Setting metric-driven goals can improve our bottom line. It can also drive you off a cliff. Metric-driven micromanagement can backfire if there’s no strategic imperative to protect and guide your business. Here’s why managing by the numbers should be only a part of your business’s best practices.
The Tyranny of The Numbers
Harvard calls it, “The tyranny of numbers.” Researchers are referring to the corporate over-emphasis on key performance indicators (KPIs) over business strategy. When business leadership gets too caught up in the numbers, they suggested, the consequences could be negative. How could this be, when tying performance to business metrics has become an accepted part of success for decades?
The problem, scientists say, is that our metrics are too often inaccurate or imperfect. Many times they’re used to quantify a goal that is either intangible or unattainable. The Harvard Business Review cites the metric of “delighting the customer” as an example.
Tracking progress toward this nebulous goal via an online customer survey could cause employees to manage the customer relationship toward the survey. They could pester customers to respond positively online, focusing more on the review itself than doing the job well.
Focusing less on the strategy behind the metric and solely on the metric itself may delight business leaders focused strictly on the numbers. Still, it may not be a delight to employees or your customers.
Metrics Over Business Strategy Causes Bad Decisions
KPIs are crucial to business success. But misusing metrics can foster all kinds of bad business decisions. If the marketing metrics are wrong, it can look like the company is doing well, but sales are declining.
For example, having an increase in website hits may or may not positively impact sales. Having an increase in page views can look good, but failing to capture conversions from those views actually illustrates a negative KPI for both marketing and sales. An increase in page views could simply mean you have one searcher that keeps coming back to the page because they can’t find the right search engine result.
Website traffic is not sales, so it’s a bogus metric that doesn’t measure to the right strategic goal. A better measure would be to use an ebook download to drive a website visitor to a more active interaction with your site. Then track your sales team follow up to the ebook download. How many of those contacts led to a sale? A website hit may or may not mean anything if it doesn’t lead to a conversion now or down the road.
Over-emphasizing KPIs can damage your corporate reputation.
Choosing the Right Metrics
What makes a metric useful? It should be actionable, trackable, and tied to a concrete business goal. It’s important to note that the business strategy always precedes the metric itself. For example:
- Business strategy: Increase profit margin by sale.
- Possible KPI: Amount of revenue generated by sale minus the cost of the sale.
The problem is that metrics in a vacuum do not give organizations the entire picture. For example, Wells Fargo tasked employees with the goal of cross-selling. Employees responded by opening more than 3.5 million credit accounts without customer approval. The good news? The employees hit the metric. But Wells Fargo was fined $185 million for bad banking practices in addition to reimbursing customer fees of $6.1 million. The long-term effects have included a decline in new customers and brand image.
Metrics, like all tools, are designed to work in tandem with business strategy. Over-emphasizing the numbers or using them in the wrong way can cause more harm than good. Business leadership seeking corporate growth and better customer and employee relationships should rethink their emphasis on KPIs and avoid the pitfalls of being too metric-driven.