“You cannot manage what you cannot measure.” Those are well known and accepted words of wisdom that have been taught to thousands of MBA students for decades. There is a lesser popular truth though—that measuring wrong things can really hurt your business. Definition, selection and design of appropriate, balanced and concise metrics, as well as the processes for continuous delivery of these metrics, are the key management challenges for every organization.
1. Focusing on the “wrong” metrics will create unintended results.
One of the more graphic examples of “wrong” metrics is a ratio of successful convictions, widely used to measure success or reputation of public prosecutors. This one causes US taxpayers to waste hundreds of millions of dollars in court costs, compensation for wrongful imprisonment and lost productivity every year. Essentially this metric is measuring a percentage of tried cases that result in conviction against the total number of cases tried by the prosecutor. The higher the percentage of convictions, the more “successful” the prosecutor is considered to be regardless of how well justice is served, how many lives are destroyed and how much financial damage is inflicted.
Another example is the evaluation of a Product Manager performance based on the attainment of product forecast goals. While I am familiar with a popular definition of a Product Manager’s role as a “Product CEO,” the organizational reality does not often support this definition, as product managers rarely have administrative authority to enforce their decisions and act mostly as influencers. It is intellectually dishonest to keep them accountable for a result of a sum of aggregated decisions made by a multitude of people, but most importantly it does not help to bring desired improvements in products performance.
2. Focusing on unbalanced metrics will promote bad behavior.
Performance is often measured by a singular metric, yet people are rarely expected to behave one-dimensionally. Everyone knows that a lot of digressions will be forgiven to a salesman who consistently makes his quota, even though his lack of desire and/or skill to forecast costs your company serious hits to profit margin. Imagine it is the end of a quarter and you are deeply discounting your product in a desperate attempt to make your company revenue numbers, just to see your “best” performer bringing in a “bluebird” deal you had no visibility of. He just caused you to give away profits, and you did not need to sacrifice for “please sign today” deals. A secondary measurement attached to accuracy of forecast and associated with commission structure can dramatically improve a company’s profitability.
3. Concise metrics promote action.
Conversely, the convoluted metrics are a waste of time, expense and opportunity. Many Customer Satisfaction measurements are falling into this category because they are often too general, and the best cause of action you may take is to do more studies. Most companies do not even consider competitive influences on their customer’s assessment of their satisfaction with their products or services. Unless feedback from customer analysis of every key component of customer experience is continuously conducted, and in relation to competitive options available to the customers, it is very difficult to figure out why overall Customer Satisfaction is moving higher or lower, who should take any action and what kind of action should be taken.
In conclusion, I would like to suggest that any performance metric has to be evaluated in a holistic model as it is very easy to come up with a clever way to improve one aspect of a specific performance at a detriment of the long-term well-being of the company as a whole.