Multiple Measures of Performance
Often, organizations make the mistake of using budgets as their only measure of managerial performance. While financial measures of performance are important, overemphasis can lead to a form of dysfunctional behavior called milking the firm or myopia. Myopic Behavior occurs when a manager takes actions that improve budgetary performance in the short run but bring long-run harm to the firm. For example, to meet budgeted cost objectives or profits, managers can delay promoting deserving employee or reducing expenditures for preventive maintenance, advertising, and new product development. Using measures that are both financial and nonfinancial and that are long term and short term can alleviate this problem. For example, Starwood Hotels incurs considerable costs every year to research consumer trends and to trian its hotel staff members to help ensure sustainable growth in room revenue for its luxury St. Regis brand. Budgetary measures alone cannot prevent myopic behavior.