Design performance measurement systems need to keep

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design performance measurement systems need to keep in mind, the managers who are under pressure to perform may take actions to improve performance measures that have negative consequences elsewhere. Required: For each of the following situations, describe actions that managers might take to show improvement in the performance measure but which do not actually lead to improvement in the organization's overall performance. The answers below are not the only possible answers. Ingenious people can figure out many different ways of making performance look better even though it really isn't. This is one of the reasons for a balanced scorecard. By having a number of different measures that ultimately are linked to overall financial goals, "gaming" the system is more difficult. 1. Concerned with the slow rate at which new products are brought to market, top management of a consumer electronics company introduces a new performance measure -- speed-to-market. The research and development department is given responsibility for this performance measure, which measures the average amount of time a product is in development before it is released to the market for sale. Speed-to-market can be improved by taking on less ambitious projects. Instead of working on major product innovations that require a great deal of time and effort, R&D may choose to work on small, incremental improvements in existing products. There is also a danger that in the rush to push products out the door, the products will be inadequately tested and developed. 2. The CEO of a telephone company has been under public pressure from city officials to fix the large number of public pay phones that do not work. The company's repair people complained that the the problem is vandalism and damage caused by theft of coins from calling boxes -- particularly in high-crime areas in the city. The CEO says she wants the problem solved and has pledged to city officials that there will be substantial improvement by the end of the year. To ensure that this is done, she makes the managers in charge of installing and maintaining pay phones responsible for increasing the percentage of public pay phones that are fully functional. Performance measures that are ratios or percentages present special dangers. A ratio can be increased either by increasing the numerator or decreasing the denominator. Usually, the intention is to increase the numerator in the ratio, but a manager may react by decreasing the denominator instead. In this case (which actually happened), the managers pulled telephones out of the high-crime areas. This eliminated the problem for the managers, but was not what the CEO or the city officials had intended. They wanted the phones fixed, not eliminated.
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