The late Mike Hammer always delivered the unexpected in a strong voice with an intelligent edge that woke you up. When we coauthored Reengineering the Corporation, I discovered that no partner could have been more insightful, more probing into the behaviors of companies and their managers. Mike also had a great talent for metaphor. He said that inefficiencies were like fat marbled into a piece of meat, and that to get costs out you had to grind up the company and fry out the fat. That metaphor never made it into our first book. I told Mike that executives wouldn’t respond well to the notion of treating their companies so brutally.
But that didn’t stop Mike from being a radical thinker, always challenging the way things are done. He disdained the notion “if it ain’t broke, don’t fix it.” In this excerpt, from the book that Mike was working on before his untimely death at age 60 in 2008 (a work completed by his colleague Lisa W. Hershman), you will see that even things that look right can be wrong. Read it several times to grasp everything that’s here on how managers misuse metrics and measurement processes — sometimes unwittingly, sometimes purposely to deceive. It’s quintessential Hammer.
— Jim Champy
Excerpted from Chapter 2 of Faster, Cheaper, Better:
The 9 Levers for Transforming How Work Gets Done
In the sixth century Pope Gregory the Great formulated his famous list of the seven deadly sins — gluttony, greed, wrath, lust, sloth, envy, and pride. There are also seven sins of corporate measurement. Gregory’s list was meant to help an individual’s quest for salvation. Ours is more mundane: saving companies from fatal flaws in performance measurement.
Vanity. One of the most widespread failings in performance measurement is to use measures whose sole purpose is to make the organization, its people, and especially its managers look good. As one executive said, “Nobody wants a metric that they don’t score 95 on.” This is especially true because bonuses and other rewards are usually tied to performance measures. For instance, in distribution logistics, it is common for companies to measure themselves against the promise date — that is, whether they ship by the date that they promised the customer. A moment’s impartial reflection shows that this sets the bar absurdly low — a company need only promise delivery dates that it can easily make in order to look good on this metric. Even worse, companies often measure against what is called last promise date — the final date promised the customer, after changes may have been made to the delivery schedule. It takes real effort not to hit the last promise date. Moreover, achieving good results on the last promise date has no larger significance for company performance; it does not lead to customer satisfaction or any other desirable outcome. All you have to do is keep promising a later date. Even if you manage to hit that target 100 percent of the time, it’s likely that your customer wanted the product days, weeks, or even months ago, so don’t go patting yourself on the back.
A far better metric would be performance against customer request date. But achieving that goal would be far more difficult and might lead to managers not getting their bonuses. When executives at a semiconductor manufacturer proposed shifting from last promise date to customer request date, they encountered widespread resistance.
A metals refiner had been using yield — the percentage of raw material that was turned into saleable product — as a key performance metric, and everyone was very pleased that this figure was consistently over 95 percent. An executive new to the company made the observation that this figure glossed over the difference between high-grade and low-grade product. The refinery was supposed to produce only high-grade product, but poor processing sometimes led to low-grade product. The company then started to measure the yield of high-grade product and discovered that figure was closer to 70 percent. That was a much more meaningful representation of the refinery’s real performance. Unsurprisingly, that insight did not generate a lot of enthusiasm.