You have heard of painting by numbers, but these days the great fad
is management by numbers. I call it the metrification of business -
although it's just as prevalent in the public sector. If you know what
the initials KPI stand for, you'll know what I'm talking about.
I've
been a bean-counter all my working life, first as an accountant, then
as an economic journalist. So I've long believed in the importance of
measurement, of getting the measurement as accurate as possible and of
understanding the strengths and weaknesses of particular measures.
Much
of my apprenticeship as an economic journalist was spent making sure I
understood how all the economic statistics were put together. But as
I've watched the enthusiasm for "key performance indicators" and other
"metrics" grow, I've become increasingly sceptical about their
usefulness.
The rise of metrification has been built on repetition
of the seeming truism that what gets measured gets managed. It follows
that what isn't measured isn't managed.
It's certainly true that
what we measure affects what we do and the way we think about the
phenomenon being measured. So in the drive to hold workers accountable -
that is, to increase control over them - and improve their performance,
it's become fashionable among managers - private and public sector - to
measure key aspects of an organisation's performance.
It's only a
small step to setting targets for the performance measures and, often,
raising those targets from year to year. You might have targets for the
performance of organisations, but also for the performance of
individuals. And it's only another small step to link performance to
remuneration. We pay for results - what could be fairer?
The rapid
escalation of executive remuneration over the past 20 years has
occurred not so much because of the rise in basic salaries as the
proliferation of "performance pay". A study by Mihir Desai, of the
Harvard Business School, found that, in America, the proportion of the
total pay of senior managers that is based on share prices rose from 20
per cent in 1990 to 70 per cent in 2007.
But, as The Economist
reported last year, Desai found this had warped incentives and fostered
malfeasance. Managers had won huge payouts simply because the share
market had gone up, regardless of whether they had personally added
value.
"They have also gamed the system, sometimes illegally, to hit targets that put fat sums in their pockets," it said.
The
trouble with this measurement approach to accountability and reward is
that, as the American psychologist Martin Seligman has said, "If you
don't measure the right thing, you don't get the right thing."
When
the push for micro-economic reform was at its height, someone got the
bright idea that if you calculated and made public the equivalent of key
performance indicators for all the many responsibilities of the state
governments, you'd encourage them to compete among themselves to improve
their standing in the league tables.
The Productivity Commission
has now compiled and published these indicators for many years. But
someone who should know warned me they'd become completely unreliable.
Why? Because managers in each state had manipulated their results to
make them look good against the competition.
In 2005 the website
Crikey.com.au ran a letter from an anonymous public servant reporting
their experience with management by KPI.
"Early in June our
manager discovered we were a few percentage points away from meeting
operational requirements for the financial year. Rather than explain to
his boss that staff cannot perform well when there are continual
computer problems and weekly changes in procedures and priorities, he
instituted a series of ludicrous schemes to improve the statistics," the
person wrote.
"Any work that was already out of time was placed
on the backburner, not to be touched until after July 1, when it would
be counted in the next year's statistics. In other words, work that was
overdue would not even be looked at for another fortnight.
"For
two days staff did nothing but go through their files searching for
cases that could be closed without further action or referred to another
area. We achieved absolutely nothing in terms of genuine output for
those two days, but our percentage of resolved cases sky-rocketed. We
then started on the new work, but only worked on simple cases that could
be closed well within the acceptable operational time frame...
"On June 30 our manager proudly announced that we had achieved operational requirements."
I've
been around long enough to know that measurement can be a trap. People
can be mesmerised by numbers. Because they're objective, people take
them to be infallible. They forget (if they ever knew) the assumptions
and other limitations on which they're based, they take them to be
measuring something they're not and they forget how easily others can
manipulate them for their own purposes.
It's easy to measure
quantity, but much harder to measure quality. Most jobs are
multi-dimensional, but you can't have a KPI covering every dimension. In
which case, I can always meet my KPIs by cannibalising some dimension -
some aspect of quality - not covered by a KPI.
Einstein said "not
everything that counts can be counted". The modern preoccupation with
metrics is an attempt to over-simplify the managerial task by confusing
quantity with quality.
Sorry, life wasn't meant to be that easy.
