An electric power utility assumed that customers cared about speed of installation and so measured and tried to improve it, only to discover later that customers cared more about the reliability of the installation date they were given than speed of installation. Companies often jump to conclusions, measure what is easy to measure, or measure what they have always measured, rather than go through the effort of ascertaining what is truly important to measure.
Pettiness. Too many companies measure only a small component of what matters. Executives at a telecommunications systems vendor rejected a proposal to have customers perform their own repairs because that would require putting spare parts at customer premises, which would drive up spare parts inventory levels, a key metric for the company. It lost sight of the fact that the broader and more meaningful metric was total cost of maintenance, which is the sum of labor costs and inventory costs. The increase in parts inventory would be more than offset by a reduction in labor costs produced by the new approach.
Inanity. Metrics drive behavior, but too many companies implement metrics without giving any thought to the consequences of these metrics for human behavior and consequently for enterprise performance. People in an organization will seek to improve a metric they are told is important, especially if they are compensated on it and even if doing so is counterproductive. For instance, a regional fast-food chain specializing in chicken decided to improve financial performance by reducing waste, which was defined as chicken that had been cooked but unsold at the end of the day and then discarded. Restaurant managers throughout the chain obediently responded by driving out waste. They told their staff not to cook any chicken until it had been ordered. Thus did a fast-food chain become a slow-food chain. Yes, waste declined, but sales declined even more. Managers might keep in mind this variant of an old adage: “Be careful what you measure — you may get more of it than you want.”
Frivolity. Not taking measurement seriously is perhaps the most grievous sin of them all. The symptoms are easy to see: arguing about metrics instead of taking them to heart, finding excuses for poor performance instead of tracking root causes, and looking for ways to blame others rather than shouldering the responsibility for improving performance. If the other errors are sins of the intellect, this is a sin of character and corporate culture. An oft-heard phrase at one financial services company is “The decision has been made; let the debates begin.” When self-interest, hierarchical position, and voice volume carry more weight than objective data, even the most carefully designed and implemented metrics are of little value.
As with the seven deadly sins, the sins of measurement often overlap and are related; a single metric may be evidence of several sins. A company that commits these sins will find itself unable to use its metrics to drive improvements in operating performance, which is the key to improved enterprise performance. Bad measurement systems are at best useless and at worst positively harmful. And don’t be fooled by the old adage “That which is measured improves.” If you are measuring the wrong thing, making it better will do little or no good. Remarkably, these seven deadly sins are not committed only by poorly managed or unsuccessful organizations; they are rampant even in well-managed companies in the forefront of their industries. Such companies manage to succeed despite their measurement systems, rather than because of them.
— Michael Hammer and Lisa W. Hershman
Excerpted from Faster, Cheaper, Better by Michael Hammer and Lisa W. Hershman © 2010 Hammer and Company. Reprinted by permission of Crown Business, an imprint of the Crown Publishing Group.