You’ve heard that before right? Well, it’s not always so easy.

I think one thing that sets big companies apart from small companies are how they use measurement in their decisions. Big companies get it wrong because:

• A) they measure the wrong things – we’ve all heard stories of call centers giving bonuses based on shorter call times which result in operators ending calls quickly, but not necessarily successfully.
• or B) they measure things that are easy to measure and assume that makes them true. How often have you had to fill out a survey where you rate things from stongly disagree to strongly agree. You know that even if you’re diligent and honest the very nature of the questions give a skewed impression of what you really think and how many are honest and diligent when they fill these out?. Multiply that by the hundreds or thousands that get averaged into a report, and it’s no wonder executives make decisions that don’t fit the market.

Small companies get it wrong because measuring things is expensive and time consuming so they just don’t. I think this is one of the leading causes of small company failure.

Seth Godin had a couple of posts on the subject: Measure that  and don’t measure this.

To which I respond: Effort (and results) skew toward what you measure and often they skew away from something else.

If you measure widgets per hour you’ll likely get more efficient – more widgets per hour. But perhaps you’ll be sacrificing quality. If you measure quality (say defects per batch) you’ll get better quality but perhaps you’ll be sacrificing efficiency.

The trick is to put in place the right set of complimentary measurements. Measure both efficiency and quality understanding that they are both important but may tend to be mutually exclusive. So you want to hit that sweet spot in the middle.

I learned this from Andy Grove’s book “High Output Management.” It may be a partial solution to the dilema shown by Robert Austin in his book “Measuring and Managing Performance in Organizations” His point (I’m paraphrasing here) is that it’s impossible to actually define, let alone measure, all the important things in an organization. Hence whatever measurements you make will be an imperfect representation of what you want (like a blue print is a representation of a house, but you can’t live in the blue print.) And  whenever you measure performance, people learn to game the system and do more of what’s measured at the expense of something that may not be measureable but is important.

All this shows (to me anyway) how important is the job of management – not just leadership - in an organization. It’s the job of management to develop systems whereby people are encouraged and supported to do their best in the direction of the organization doing more as a unit than people can do independently. What to measure and what to do with those measurements is a big part of this.

Takeaways:

• Figure out the few things that are important to measure in your company right now.
• Put in the effort to measure them properly. Then use those measurements.
• Realize that what you measure doesn’t tell the whole story.