Are the Performance Metrics Aligned?
Think about the strategic goals of your organisation and the performance metrics used to track progress towards achievement of those goals. Are the goals and metrics aligned? Perverse incentives and activity may occur if there is mis alignment.
An extreme case example: the US banking giant Wells Fargo had a goal to improve long term banking relationships which it sought to manage through a metric of cross selling. Unfortunately, bank staff sought to ensure that the metric was achieved by opening 3.5 million deposit and credit card accounts without the consent of its customers. Of course, this manipulative activity ended in disaster and massive litigation.
The challenge for business, is that it can be rather difficult to align an intangible goal to something that is tangible and that provides people with stepping-stones to point them in the direction of the goal. The following safeguard measures are therefore suggested:
- The people who are responsible for implementing strategy should help formulate it. They will have better emotional ‘buy in’ and therefore won’t need any particular metrics to guide them in the direction of the goal.
- Loosen the link between incentives and any metrics adopted. I.e. don’t tie staff reward systems to the simple achievement of the metrics.
- Use multiple metrics of similar importance so that staff behaviour is not unduly influenced in any particular direction.
I agree that there is a need to find practical ways (such as those above) to better align performance metrics with strategic goals and that these have a useful place in business and perhaps the systems at Wells Fargo and other businesses were insufficient and mis-aligned to an extent. But whether the absence of these were contributors to the debacle at Wells Fargo is arguable.
From my perspective, staff are either ethical or not and they are either motivated to achieve goals or they are not. What is really need when it comes to setting and achieving goals is good old fashioned ‘honest days’ work.
Reference: “Don’t Let Metrics Undermine Your Business”, Michael Harris, Harvard Business Review, September 2019.