Despite the influx of measures which can be customized to the demands of each business unit (e.g., customer satisfaction surveys and quality indices), many firms have been dogged in their reliance on standardized measures (e.g., conventional financial metrics) in performance evaluation. In this paper, we consider one justification: though customized measures may more accurately target the goals of a particular unit, standardized measures may offer more meaningful opportunities for relative performance evaluation. Standardized measures have a commonality in errors which is naturally absent among measures targeted to each circumstance. This commonality allows learning about one measure from another and, thus, the construction of more efficient proxies for unobservable employee inputs. The use of comparative evaluation schemes is not without its challenges, since it may induce unwanted coordination by those being evaluated. Even with such gaming concerns, standardized measures can still be preferred, but the requirements are more stringent.
Arya, A., Jonathan Glover, L. Ye, and B. Mittendorf. "On the Use of Customized versus Standardized Performance Measures." Journal of Management Accounting Research 17, no. 1 (2005): 7-22.
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