Problem

There is often more than one way to improve a performance measure. Unfortunately, some of the actions taken by managers to make their performance look better may actually harm the organization. For example, suppose the marketing department is held responsible only for increasing the performance measure "total revenues". Increase in total revenues may be achieved by working harder and smarter, but they can also usual's in greater total revenues; however, it does not always lead to greater total profits. Those who design performance measurement systems need to keep in mind that 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.

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.

2. The CEO of an airline company is dissatisfied with the amount of time that her ground crews are taking to unload luggage from airplanes. To solve the problem, she decides to measure the average elapsed time from when an airplane parks at the gate to when all pieces of luggage are unloaded from the airplane. For each month that an airport's ground crew can lower its "average elapsed time" relative to the prior month, the CEO pays a lump-sum bonus to be split equally among members of the crew.