To Measure or Not To Measure – a delicious tension in performance management; How I Reduce Bloated KPIs to the necessary ones to drive performance

These are two of my favourite management quotes, taken together and not separately:

“If you can’t measure it, you can’t manage it.” – Peter Drucker

“It is wrong to suppose that if you can’t measure it, you can’t manage it – a costly myth.” – W. Edwards Deming, The New Economics

If the father of management (Drucker) and the management consultant specialising in mathematical physics (Deming) can disagree on something so fundamental then perhaps it’s understandable that I keep banging on about there being no one truth in how we run a business.

So, which is it? Does it have to be measurable to be manageable?

• And if you are in the measure everything camp: Are you measuring too many KPIs for any of them to be effective?

• In fact, are your hard data measurements impacting your culture negatively?

If you like quantitative measures it is important to think through whether everything you measure is relevant to what you are trying to achieve. It is very easy to end up measuring things just for the sake of measuring. Businesses change, and goals change, and perhaps that KPI used to be relevant but it isn’t anymore. Sticking with measuring what is not relevant anymore is time and energy-consuming, plus it takes attention away from what matters for your new goals.

When we are drowning in data and trying to measure everything we can easily lose sight of what it is we are trying to achieve.

It is also important to remember that some of the critical things you need to manage for the business to be successful cannot be measured. Think culture.

Even in relation to things that can be measured, people are people and results can end up being skewed. So, I have two more quotes for you.

Goodhart’s Law: “When a measure becomes a target, it ceases to be a good measure.”

Campbell’s Law: “The more a metric is used the more likely it is to corrupt the process it is intended to monitor.”

I agree with both sentiments. One thing that became clear to me early on in my career is that as people modify their behaviours to reach targets they are rewarded for it often comes at the expense of other important behaviours and standards. Unintended consequences can be costly. They can also skew the culture of the business by unintentionally incentivising bad behaviour.

An example of rewards skewing measurement goals

The issue is present in all sectors and industries but let me zoom in on a particular industry that is fully built on brainpower, relationships and egos; and where some measurements are pretty much universal, globally. Moreover, it is a great example of how measuring a particular thing that at first made sense (allocating and charging for thinking people’s time) can skew focus, behaviour, culture, and potentially even outcome.

I started my career at a Big4 and the first thing we learned was how to record every second relevant to client work. Half an hour writing this or that email. Even things like copying materials, reading up for meetings, travelling to meetings, discussing meetings, etc, etc. This is not any different at any other consultancy, accountancy, law firm, or any other organisation that charges clients fees by the hour (or the minute). These timesheets record all time spent working on a particular client’s particular problem and these are the backbone of both revenue generation and people management in professional services.

Here’s how.

Revenue is based on billing, i.e. the invoice to the client. Billing is based on hours spent and recorded collectively by everyone dealing with a particular client’s problem.

The hours spent on fee-earning work for a client are recorded by every single person. But these hours also form the basis of their performance review, promotion, and salary review. People must hit targets defined as a certain number of billable hours for every week, month, and year. You have to record X number of hours (with the description of what you worked on) and within this Y number of hours have to be directly client work-related (these are billable hours).

Thus, professionals’ behaviour becomes entirely focused on creating (and justifying) hours spent on client work – sometimes to the detriment of efficiency, development and culture. Because they have billing hour targets to hit, it is in the professionals’ interest to increase these numbers, often stretching them too far. (There are also other flavours, chargeable hours and utilisation rates but I’ll spare you the details.) This also incentivises ‘hugging’ clients, not getting experts involved, and so on. Some of these are undesirable behaviours. Also, everyone hates doing it because it is an extra mental load.

(Full disclosure: at one point I went on a crusade against charging fees by the hour and developed a full solution. But that’s a story for another day.)

Too much inflation of hours will upset clients of course, who often end up spending a lot of time negotiating down not the fees but the hours and minutes spent. (Firms that charge by the hour can give you a detailed breakdown of activity by the hour.)

All this creates not just extra administrative work but can sour the relationship between the service provider and the client. And it is a colossal waste of everyone’s time. (Hours spent on fee disputes are not billable…)

But, even in a hard-charging business, not everything is all about the money.

So, what about all the things you can’t measure but need to manage? This is where those famous soft skills like conscious listening