Managers need to be particularly careful when setting up measures that they actually drive the behavior that is desired. It sounds ridiculous to think a measure would actually drive people to do the wrong thing, but it happens in every organization on a daily basis. Be careful it does not happen to you.
For example, in an effort to boost sales, the CEO instituted “number of sales calls” as a measure. This was based on historical data showing total revenue is highly correlated with the number of sales calls. Unfortunately, with the new measures in place, your sales team spends significantly less time and energy on each individual customer in order to get more sales calls accomplished. This reduces the “hit rate” at closing sales. You are pretty sure the data for this year will show a negative correlation between revenue and number of sales calls, but the measure will show a stellar year, and the sales team will be richly rewarded for making a lot of calls.
In an effort to reduce costs, a measure has been set to decrease the amount of rework in the factory. Rework has accounted for 30% of the product cost, and the goal is to cut that in half. So far the measure is on track, but you have discovered the inspectors are passing slightly defective product that would have been previously rejected. You are fearful that customer satisfaction will take a hit, but at least the level of rework measure will look good so workers will get their bonus.
One significant problem has arisen due to the measure selected for “employee satisfaction.” Based on some HR literature, the senior management has focused on training as the key driver of employee satisfaction. A strong link has been shown between training and motivated employees. Everyone in the organization must have at least 50 hours of training a year for the company to score well on the measure. You are finding that people are being forced to attend training they don’t want or need in order for the corporation to get a maximum score. However, the employees are very unhappy because nobody is there to backfill for the 50 hours they miss, so they have to work extra hard to make up the time. Of course, there is no overtime available because that is too costly. Employees seem really up in arms about this issue and are considering bringing in a union, but the measure is going to show outstanding “employee satisfaction” for the year.
It is critical for managers to verify that the behaviors being driven by the metrics on which people are being compensated are really helping not hurting corporate performance.