Management by Metrics

What you measure will improve, but that isn’t always the best idea. Not always. Peter Drucker, one of the most famous management psychologists of all time, said that you can’t improve what you can’t measure. In line with this statement, many of the most successful companies of all time obsess over specific metrics, whether it is MAU (monthly active users) or minutes watched on the platform.

But the metric isn’t the whole story. Now, by itself, the fact that a metric doesn’t tell the whole story isn’t an issue. It is an issue when these metrics are used to make key decisions while other factors are ignored.

There is a story about British rule in India. The British were worried about the numbers of venomous cobras in Delhi, and so offered a reward for bringing in a dead cobra. Initially the plan worked as Indians collected and killed many Cobras, reducing the number of cobras in the streets. But entrepreneurial Indians started to breed cobras so that they could make even more money. Once the British caught on to this they scrapped the reward program. As a result, many Indians were left with cobra they didn’t want so they released them into the streets, leading to a net increase in the Cobra population.

This has occurred again in Vietnam with the French government and rats, where the government would pay for a rat tail, but the Vietnamese would catch rats, cut of their tails, and re-release the rats back into the wild to breed. A more recent example in politics comes from the EU carbon-credit scheme which would reward companies for collecting and disposing of dangerous polluting chemicals. As a result some companies started to produce more of these polluting chemicals just so that they could later dispose of them.

This myopic decision making can also be seen in many of today’s Lazy Giants. In the words of Jacob Greenfield, “Google’s search results are dominated by ads and many users now use workarounds to find what they’re looking for. LinkedIn looks like Minesweeper… And if you search for an electronics product on Amazon, you immediately feel like you’re at a flea market in the middle of Shenzhen.”

Facebook’s number one metric is Monthly Active Users. Do you know what keeps people coming back to Facebook? Extreme emotions. Do you know what emotion spreads fastest on social media and drives the biggest reactions? Outrage. When users are constantly bombarded by posts that outrage them about people outside their group, they are driven further into their in-group, fuelling political division. Social media’s optimisation for short term gain has cost our society a lot.

Medium and LinkedIn feel like a clickbait race to the bottom. Writers on these platforms are rewarded for short sentences, lots of spaces, and getting people to like and comment. As a result more people post “articles” of lower quality. Where volume matters quality will suffer. Most of the Medium posts that I see are rehashed, oversimplified, and over-glorified copies of good writing, but good writing takes time to read, which Medium doesn’t reward people for.

Executives at public companies often get their bonus’ based on factors including company stock performance. So why is it a surprise that many companies are managed for short term stock gains rather than for long term growth?

In sum, many organisations throughout history have been victims of relying too heavily on metrics. An HBR article from September 2019 calls this process surrogation, and it happens when a strategy is abstract, the metric is simple, and the employee accepts the substitution of the strategy for the metric.

There is no simple solution to this issue. The same HBR article advises that the people responsible for implementing a strategy are also responsible for formulating it so that they understand the complexities of the strategy. Secondly, HBR advises people to use multiple metrics, not just one. Bain invented the Net Promoter Score back in 2003 and uses it as an additional datapoint to help clients to understand their customers, using it along side other metrics like cost to serve, revenues, and purchase frequency.

HBR also advises that metrics and incentives are less tightly coupled. At Netflix, no-one receives any bonus. This is because exceptional performance is the expectation, because big bonuses reduce performance, and because tying an incentive to a metric locks that metric in as important for at least the next pay period. When agility is key, bonuses tied to metrics can hold your people back.

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