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There are two reasons why performance measures don’t guarantee performance.

Read below for the first reason. This article is part 1 of a three-part series. In part two, I will outline the second reason, and in part 3 I will offer a solution. What follows is an excerpt from The Contract Professional’s Playbook.

To better discuss performance measures with stakeholders, understand why performance measures do not always guarantee performance. There is an interesting phenomenon called the watermelon effect (green on the outside; red on the inside) or “green scores and red faces.” This means that the supplier is performing according to the performance metric, but the end-user is still unsatisfied with the service. Returning to the on-time delivery example, the supplier could be delivering incomplete shipments 99% of the time. The supplier is technically meeting the on-time SLA if it is sloppily defined, but missing the intent by delivering partial shipments to meet the on-time delivery SLA.

Why are the “green score and red face” so prevalent?

There are many reasons. Let’s focus on two causes relevant to performance-based contracts.

First, buying companies set the wrong metric (unit of measurement). For example, template contracts:

  • Use what is already written in the template, but that metric, SLA, SLO, etc. is not needed for this supplier relationship;
  • The metric, SLA, SLO, etc. is what someone used in a similar situation, but it does not apply here;
  • The metric, SLA, SLO, etc. is what someone thinks is a good idea (but neither the buying company nor the supplier can collect the right data to support the performance measure);
  • The buying company or the supplier collect the wrong data or insufficient data to support the metric, SLA, SLO, etc.;
  • The buying company uses the metric for the wrong purpose. For instance, it is not tied to a business objective (CSF) outlined in stakeholder analysis or business objectives in the requirements checklist; or
  • There is insufficient definition describing the metric, SLA, SLO, etc. causing a “he said, she said”

If you would like more information about developing performance measures that actually drive performance, visit Amazon to purchase my books. Or, email me to bring me in as a speaker to your virtual event. jn@nyden.com