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Published: January 3, 2011

 
 

The Seven Deadly Sins of Measurement

Provincialism. This sin permits organizational boundaries and concerns to dictate performance metrics. On the surface, it would seem natural and appropriate for a functional department to be measured on its own performance. That is, after all, what its managers can control. In reality, however, measuring so narrowly inevitably leads to suboptimization and conflict. One insurance company CEO has complained that he spends half his time adjudicating disputes between sales and underwriting. The sales department is measured on sales volume. Not surprisingly, the sales force tries to sell any willing customer. Underwriting, on the other hand, is measured on quality of risk. Naturally, the underwriters want to reject all but the best prospects. The two departments clash constantly. If the salespeople win, the company will be paying out more in claims. If the underwriters win, revenue will be less than it would otherwise have been. Higher costs or lower revenue? The top brass has to choose between two evils.

Narcissism. This is the unpardonable offense of measuring from one’s own point of view, rather than from the customer’s perspective. One retailer measured its distribution organization on how well the goods in the stores matched the stock-on-hand levels specified in the merchandising plan. They had a satisfying 98 percent availability when measured in this way. But when they thought to measure to what extent the goods in the stores matched what customers actually wanted to buy, rather than what the merchandising plan called for, they found the figure was only 86 percent. Another retailer measured goods in stock by whether the goods had arrived in the store; eventually the company realized that simply being in the store did the customer no good if the product wasn’t on the shelf — and on-shelf availability was considerably lower than in-store availability. These companies measured things that interested them, not their customers.

A consumer goods maker managed its distribution operations by focusing on the percentage of orders from retailers that it filled on time. Sounds sensible. By tracking, reporting, and relentlessly seeking to improve this number, the company got it up to 99.5 percent consistently. That’s the good news. The bad news is that when the company happened to take a look at the reality of retailers’ shelves — which is what consumers see — it found that many of its products were nonetheless out of stock as much as 14 percent of the time. Many companies measure the performance of order fulfillment in terms of whether the shipment left the dock on the date scheduled. This is of interest only to the company itself. Customers care about when they receive the shipment, not when it leaves the dock. Perhaps the most egregious instance of narcissism that we have encountered was at a major computer systems manufacturer. This company measured on-time shipping in terms of individual components; if it shipped, say, nine of ten components of a system on time, the company claimed a 90 percent score. The customer, of course, would give the company a 0 percent rating, since without all ten components the system is useless.

Laziness. This is a trap into which even those who avoid narcissism often fall: assuming you know what is important to measure without giving it adequate thought or effort. A semiconductor maker measured many aspects of its order processing operation, but not the critical (to customers) issue of how long it took from the time the customer gave the order to the time the company confirmed it and provided a delivery date — simply because the company never thought to ask customers what was really important to them.

 
 
 
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This Reviewer

  1. Jim Champy is coauthor, with Michael Hammer, of Reengineering the Corporation: A Manifesto for Business Revolution (HarperBusiness, 1993), which sold more than 3 million copies. He has written seven additional books, most recently Reengineering Health Care: A Manifesto for Radically Rethinking Health Care Delivery (with Harry Greenspun; FT Press, 2010). He is chairman emeritus of Dell Services Consulting and was chairman and CEO of CSC Index, the management consulting arm of the Computer Sciences Corporation.

This Excerpt

  1. Faster, Cheaper, Better: The 9 Levers for Transforming How Work Gets Done (Crown Business, 2010), by Michael Hammer and Lisa W. Hershman
  2. Michael Hammer was the president and founder of Hammer and Company and the author of four books, including The Agenda: What Every Business Must Do to Dominate the Decade (Crown Business, 2001) and Beyond Reengineering: How the Process-Centered Organization Is Changing Our Work and Our Lives (HarperBusiness, 1996). A professor of computer science at the Massachusetts Institute of Technology and a founder and director of several high-technology companies, Hammer was named by Time magazine to its first list of the 25 most influential individuals in the United States.
  3. Lisa W. Hershman is the CEO of Hammer and Company. She previously served as corporate senior vice president of operational excellence at Avnet Inc., a leader of process and resource development efforts at Brightpoint Inc., and an engineer at General Electric Company. Faster, Cheaper, Better is her first book.