UTS Business

Dysfunction
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Performanc
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Measureme
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MDC individual Report

Author ID

Dysfunctional Performance Measurement

Content
Executive Summary........................................................................................................ 2
1. Introduction................................................................................................................ 2
2. Problem of Gaming..................................................................................................... 2
3. Source of Problem...................................................................................................... 2
4. Dysfunctional Consequence....................................................................................... 3
5. Example of the Problem Elicited by Gaming...............................................................4
6. Possible solutions....................................................................................................... 4
7. Conclusion.................................................................................................................. 4
Reference List................................................................................................................. 5
Appendix........................................................................................................................ 5

Dysfunctional Performance Measurement

Executive Summary
This report focuses on the topic of dysfunctional consequence of performance measurement in
different organizations. The aim is to define the problem and find the source of the problem. This
report will also conduct a real-world case study to demonstrate the drawback of performance
measurement.
1. Introduction
Currently many managers tend to state the management of companies in the way of various
variables which are associated with management. The progress of a project, the profit gained and
the development of the thought can be derived into numbers and calculated with formulae. This has
resulted in the invention of the performance measurements in theory. Performance measurement in
theory will be quantitative and for all levels inside an organization. Also, it is capable to cover the
management of performance of a divided manager who is critical in making profit in a
decentralized organization.
Of course performance measurement in theory is ultimately useful compared with some traditional
management methods. However, there have been studies about the dysfunctional results elicited
from performance measurement for some companies. Some researchers have indicated that
improper harness of performance measurement or wrong application of the counterpart can result in
unexpected consequence and waste of resource, which means judicious harness of this tool is
necessary. This report will define a problem inside a dysfunctional performance measurement in
theory and make discussion about it.
2. Problem of Gaming
In this modern day it is worthwhile to review the influence from the performance measurement in
theory. To be specific, this report will focus on one type of the measurement, which only includes
one criteria, which means solely one quantity is considered and measured in an organization. This is
gaming. Mostly profit or output is the target. Most of the managers in small organizations may
consider this strategy since it is easy to establish and control (Oliver & Qu 1999). Moreover, the
result can be revealed easily as this performance measurement is not that complicated. Besides,
some managers may just use this tool as a booster of the performance for a short period in order to
concur some hard time. This can be regarded as a phenomenon of gaming, since the managers are
risking their organizations in terms of resource in order to achieve higher performance via some
tool. Because there is existence of risk, there is probability of failure. Hence the problem of gaming
is obvious, sometimes there are phenomena of success after applying some performance
measurement but after that, in a long period that method cannot work and the managers still waste
time and resource on that method in order to get the chance of success.
3. Source of Problem
Applying strategies in an organization itself is a type of gaming, as the result is unknown, and it
definitely cost the resource and time for a company (Goold & Quinn, 1990). Therefore without
doubt, performance measurement is a type of gaming, which is just more obvious. The problem and
drawback of gaming can be revealed more obviously in the cases of applying single-criteria
performance measurement as the strategy is too simple and sometimes cannot adapt a new
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Dysfunctional Performance Measurement

environment of business. Whether the performance measurement focuses on the employee in the
critical level, or the management level of a company, the attentions can be drawn away which will
be far away from the expected goal of a company. Of course, since this method has been derived, it
most have some degree of value as it still exists and applied in some conditions. However, the
principal of single-criteria performance measurement, motivating the employees to fully effort
(Neely Gregory & Platts 1995), cannot last long, and may be wasted along with the managers
seeking the savings of wooden money, or leaving a series of problems which involves treatment and
repairing as a waste of resource in the future.
Without the single-criteria performance measurement, more advanced performance measurement
can be multiple measurements or composite measurements, which can adapt to complicated
conditions and give the company more opportunities to earn profits. However, there are still
unexpected results from the organizational performance. In terms of the multiple criteria
performance measurement, the manager in this condition will assume that the employee will
definitely contribute its effort, resource and attentions on the current goals in a series of steps which
will lead to those goals in order to enhance the over-all performance of an organization. Therefore,
the theory is based on certain variables including the unit of effort or resource and how it will react
corresponding to the certain environment. However, the unit of effort or resource will definitely
yield on the path of achieving the certain goals in different fields, including production,
construction, research, banking or public relations, which are all suggested areas with applying the
performance measurement. The managers may try to get the opportunities of success via gaming of
applying the performance measurement, without considering the principals of balanced stress and
objectives.
Composite criteria performance measurement is a type of more advanced performance strategy
when different factors are weighted and then added or averaged in the end. This advanced
performance measurement can last long enough for an organization to earn great value or increasing
the efficiency in a new level. However, there is still a phenomenon of gaming which leads to a
dysfunctional consequence for an organization (Ittner &Larcker, 2003). According to most cases
where the composite criteria performance measurement was applied, the goals of the organizations
have reached a new level, while the degree of applying the methods is not increased. It can be
predicted that the management may think that the increased goal has not reach the limit of the
strategy, without considering that the limit is based on a vibrated series of aspects containing the
employee and changeable environment of business. This can be also regarded as gaming as
normally the dysfunctional results are elicited by mangers not increasing the degree of composite
criteria performance measurement or replacing it with a new strategy.
4. Dysfunctional Consequence
The last section has discussed the source of the dysfunctional consequence of performance
measurement in different conditions. Some content of the consequence has been mentioned. Mostly
the consequence is the waste of resource or time (Neely & Wilson, 1992). In some cases, the
employees may suffer from the stress elicited from the performance measurement. This always
happens in the application of multiple criteria or composite criteria performance measurement,
since there are different factors motivating the employees to contribute their effort.

