The Strategist

Vague numbers: Why indicators cannot help make business performance better


06/19/2020 - 09:44



Technology helps us collect a huge number of indicators. Accuracy of the numbers creates a pleasant illusion of control, and our ability to receive and process them is an equally pleasant sense. Sometimes, however, it happens that indicators do not help achieve goals and become misleading.



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The danger of indicators is manifested when they are turned into a measure of employees’ performance, and therefore their success. If wages are also dependent on indicators, then results of the company’s activities are at risk. Faced with the choice to improve targets or work on what is really important, employees will choose indicators.

Target setting alone cannot be considered evil. However, the way it is done leaves much to be desired. Linking efficiency to pay is a very common practice. However, it is a moot point whether people are encouraged by financial rewards. And it is even more doubtful that linking efficiency to wages can increase work efficiency.

Command and control

A balanced scorecard is essentially a control system. And for effective operations, companies need command. Indicators allow managers to specify strategic thinking, set guidelines and help determine direction. They are like a navigator in a car: if you blindly follow its instructions, you can get into a traffic jam, to a section where repairs are being carried out or to a broken road. If targets are provided, but the goal is not achieved, you shouldn’t congratulate yourself and relax, but change the goals. If the answers to the questions “What needs to be achieved?” and “Why?” is not clear, the indicators are likely to be ineffective.

Direct observation

A car’s dashboard provides a variety of information, but while driving, most of the time drivers look through the windshield at the road and other cars. Similarly, no company should ignore the need for a balanced scorecard, but a carefully thought-out system can stimulate reckless driving.

If there is a problem with a large client, it is unlikely that you should expect an increase in satisfaction indicators in this month, even if this is a target indicator that you are trying to improve. It’s better to turn directly to the client and find out what happened. This way you will learn a lot more. Nothing can replace direct observation. A leader should have a comprehensive idea of what is happening in the company and beyond, and a balanced scorecard is just one source of information on the basis of which such a presentation can be made.

Causality

Another difficulty is that a balanced scorecard does not explain cause-effect relationships. Business organizations are complex adaptive systems that try to survive and succeed among many other organisms, each of which has its own goals, and interaction with which entails unpredictable consequences. Each cause in itself is a consequence, and each consequence is a cause, and they are connected by feedback loops, which sometimes weaken and sometimes grow stronger. Change involves a thorough analysis of how and where to intervene in the system.

In an adaptive organization, each member analyzes both the indicators themselves and what is beyond them, and always asks the question “Why?” The indicators provide us with information and allow us to understand what is happening. Correct actions require wisdom, and only people have this quality.

Based on "Action Inquiry. The Secret of Timely and Transforming Leadership" by Bill Torbert




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