The disruptions of the past year have been so massive that when it comes to strategy, keeping old metrics in play would be a huge mistake. The Covid-19 pandemic and the social and economic shifts that rose out of the tumultuous time have changed business as we know it.
Many reliable indicators of progress or success now no longer apply. Even if some metrics have endured, their significance may have changed, which means the way you target and measure them will need to change as well.
As you think through your strategy, now is the time to assess which metrics you should be prioritizing, how you can measure them, and why they’re valuable to your business in the aftermath of Covid-19. In their strategies, many companies are undermined by broken metrics.
The $185 million KPI mistake
Wells Fargo’s strategy is a prime example of the damage focusing on the wrong metrics can have. The bank was looking to increase the number of products customers had with them, and cross-selling was touted as the best solution for this. The bank defined a KPI on cross-selling with a target of 8 products sold per customer centered around the catchy motto ‘Eight is great.’
Wells Fargo employees opened fraudulent accounts so that they could make their sales and cross selling targets.
In the end, the company found out that they had chosen a wrong incentive that led to creating 2 million accounts or credit cards that the customers had no knowledge of and being slapped with a $185 million fine.
In Harvard Business Review, Michael Harris and Bill Tayler say, “Every day, across almost every organization, strategy is being hijacked by numbers, just as it was at Wells Fargo. It turns out that the tendency to mentally replace strategy with metrics—called surrogation—is quite pervasive. And it can destroy company value.”
Strategic elements such as innovation and agility don’t always fit in the neat confines of metrics such as KPIs. Forward thinking companies are using metrics such as OKRs to align everyone around well-defined goals and clear measures of success. OKR stands for Objectives and Key Results, while KPI Stands for Key Performance Indicator. OKRs are Action-oriented goals (objectives) and measures (key results) while KPI’s are Number (metrics) that measure the health of your business.
Being fit for purpose is the objective, so if you are looking to scale an existing product or something that falls into the “business as usual” category, KPIs are sufficient because they fall in with ongoing business processes. For innovative projects that have an ambiguous or unpredictable outcome, OKRs are a better fit. OKRs will enable you to set goals, measure, learn, and adapt with more speed. Many companies are using these measures concurrently to get the most bang out of their strategy.
A huge risk that many companies face is declaring a strategic direction but having misaligned metrics.
The idea of a perfect, ever-green set of KPIs is an illusion. That’s because the context or environment in which we’re measuring is always changing, thereby shifting what is meaningful to measure.
The different components of context, like shifting customers needs and wants, market accessibility naturally change, but have became exacerbated by the pandemic and rapid digitalisation.
Since metrics aren’t created equal, how do you know if you have good or bad ones? Good metrics have a clear business goal behind them; they have results indicators related to the quality or to the value created and an action plan that is aligned with indicators.
Why do metric failures happen?
Lack of alignment between strategy and metrics is often a leadership deficiency. It is a symptom of formulating metrics at the top and mandating them to the bottom, skipping the discussion phase. Failures pertaining to metrics are also often a result of setting the target value for an indicator, but not discussing an action plan.
In Wells Fargo’s case, pushing employees too hard towards working for KPIs meant the KPI itself became a target, and this created a situation where the focus was on the destination at the expense values.
Since its big scandal, Wells Fargo has stopped paying employees to cross-sell and has eliminated sales-based goals because an preoccupation with sales quotas had developed. The bank now gauges strategic success using at least a dozen metrics related to its customer focus, emphasizing that no single number tells the whole story and encouraging employees to consciously reject surrogation.
Get your own metrics right
If you’re examining your strategy more closely, consider how the environment has changed so that the metrics are aligned to that new reality.
Settling on the right metrics can be tricky. A few questions to pressure test yours include asking whether they provide a way to see if your strategy is working. Additionally, do they provide a common language and understanding for communicating our performance, and are they verifiable and guarantee accurate data.
Should you require a leadership coach or our support with your strategic, operational and or leadership initiatives
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