Dysfunctional Performance Measurement

In terms of the waste of physics, after a single criteria performance measurement as gaming, there
may be problems left behind, such as the repairing of machines, or lacking of resources as the goals
will reach a higher level. But the most serious problem is that the mangers may still think that the
strategy works under a new period or a new condition, but in most cases, the performance
measurement cannot last long.
5. Example of the Problem Elicited by Gaming
Single criteria performance measurement is widely operated among various types of organization as
it is easy and efficient, but it is a type of gaming. This section will demonstrate a case which is
associated with this topic and analyse its problem.
There was a public employment agency whose responsibility was to help workers search for job
opportunities and also help employers search workers. In order to improve the performance of this
public employment agency, the management decided to motivate the interviewers, who were the
main operators in the agency, via praising them according to the number of interviews they had
successfully established. This is a typical single criteria performance measurement, and it worked
for a small period. However, after a certain period, part of the interviews were focusing on
increasing the number of workers they interviewed, without arranging sufficient time on searching
jobs for the workers, and eventually the workers began to complain about the low efficiency of this
agency. However, the management still thought that the problem was because of the low degree of
applying this strategy. Hence more strict performance measurement had been applied, but this time
the consequence was not as expected, as there were more interviewers just increasing the number of
interviews, not finding enough jobs for the interviewed workers. So in the end the agency went into
a mess.
In this case, the source of the problem can be easily explained. First of all, the performance
measurement did not focus on the workers who are the target of the service. Also, the performance
measurement only focused on one criteria which is only on one aspect of the activity. Under this
way the balance will definitely break and the workers will turn their effort to lower the burden and
achieve better goals in other ways.
However, the point is that the manager did not change the plan as it believed that the strategy could
work for the second time as it did in the first time, which can be estimated as a phenomenon of
gaming. The manager in this case chose to the option of gaming instead of analysing the true
problem beside the phenomenon of low efficiency, which is just the point of gaming in the
dysfunctional consequence of performance measurement.
6. Possible solutions
For the real world case above, the solution can be to apply a new performance measurement which
can focus on the workers, such as the number of workers who had successfully found a job
opportunity. Or, the management can try some composite criteria performance measurement which
may be complicate, but it is worthwhile to setup multiple targets to motivate employees to
contribute their effort in different ways.
7. Conclusion

Dysfunctional Performance Measurement

This report generally reviewed the topic dysfunctional consequence of performance measurement in
the aspect of gaming by analysing the source of the problem and a real-world case. Mostly gaming
exists in the managers insisting one strategy without increase the degree or change the strategy as
they neglect the negative influence from the new strategy. Because the resource is limited, further
study is recommended on this topic in a different angle, for instance, lack of validity.

Reference List
1. Ittner D C, & Larcker D F, 2003, Coming Up Short on Nonfinancial Performance
Measurement, Harvard Business Review, vol. 11, pp. 2-10.
2. Suomala P, Varila M & Jokioinen I, Validity problem in performance measurement: a conceptual
analysis with an illustrative case on quality cost measurement, Cost management Center, Tampere
University of Technology, Institute of Industrial Management, Finland.
3. Neely, A., Gregory, M. and Platts, K. 1995, "Performance measurement system design: A
literature review and research agenda", International Journal of Operations & Production
Management, Vol. 15 No. 4, pp. 80-116.
4. Oliver, J. and Qu, W. 1999, "Cost of quality reporting: Some Australian evidence", International
Journal of Applied Quality Management, Vol. 2 No. 2, pp. 233-250.
5. Williams, A. R. T., van der Viele, A. and Dale, B. G. (1999), "Quality costing: a management
review", International Journal of Management Reviews, Vol. 1 No. 4, pp. 441-460.
6. Peter, M B, 1955, The Dynamics of Bureaucracy, Chicago, edition 3.
7. Goold, M. and Quinn, J.J., 1990, The paradox of strategic controls, Strategic Management
Journal, Vol. 11, pp. 43-57.
8. Neely, A.D. and Wilson, J.R., 1992, Measuring product goal congruence: an exploratory study,
International Journal of Operations & Production Management, Vol. 12, No. 4, pp. 45-52.
9. Turney, P.B.B. and Anderson, B., 1989, Accounting for continuous improvement, Sloan
Management Review, Vol. 30 No. 2, pp. 37-48.
10. Azzone, G., Masella, C. and Bertel, U., 1991Design of performance measures for time-based
Companies, International Journal of Operations & Production Management, Vol. 11 No. 3, pp.
77-85.
Appendix
The case referred in this report is described in the book of The Dynamics of Bureaucracy. The
original description is as followed:
The agencys responsibility was to serve workers seeking employment and employers seeking
workers." Employment interviewers were appraised by the number of interviews they conducted.
Thus the interviewer was motivated to complete as many interviews as he could, but not to spend
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Dysfunctional Performance Measurement

adequate time in locating jobs for the clients. The organization's goal of placing clients in jobs was
not given primary consideration because the measurement device applied to only one aspect of the
activity.