Businesses must measure up to customers’ values

The mantra ‘what gets measured, gets managed’ has many positive effects, but companies must be aware of its limits as an efficiency driver, says Alan Mitchell

The phrase “What gets measured, gets managed” has achieved the status of universal mantra, especially in marketing, as the quest to demonstrate return on investment (ROI) and accountability has intensified.

It’s not hard to see why. As Alison Bond of ABA Research notes in a recent White Paper: “Organisations move in the direction of their measures”, so if the measures adopted by the organisation are wrong in any way, the organisation itself has a problem.

Examples abound. Just recently, the Chartered Institute of Management Accountants reported on a company driven close to bankruptcy by its own salesforce. Incentivised solely on the basis of sales volumes, sales people were closing endless sales to unprofitable and non-creditworthy customers: bad debt collection had become one of the company’s biggest operations.

Hence the obsession with finding the right measure to focus on. Is it sales? Is it profitable sales? When you say “profitable sales”, is profit based simply on margin achieved or does it include cost-to-serve, calculated by customer? Is it transaction value, or life-time value? On what basis are you calculating life-time value? Does your calculation include a charge for the capital employed in the process? And so on.

Another benefit of this growing obsession with measures is that measuring and learning go hand in hand. If you don’t measure the results of what you do, and analyse cause and effect, how on earth can you improve your performance?

So the mantra has positive effects, but it also has its dangers. In too many companies “what gets measured, gets managed” has degenerated into an exercise of management by numbers. Everything is focused on “making the numbers”, regardless of the strain it puts the organisation.

Quality guru Edward Deming was obsessed by measurement. His book Out of the Crisis is full of arcane discussions of measurement techniques to crack the dynamics of how a particular production system is working. Yet most important message about measurement was this: most measures are like accident statistics. “They do not tell you how to reduce the number of accidents.”

His fundamental point is still ignored by many target-obsessed companies: the results a company generates are a by-product of its own particular wealth-creating system. “You will get whatever the system will deliver,” said Deming. “A goal beyond the capability of the system will not be reached. And if you have a stable system, then there is no use in specifying a goal”.

In other words, if you want to improve your performance, improve your system (and use measures to do this). But don’t use measures to set targets or judge performance. Deming declared: “Management by numerical goal is an attempt to manage without a knowledge of what to do, and in fact is usually management by fear.”

The limitations of “what gets measured, gets managed” can be seen if you consider some alternative slogans. How about “managers measure what matters to them”. This brings forward the politics of the situation, rather than hiding behind an anodyne observation of fact. When a company measures calls handled per hour at its call centre or the cost savings of interactive voice technologies, but does not measure the customer frustration created by such practices, it speaks volumes about its values. Which takes us closer to the truth. Most measures do more than measure facts. They manifest a particular value set. That is why changing a company’s key performance metrics and changing its culture are so closely connected.

Now let’s take another step: “You see what your senses allow you to see.” The point here is that measuring devices only measure what they are designed to measure. Our eyes are not designed to hear, so we don’t hear anything with them. Financial measures are designed to measure cash flows, margins and profits, but they do not register emotion, creativity or motivation. That doesn’t mean that noise, emotion and creativity don’t exist, however.

So before we start worshipping the idea of measures, we need to take a look at which measuring devices we are using. Over-reliance on one device simply generates institutional blindness to those aspects of reality the device can’t see. This raises an important question.

We humans rely on a whole range of senses – sight, sound, touch, smell, taste – so why do so many companies rely on just one – the one that registers only money? When the finance director demands of the marketer or human resources specialist “show me the ROI on your brand” perhaps the best answer is another question: “show me how your ROI measures generate positive emotions, creativity and strong motivation”. No wonder corporate interest in balanced scorecards, which attempt to create metrics that capture different dimensions of organisational performance, is growing.

Now for one last step. How about placing “what gets measured gets managed” next to “what gets felt gets acted upon”. In his 1998 book Emotional Capital, Kevin Thomson created two simple lists of emotions people commonly experience at work. One list had words such as enthusiasm, commitment, delight, pride, desire and trust. The other had fear, anger, apathy, hatred and anxiety. Now think about your own experience at work. What actually drives how you behave? The measures managers obsess about? Or emotions?

My bet is that 99 times out of a 100, it’s the emotions not the measures. But what possible measuring device could capture and calibrate all these emotions? There is one. It is exquisitely sensitive and alert. Organisations are full of them, and surrounded by them. It’s called a human being: the most superb measuring device ever invented, with an instant capability to tell you what’s valuable and what’s not.

“What gets measured gets managed” suits a world of things and machines. But it doesn’t begin to grasp the complexities of a world where what people feel drives what they do, and where what people do determines organisations’ success or failure.

Here we get to the nub of it. Crudely speaking, there are two schools of marketing. The first is basically “inside-out”. The organisation looks inside at its own costs and goals, and uses them to generate targets. It then looks to marketers to achieve these targets: for example, sales volumes or market share.

The second is basically “outside-in”. This approach recognises that the measure that matters is what customers feel is valuable. Profits flow from being able to generate this feeling efficiently. Therefore, internal metrics need to be constructed around these measures of what customers value. Ultimately this boils down to aligning the company inside to what customers want outside.

How do you generate robust, easy-to-use measures of what customers value that can create operationally meaningful internal metrics? Answer: with great difficulty. But without a sustained attempt to do so, the measures the organisation focuses on are probably little more than Deming’s accident statistics.

Alan Mitchell, asmitchell@aol.com

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