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Developing Performance Metrics for Long Term Accountability

By Melissa J. Anderson

According to a new McKinsey Quarterly report, one way to improve corporate performance is to emphasize to employees throughout the chain of command the importance of long-term corporate health. Unfortunately, as the authors, Toby Gibbs, Suzanne Heywood, and Matthew Pettigrew, point out, the skills and qualities that promote long-term organizational health – like leadership or EQ – are the ones that are most difficult to measure in employees.

Without metrics, it can be difficult for employees to meet performance targets in this area.

A second and related challenge is that when only hard performance targets are measured sometimes equally important but softer qualities are ignored. Gibbs, Heywood, and Pettigrew explain:

“At the same time, companies that rely too much on financial or other ‘hard’ performance targets risk putting short-term success ahead of long-term health—for example, by tolerating flawed ‘stars’ who drive top performance but intimidate others, ignore staff development, or fail to collaborate with colleagues.”

The key, they believe is finding a way to integrate “soft” skill metrics into performance reviews. This is more difficult than one might assume at first, they continue, but by developing an understanding of why these metrics often don’t work or aren’t taken seriously, companies can implement targeting and measurement systems that encourage employees to focus on the long-term health of the organization, rather than merely short-term growth.

Challenges in Measuring Soft Skills

According to the writers, attempts to measure soft skills often stumble. First of all, they explain, “These ‘soft’ measures of organizational health—for example, leadership, innovation, quality of execution, employee motivation, or a company’s degree of external orientation—are tricky to convert into annual performance metrics.”

Next, they continue, they’re hard to scale out across an entire organization. “When companies do try, they often end up using metrics that are discretionary, weighted less heavily than traditional measures of performance, or applied inconsistently,” they explain.

Finally, they believe, they often aren’t taken seriously. Because efforts to improve these soft-skills are new, and indicate a changing set of responsibilities for employees, they may not buy-into these changes at first. They can also be so plentiful that they just get ignored.

For example, Gibbs, Heywood, and Pettigrew describe how one professional services firm had so many organizational health metrics that they were just glossed over during performance reviews.

“Identifying the right values requires discussion and debate, informed by extensive engagement with a range of employees, among senior leaders. Organizations conducting such discussions are beginning to create metrics that shed light on how well employees respond to particular health-related values.”

Building Long Term Metrics

McKinsey suggests that companies begin by examining what particular skills are most necessary to ensure long-term health for the organization, and to do so along with business leaders within different corporate units. This will accomplish two things – ensuring that the right qualities are on the table, and helping generate buy-in and ownership for the new metrics amongst senior managers.

“Since some of the metrics will be new—and, often, qualitative—senior executives should work with leaders of business units to make sure that the metrics are ‘owned’ by employees and remain up to date and effective, and that business units have the investigative skills to gather the necessary data from multiple sources.”

Once the appropriate values and metrics have been settled upon, the authors continue, companies should assign appropriate compensation guidelines around them. They continue, “This should be true for senior executives as well—indeed, we believe that organizational health warrants more consideration in executive-level compensation decisions than it often receives.”

In addition to shifting employee views from the short-term performance goals to long-term organizational health, these kinds of targets can also develop employee engagement by building a focus on what’s good for the company overall, and how each individuals fit into the big picture.

These metrics can also help define and implement specific cultural change within the organization. When they are coupled with performance targets, they can provide guidance around how leadership would like those targets achieved. “The moves are helping to create a common language for discussing how the company gets results, not just what they should be,” explain the authors.

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