Wrong Metrics, Wrong Behavior: Inappropriate Measures Can Lead to Behavior Inconsistent With Business Objectives

by Richard Snow, Ventana Research

 

Companies today have become obsessed with metrics; everything from top-line executive measures (sales by product, region, customer etc.) to detailed operational measures (expenses by salesmen, etc.). Techniques and technologies to produce the numbers behind the metrics have proliferated; Data warehouses, Business Intelligence, Enterprise Reporting, etc. At Ventana Research we see measures as just one small aspect of Performance Management. Performance Management is the discipline of bringing together business and IT to agree on, align to and execute a strategy, supported by a series of process changes and IT systems that improve both business and operational performance. Organizations should make their metrics more relevant, consistent and auditable to support Performance Management and drive behavioral changes that are supportive of overall business objectives.

Organizations that want to align their people, processes and systems to support Performance Management should focus on how to move beyond a measurement culture that fails to change behaviors that don't support those goals. Metrics must be linked to corporate plans and goals to enable the process of Performance Management.

 

We see three issues in today’s measure driven organization:

 

1. Relevance

2. Consistency

3. Auditability

The biggest challenge is to make performance metrics relevant and supportive of business objectives and Performance Improvement goals.  Relevant measures will create the right focus - so that everyone has the right information to support rapid decision making.  It is also important to apply performance metrics correctly and to address the underlying issues rather than taking a course of action that is primarily concerned with “making the numbers right”.  This will drive behavior that is consistent with corporate objectives and will avoid conflicting behaviors that arise because one person’s measures are at odds with other individual's.

 

Today’s businesses generate vast amounts of data: financial transactions, sales transactions, customer interactions, etc., from relatively simple systems on individual laptops to enterprise wide systems. This inevitably leads to inconsistencies down and across the organization where different departments within an organization have different definitions and views of the same metrics. In addition, inconsistencies arise because the base systems were probably developed at different times, by different departments, for different uses. Organizations should standardize the management of their data, particularly with regard to business hierarchies, metrics and linkages to applications and a set of enterprise wide processes.  Leveraging a program management office's focus on Master Data Management (MDM) can go a long way towards ensuring consistent information throughout an enterprise.

New compliance regulations (SOX, etc.) have raised the awareness of the importance of auditablity of corporate data and of the metrics derived from it.  Ensuring the secure and accurate management of the transformation of data to information and of its use throughout the enterprise is critical. In truth, these should be best practices anyway.  In many ways auditability supports right behavior or right actions; un-auditable data, information or transformation processes often lead to wrong behavior.  Furthermore, measures are often used to pass blame, not to drive corrective action and improvement. That behavior negatively impacts auditability and prevents or limits compliance. Organizations should be putting in processes that ensure that corporate policies and procedures are in place to both protect and leverage information assets.

 

Executives seem to have a blind spot for processes.  They are more focused on numbers, and often fail to recognize that processes are what actually drive results. Also, they may not understand or see that that badly designed or badly implemented operational metrics can easily drive inappropriate behavior in the work force.  One way to avoid that outcome is to develop a set of enterprise-wide processes that are aligned both down and across the organization, and then to tie the relevant metrics to those processes.  Those, in turn, need to be supported by an Information Architecture, i.e. a set of processes and integrated systems that focus on data rather than system functionality.  This will help eliminate issues that arise because the data behind corporate metrics typically resides in different systems, in different formats.  Ventana Research recommends that organizations take a hard look at their data and metrics to ensure relevance, consistency and auditability.  Emerging technologies such as Data Integration and Master Data Management all support the improvement in the consistency and quality of data but unless these are used to drive better behavior, organizations will not see the performance improvements they are seeking. 

Related Research Notes:

Aligning Business and IT to Improve Performance for a Competitive Advantage

 

CRM Projects with Wrong Expectations have Ended in Contact Center

 

Operational Performance Cannot Improve by CRM Alone

 

Ventana Research is the preeminent research and advisory services firm helping our clients maximize stakeholder value with Performance Management throughout their organizations. Putting research in a business and IT context we provide insight and education on the best practices, methodologies and technologies that enable our clients to leverage assets to understand, optimize, and align strategies and processes to meet their goals and objectives.