emphasized profitable, long-term customer relationships.  The short-term, transactional measures he had chosen didn’t support what he hoped to achieve.  In fact, it prompted his team to aim low for easy initial sales.

  • Choose customer-focused measures.

Focus on what your customers want.  Jim’s measures had been all about selling and closing.  His customers, however, wanted the business to understand their needs and offer the best solutions for them.

Profitable business comes from the quality of relationships between the buyer and the seller.  Look at what will gauge the strength of your relationships with customers.

For example, we developed checklists for Jim’s business to identify prospective customers’ needs.  The number and type of needs employees uncovered indicated how effectively the business attracted ideal prospects and its potential to serve them over time.  The team members shifted from what they could sell to people who showed up to how they could develop great relationships with customers who needed the distinctive solutions they offered.

  • Engage your team to develop effective measures.

Involve your employees to create meaningful and successful performance measures.  When Jim imposed his own measures, his employees worked to look good on his numbers rather than do what was best for the business.

Talk about what you hope to accomplish in the business and what measures will help you understand how well the business is doing.  Look at indicators for the business as a whole before you establish performance measures for individuals.  If your employees are confident that everyone is focusing on what’s best for the business rather than who are the winners and losers within it, they will give you their best thinking.

  • Watch out for unforeseen consequences.

Discuss openly what might be some of the unforeseen consequences of the measures you use.  Walk through the steps in your business and consider the effects of focusing on particular results.  Adjust your performance measures to avoid the traps.  Learn from your experience and modify your measures to serve the business better.

  • Review measures to improve the business.

Performance measures have the most value in helping team members discuss what’s working and what’s not.  How well are you understanding and serving customers?  Who is being especially effective and how can others learn from it?  Encourage team members to share best practices and improve the business overall.

What you measure matters.  Use performance measures that support your team’s success and celebrate the results.