Performance Indicators Don’t Work

Small boys need performance indiicators.

This is an article I have submitted to City Watch NZ. See also my previous post, A Flawed Governance Model.

Most people who are reading this can see that councils all over New Zealand are having major problems. In my opinion, a flawed governance model is the major cause of those problems. I also believe that performance indicators are a major contributing factor. Using Tauranga City Council as an example, I would like to lay out why I think that performance indicators don’t work.

A core premise in the existing governance model is that the chief executive does not need to understand the core business of the council, which is civil engineering. The Tauranga chief executive is an ex policeman, with a management degree. Most of the management team in the council are also generalist managers, with no civil engineering background. This is completely acceptable and in fact promoted under the existing governance model.

So how do we manage the council?

The answer is performance indicators. All we have to do is come up with a perfect set of performance goals for the chief executive and his management team. They will then beaver away to achieve those goals. We can review the chief executives performance at the end of each year, and he gets a nice big fat bonus if he meets the set goals.

So in a perfect world it would all work so wonderfully well. The mermaids would sing, the unicorns would dance, and the butterflies would fly around through the sky. The ratepayers would be happy, and council approval would be 100%. Unfortunately, in the real world, it doesn’t seem to work like that. Why is that?

There are several reasons. The indicators have to be easy to measure so that you can grade the chief executives performance with a number. The problem is that it is usually very difficult to objectively measure the things that are important and put a number to them. For example one of the statutory requirements from the Local Government Act for the role of the chief executive is:

ensuring the effective and efficient management of the activities of the local authority

How do you measure effective and efficient management? How do you put a number on that? It is difficult so by default performance indicators usually regress to very simple things which are easily measured. The trouble is that those simple indicators do not really measure what you need to measure. They only measure very arbitrary and usually trivial or even counter productive factors.

In addition, they are retrospective based on last year, so if they are changed, if at all, they are usually changed to address last years problems. They can not be easily adapted to changing circumstances. They are very inflexible, and do not cover the real needs of the council.

Usually, it is the chief executive who suggests the performance indicators, and then negotiates with the elected members. The chief executives bonus depends on meeting the performance indicators so he will usually promote trivial performance indicators that are easy to achieve. So the bonus is awarded for not doing very much, and in many cases scarce resources are wasted on meeting trivial performance indicators.

Even worse, in some cases, the performance indicators actually provide a perverse incentive for the chief executive to act against the real goals of the council, in order to get his bonus

The council is a very complex organisation, and it would be almost impossible to devise a useful set of performance indicators that would cover all possible eventualities, without hindering the ability of the chief executive to do his job.

In my opinion, the best solution is simply to employ a competent chief executive who knows how to do the job, and then let them get on with it. The pay scale for chief executives should be more than enough to attract good chief executives.