133 How Metrics Undermine Real Value

#133 How Metrics Undermine Real Value


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In this episode we review an article that Harvard Business Review published this month, Sept 2019, on the problem with metrics undermining strategy. The authors claim the problem is metrics undermine value creation by distracting the mind at work in their operations and they forget the source, and purpose of their work, is producing strategy. 

 

The authors offer three issues:

  • First, those running the operations to execute on strategy are held accountable for metrics that are really proxies for the strategy direction intended to increase corporate value, substitutes from the value itself. 
  • Secondly,  most people cannot make the leap and so are detached from the strategy and tethered to the metric by goal-setting processes to achieve something in their annual plan. These plans are ultimately dictated the potential individual progression possible in everyone’s careers; and often their pay is inextricably bound to the metrics as well. The authors call this mental practice surrogating, as in becoming a surrogate for the real thing, the strategic intention.
    • The article provides a few examples on how the idea of metrics are related to strategy, even though it’s clearly fraught with problems. 
      • You might recall Apple’s idea to “Think Different!”, a very popular marketing campaign and strategy that Apple used to propel the company to new heights. However, the effectiveness of this lofty idea was quickly measured in terms of sales totals tied to the purchase of new products.
        • Similarly, inside Ford Motor Company pursued the idea of “Quality is Job One” by making Six Sigma project management the thinking approach for all organizational members from production to marketing. The organization soon after lost its way combing the strategy with this process since it was no longer about strategy, but about numbers. 
        • We would argue that this also proves the point that not only are metrics a distraction and easy for the simplicity driven mind to adopt, but also that the strategic idea of Quality as Job one was a weak strategy. 
          • The strategy was abstract when the metrics were concrete.  We are attracted to the concrete because the senses can count it. But it is seen as pretty much the same thing when presented to the organization as work plans and accountability drivers. 

 

  • The key assumption that we are challenging is that of executing on a strategy was just fine but it was just the metric co-opting the strategy that created a problem.
  • It led them to miss a big part of the problem and mistakenly offer solutions from the same Arrest Disorder Paradigm that created them. 
  • What we have here is a strategy coming from a paradigm that is pretty limited. The authors imply that Steve Jobs replacement CEO in the 80s led temporary cries of ‘Let’s slow down the sales drain!” 
  • This led them to then unconsciously create metrics which were tied to a very limiting strategy where people pursue numbers instead of the strategy. So, you work hard to get a strategy, and lose track of it immediately, no matter the correctness or value. 
  • Their third idea is to give people multi-metrics tied to compensation since there are some indicators that they surrogate ‘less’ if their pay is tied to more metrics.
  • Business Second Opinion’s meta-analysis shows even more significant shortfalls. The others are all based in the idea that strategy is an internally considered and configured activity versus external view of strategy. Meaning- strategy is done based not on what the business gets but  what the stakeholders have as new capacity. 
  • With an internally considered strategy,  the targets are all internal to the business’ success. For example, how much more sales they can get from some markets, based on margin improvement. This kind of thinking all comes from the extract value paradigm. In a Regenerative strategy, the strategy is asking how do we advance the stakeholders capacity and goals.
  • Here is an example of what it looks like to have yourself pursuing metrics at that further downstream interface:
  • We look into the lives of our stakeholders and customers and ask ourselves: what new capability did we help them build? What would our customers measure? 
  • The focus of attention needs to be way upstream and downstream. If we notice that the language of our strategy is too focused internally and is lacking a real client or customer in its foundation, we know we haven’t considered it deeply enough. 
  • The other major shortfall which  we already hinted at if using an arrest disorder paradigm to do strategy from. The talk about ‘reduce surrogation” and put up guard rails against it.  What would they be asking with strategy if they had a good paradigm for strategy and a Regenerative one?

 

Thanks again to Jack Tatum from Dallas, TX for suggesting our topic. We are sending you a Get a Second Opinion Mug, holds your favorite hot or cold beverage. If you want one of our Get a Second Opinion Mugs, send us your topics on practices in business that need a second opinion. You can email us carol@businessSecondOpinion.com or find us on Twitter @biz_second_opinion . If we use it to develop an episode, you get a mug. Also, your ratings and reviews on any platform help people find us and spread the word. Sign up for our newsletter so you get connections to the show notes and much more. 

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