The Performance of Performance
As Bill Starbuck observes, measures of performance do not perform very well. They are compromised by measurement and data errors, which complicates statistical inferences. Nevertheless, performance measurements are needed and may be necessary for guiding organizational changes. Although the errors that Starbuck notes are important, there are other considerations that may be more damaging for most uses of performance data. Most users of performance measurements are interested in what they reveal about behaviors and capabilities. They use performance measures as signal of some underlying latent trait, such as leadership ability of competitive advantage. Seen from this perspective, performance measures are plagued by several other sources of error and bias in addition to those discussed by Starbuck.
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Denrell, Jerker (2004) The Performance of Performance. Journal of Management & Governance, 8 (4). pp. 345-349.