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Goals and metrics

Blog: Column 2 - Sandy Kemsley

I’ve been spending some time recently helping a few companies think about how their corporate goals are aligned with key performance indicators (KPIs) at all levels of their organization, like this:

image

Top-level goals, or what keeps the corporate executives awake at night, usually fall into the following categories:

As we move down the hierarchy, different levels of business managers are also concerned with operating margin/profitability, service time, compliance, and operational scalability; you can see a pretty direct line between these KPIs and the top-level corporate goals. For example, improved profitability is likely going to improve (net) revenue, while better service time means happier customers. When we reach the level of front-line workers, their KPIs are usually based on individual performance and skills advancement.

The problem arises when those worker-level KPIs are not aligned with the corporate goals; I’ve written about this in several presentations and papers in the past, in particular about how we need to change worker metrics in more collaborative work environments so that they’re rewarded for more than just personal performance. In doing some research on this, I came across Goodhart’s Law (via the book The Tyranny of Metrics), which is basically about how people will game measurement systems to their own benefit, particularly when goals are complex and the metrics are crude. That’s so true. In other words, given the choice between maximizing a poorly-designed metric that will benefit them personally, or doing the right thing for the customer/company, people will almost always choose the former.

Examples:

Any metric that is based on individual (or departmental) performance but can’t be aligned up the hierarchy to a corporate goal is probably going to be detrimental to overall performance, or at least neutral. If you can’t show how a task is contributing to the good of the enterprise, then why are you doing it?

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