“We are” what we are measured as and how we are measured. In the corporate world, it is common to see freewheeling gloating over the measurements done by various teams and the consequent outcomes. More importantly, we have seen how despite those so-called ‘successes’, the companies don’t necessarily succeed or even survive beyond a certain time period.
This is true of a large number of firms and teams that measure the wrong attributes and end up with non-sustainable outcomes. That’s because they take the easier route than what’s long-term-proofed. And, they focus on measurements that are binary to say if they failed or succeeded, rather than observing and measuring behaviours that drive success.
The wrong data measurement does not achieve anything. In cricketing parlance, the strategy to chase a run-target differs from a classic 5-day test to an ODI to a T20 game! You cannot chase a T20 target, with a test match strategy as a measure. The converse is also true. It is difficult to develop measurements that don’t have a perverse effect. The wrong measurement can be equally dangerous to the culture of the organisation.
Measurement impacts our personal lives every single day, be it a young kid wanting to measure her height daily to check if she has grown taller overnight or any of us checking our weight daily in the attempt to stay fit. We feel cheerful if there is progress, and if we have not met our target, we feel charged to chase it further. This act of people modifying their behaviour only because they are observed is called the Hawthorne Effect.
In business, this is no different. Measurement drives the behaviour of individuals across the organisation. When the organisation starts measuring certain outcomes, the employees start focusing on those specific outcomes, instead of the “why so”. Many times, if what’s measured does not relate to the “purpose of existence of the organisation”, it takes the employees away from the actual strategic goals. It also influences the way they behave in their relentless drive to achieve those ‘specific outcomes’, rather than valuing the true objective of the organisation.
From the measurement perspective, every good leader and board member wants to avoid this: When the KPIs are designed and approved, they don’t want their team mindlessly chasing numbers to the detriment of performance and the value system.
Well-designed KPIs can play the role of ‘true north’ to reach higher performance, rather than encourage bad behaviour in an effort to just hit a target number. If the correct measurement is used, it helps not only to focus on strategic goals, but also to balance the behavioural actions, and consequently uphold good culture.
For example, if a lending institution measures only the quantum of loans disbursed out and the AUM growth, and not balance it with NPAs of those loans, then the behaviour of the business development team would be diffident to the credit underwriting and risk matrices.
Take the example of a frequent behaviour we see across sectors - the mistake of measuring the procurement department only on how much additional discount it can squeeze out of its suppliers. For a company wanting to have a higher ESG score, such a measure could make them become prey to unethical practices, such as the use of child labour in low-wage bases, use of cheaper and environmentally unfriendly materials and production processes, and flaw in governance norms, etc.
Indian Boards and measurements
Why do Boards struggle to handle the star leader who brings in business but wrecks the organisational culture?
The Boards’ blind trust in the business leader can make it worse, as they become party to the toxicity of culture. There are countless examples in corporate India, where #2 / #3 leaders have quit the organisation and the boards have not bothered to give an audience sought by the outgoing team member, as they didn’t want to “annoy” the star-leader! Boards forget to measure the CEO performance in qualitative aspects too.
Why does CEO succession planning fail?
Because most Boards don’t measure themselves on the parameter of proactiveness of succession planning.
Why is there so much rhetoric and noise around ESG?
Because many Boards are still confused with what to measure and get carried away by the premiumness attached to the brands that measure them or advise them, rather than what’s actually measured! And Boards don’t actually spend enough time discussing these at length.
Why do firms fail in setting the tone for apt culture?
Because Boards don’t invest time in it and take the power points given by the management team for granted. Again, no measurements done!
Isn’t the current Board self-assessment good enough?
Many times, the Board self-assessments are plainly tick-mark approach and subjective. There was never a more important time for Boards to assess issues like their own roles, competencies, productivity, the impact they create on the governance matters, and proactive stakeholder communication. Here again, what is measured, who measures it and how, makes all the difference.
Time to be invested in measuring
Of course, measurement is not the only driver of performance. Business processes are important in developing a robust organisation, which makes lesser repetitive mistakes and makes optimal use of resources. Leadership is important in order to create a culture in which people feel motivated to give their best.
But importantly unless Boards spend time with key stakeholders in defining the specifics to be measured, it would not help them in long-term sustainable excellence and probably even survival of the organisation. It is important to ‘measure right’, as it upholds the trust and faith reposed by the stakeholders. To paraphrase “Garbage in, garbage out”, it is “what you measure, so shall you reap”.
—The author is Srinath Sridharan, Corporate Advisor & Independent markets commentator. Views expressed are personal.
(Edited by : Ajay Vaishnav)
