October 2006
The following article was first published in the Eastern Daily Press' 'The Business' on 18 October 2006
What gets measured, gets done… but measure the right thing
It's axiomatic that `what gets measured, gets done'. Measurement is our way of knowing if things are going well, or whether we have problems on the way. I'm sure that most readers of this column will have at least a few key numbers that they measure regularly in their business - probably things like sales revenue, profit and the costs that make up the difference between those two. Many of you will also measure more operational things like production line efficiency or material wastage if you're a manufacturer, for example, or maybe the number of rings before answer or calls completed per hour if you run a call centre.
Of course, a measurement on its own isn't much use - it's merely a snapshot in time. We need a target, a goal to be aiming for, and the measurement should then show us how we're progressing towards that goal. As the Cheshire Cat said, in Alice in Wonderland, “If you don't know where you're going, any road will take you there.”
But, it has been shown that just putting measurements in place at all impacts people's behaviour and that productivity, for example, can improve slightly with no other action being taken. This phenomenon is known as the Hawthorne Effect and was described in the 1930's by the researcher after whom it is named. The key here is that the right metrics can drive good behaviour and the wrong metrics can lead to behaviour that is counterproductive. This is often because people are rewarded in some way for hitting the `right' numbers. For example:
Unbalanced metrics: “Let's do whatever we can to get customers to pay immediately, so we can reduce our Debtor Days” - thus jeopardising customer relationships.Rewarding wrong behaviour: “Let's spend the surplus on a new project in December, or the budget will be lost.”Conflicting objectives: “Why don't you order more units than you need and ship those you don't need back to us next month? I can give you a nice discount, and I'll still make my sales target and get my bonus.”When deciding which things to measure in your organisation, I believe it is vital to think first about the overall purpose of your business - its value proposition. I don't believe that the true reason for any business is simply to make a profit. Rather, it is to provide value to its customers through the provision of goods or services which benefit them in some way and for which they are prepared to pay. Profit is merely the end result of delivering that value to customers whilst managing the process effectively and efficiently. So, measure and reward those activities that deliver customer value and which will ensure that your customers will stay with you, providing profit for years to come, not just those that show short-term or narrowly focused results.
Don't focus too fixedly on measures like sales revenue, profit or overheads, because in isolation they won't tell you if you're doing the really important things well. Things like providing outstanding customer service and products that they can trust, will return to buy again and will recommend to their friends. These are the things that truly drive business success.