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Expert Analysis: Metrics Can Lead In the Wrong Direction

People often come up with ingenious ways to distort measurement systems. Thus, metrics can not only discourage desired behavior; they can promote dysfunctional behavior.
The solution is not to discard measurement but rather to be conscious of this tendency and to be vigilant and thorough in the design of measurement systems. We all have a tendency toward simplifying things; but in some cases, it appears better to not measure at all than to produce something inadequate. Performance management, to achieve its goals, has to be applied effectively, which is to say, with superior execution of technology, implementation and management. It has to be designed to be responsive to both incremental and unpredicted changes in the organization and the environment. There are no road maps for this. This is truly the first time that analytical and measurement technology can be embedded in day-to-day, instantaneous decision-making and tracking; and the industry is sorely lacking in skills and experience to pull it off. Those organizations that have been successful so far have relied on existing methodologies (activity-based costing or balanced scorecard, for example) to guide them through the more uncertain steps of metric formulation and change management to close the loop.

The question of whether you can ever adequately measure an organization is still open. To the extent that there are statutory and regulatory requirements, such as taxation, SEC or specific industry regulations, the answer is clearly yes. But those measurements are dictated. To measure performance after the fact, at aggregated levels, is only useful to a point. The closer and closer a measurement system gets to the actual events and actions that drive the higher-level numbers, the less reliable the cause-effect relationship becomes, just like Heisenberg found so long ago. There are many examples in the management literature of everyone "doing the right thing" while the wheels are coming off the organization.

Neil Raden is the Founder of Hired Brains, a consulting firm specializing in analytics, business Intelligence and decision management. He is also the co-author of the book "Smart (Enough) Systems." Write him at [email protected]. A version of this article was originally published February 2009 at B-Eye-Network.com

Recommended Reading:
Measuring and Managing Performance in Organizations , by Robert D. Austin, (New York: Dorset House Publishing, 1996)
In the Age of the Smart Machine: The Future of Work and Power by Shoshana Zuboff, (New York, Basic Books, 1988)
"The New Productivity Challenge," by Peter Drucker, Harvard Business Review, (Nov.-Dec. 1991): p. 70.
"The Information Executives Truly Need," Peter Drucker, Harvard Business Review, (Jan.-Feb. 1995): p. 54-62.