Some time ago, I was speaking with an executive of a bank institution. He mentioned that in an effort to increase deposits, they had recently established a program that recognized branch managers with the highest number of new certificates of deposits (CD’s) opened in their branch. While they saw the number of CD’s increase significantly during the length of the program, the program had very little effect on the increase in total deposits. To their dismay, they discovered that a few branch managers had figured a way to “trick the system”: customers interested in opening a CD were strongly advised to split the amount into two or three certificates! The number of new CD’s, for sure, went up, while the net increase in deposits was barely affected.
No one will object that proper goals and a culture that measures results are necessary in business. However, as the examples above illustrate, left unchecked, narrow and ill-defined goals can degrade performance, corrode collaboration, and increase risky and unethical behavior.
Hospitals are in the business of healing people. Hence, it makes sense to use the mortality rate of a hospital – the percentage of admitted patients that die – as a measure of its effectiveness. In the 1980’s and 1990’s, a group of vanguard hospitals in the United States started measuring their mortality rates for specific conditions – e.g., heart attacks. Initially, these measures were closely guarded, discussed in board rooms but hidden from the general public. Today, anyone with an internet connection can compare his or her hospital’s mortality indicators against the best hospitals in the world.
This sounds excellent until you come to realize that a hospital’s mortality rate is affected by a complex set of variables. Factors such as the type of patient it admits and the amount of experimental research the doctors conduct will influence the mortality outcome. Hospitals would certainly improve their mortality rates if they would stop admitting the sickest patients and stop experimenting with the riskiest treatments. Needless to say, if all hospitals were to follow this policy, advances in heath care would certainly suffer.
More than 50 years ago, Peter Drucker popularized the concepts of management-by-objectives (MBO) and goal setting. He was a prolific writer and thought leader in the field of management. He died on November 11, 2005; yet, if Drucker were to visit us today, for sure he would be appalled by what he would find. Rather than understanding the subtleties and complexities of their businesses, many managers have mechanically embraced MBO’s and key performance indicators (KPI’s) as a foolproof and fail-safe way to increase performance. Foolproof? Fail-safe? Sounds like British Petroleum talk to me.
The business of business is flooded with complexities, by-products, and non-linear relationships. Short-term decisions have long-term consequences. Zealously focusing on variable A inevitable leads to ignoring variables B, C, and D. We don’t explicitly realize it, but we all hold a theory of how our business works. We “know” which knobs to turn and what results to expect. However, our theory of our business is often plagued with incorrect assumptions, hidden premises, and obsolete explanations. This leads to faulty metrics and dangerous goals. Reality, though, has a way of imposing itself. Hence, we find ourselves attending post-mortem sessions trying to inventory lessons learned. We notice, often after the fact, that the world has changed; that what used to work, works no longer.
The point is that building a dashboard of metrics is a task that deserves thought and study. It demands that we make the implicit explicit and that we surface the premises we hold regarding our business. It requires careful deliberation to assure that the unintended consequences of pursuing the selected metrics and goals are explored.
A culture that welcomes learning is a necessary condition for high performance. Not only does it safeguard against the harmful effects of ill-defined goals but it also serves as a feedback and “feed-forward” mechanism to hone, fine-tune, and actualize our theory of our business. In a learning culture, for sure, goals are diligently pursued; however, people also keep an eye on the validity of the metrics. They are aware that, in a way, they are testing a hypothesis and if evidence that disproves it starts to build-up, they are quick to reflect and course correct accordingly.
Overly aggressive and poorly defined goals can lead to an end-justifies-the-means mentality. Protect your organization against metrics myopia through deliberate discussions of your “theory of the business.” Finally, let’s not forget Einstein’s advice regarding measurement: “Not everything that can be counted counts, and not everything that counts, can be counted.”
Copyright 2011 QBS, Inc.