How to measure better

Friends,

I struggle often with the topic of measurements. I know how to do them well, and, I know how easily I can convince myself that I’m doing them well while failing to do them effectively. Measuring things also often comes with a lot of emotions for what many believe to be an emotionless topic. When I measure, I sometimes feel judgement, false comfort or unrealistic fear. Also, sometimes my measurements lead me to take actions at odds with my core beliefs and desired outcomes. For many years I tried measuring my life by dollars in the bank, until I came to see that number has only a weak relationship to my life satisfaction.

When done well, measurements can show me if I am progressing or falling short on my goals. Measurements can take the blinders off the idea of “I’m exerting a lot of effort, so I’m progressing!” and replace that false idea with “I sure am running hard on this hamster wheel!” Measurements can help us decide when to grow or shrink, to hire or fire, and to stay the course or take a U turn in our lives.

Failing at Measuring:

The most common type of measurement failure occurs when someone sets the goal to be the measurement. A common example occurs when the CEO of a company is given a goal to increase quarterly profits as a proxy for improving company function. Well, if quarterly profit is set as a goal, the CEO can simply starve the company of research and development, of training, and anything else that does not contribute to this quarter’s profit. They may get their specific measurement (quarterly profit) higher, and then earn their bonus, while destroying the company from the inside.

In small businesses, a common version of this error comes up when business owners first attempt to establish performance metrics. A manufacturer may incentive employees to produce a certain number of units per hour, only to find a month later that their return rate doubles because the units produced faster were made at a lower level of quality. A company that wants to increase sales may decide to give a bonus to the top performing sales person only to find that sales person sold unrealistic promises to make their goals. In my experience, like with everything else, establishing measurements is a skill and everybody sucks at it in the beginning. There are unintended motivational consequences to all forms of measurements.

Even when well intentioned, business owners are often surprised to find how easily employees will manipulate the metrics to achieve the outcomes. A fun example of this occurred when Hilton tried to measure guest satisfaction through random phone surveys. Hotel employees learned to simply transpose digits of the phone numbers of guests they thought likely to give a bad response. Then those hotels got top scores, because only happy customers received the calls! Also, Wells Fargo. Just like, all of Wells Fargo.

The final major error I find inexperienced business owners is a belief that a goal and a measurement are the same thing. I find that people often set goal *based on* the measurement instead of the other way around. I think people do this because they want to avoid the difficult question – “What do I want?” It’s much easier to say, “we will measure customer service surveys!” Than to say – “What do I want my company to do?” And then to decide “I want my customers to feel like their taking to an old friend when they talk to any employee of my company.” It both takes more work to decide that AND it’s much harder to do.  Instead, business owners learn to set goals first, and then to identify measurements to figure out if they’re making progress towards those goals.

So, How Do We Do it Right?

Companies that measure successfully set goals based on what they want and then establish the measurements to see progress of those goals. Additionally, successful companies set multiple triangulating measurements to avoid the likelihood of false positives and false negatives. They may decide that that they want to improve on their mediocre customer service record. That’s a goal. They decide to measure the goal through quarterly surveys of their customers, the percent of revenue spent on discounts due to poor service, and the ratio of five-star reviews on yelp. Those measurements are not their goal, they only inform progress towards the goal.

Personally speaking, we all set goals in our lives. The most common goal people set is a weight goal, which they then measure with a scale in the unit of pounds. This is a common example of a measurement substituting for a goal as well as a single data point one can easily manipulate.

For me, I measured my weight for years, fretting over every pound added and cheering for every pound removed. Only after much thought did I force myself to transition to a fitness goal. I decided that I want to be able to do any physical activity without pain. That’s my goal. Weight is a measurement in that goal (I know it’s harder on my body to carry more pounds and will lead to more pain) as well as how I feel after I work out. I observe if I feel any pain during the day and If I’m able to keep up with my friends on hikes and outings. Measuring all those things lets me feel satisfied with my physical condition, so that one of those individual measurements, my weight, is not the sole driver of my satisfaction with my health.

In my business I operate the same way. I used to let net profit be my guide, high net profit = happy, low net profit = sad. That made it easy for me to ignore long term trends. In 2015 when things were, by many measures, going badly, but I was still making a lot of money, I avoided making important decisions to carry that profit into the future. Only when I started to feel financial pain did I do things made 10x harder because I delayed them. Now I measure my business across many metrics of health and success, and net profit is low on the measurement priority list. Don’t get me wrong, I care about making money, but I know that if I do other, more important tasks, I will.

Overall, measurements used for the sake of marking progress towards goals work well, measurements used for the sake of the numbers being measured fail to move anything but the numbers themselves.

Leave a Reply

Your email address will not be published. Required fields are marked *