Be Careful What You Measure

measuring kpi

All organizations have one or a few metrics that they focus on and talk about all the time. It doesn’t take long for employees to figure out what’s important based on what gets asked for and talked about the most. Sure, executives talk about metrics addressing customers, employees, culture, and other factors, but what gets reviewed in daily or weekly reports is what really matters.

Focusing on a single metric tends to either lead to poor performance on other metrics or may resort to cheating in order to make performance look good on this single metric. Wells Fargo is still trying to repair their image that was severely damaged when many employees were caught opening fake accounts.

As an outsider, it’s easy to see how this can happen. Management puts a big push on getting new customers, opening new accounts that will lead to greater revenue in the future. Turns out it’s hard to talk customers into opening new accounts and many employees were falling short of the stretch goals that were set for them.

Feeling the pressure to do better and look good to management, a number of them just figured out how to cheat. This worked great for a while until customers started calling indicating that they had not opened a new account. As this story unfolded the number of fake new accounts that surfaced grew exponentially and Wells Fargo had to eventually admit that this had really occurred and that it was their fault for pushing so hard on this one measure of performance.

The best example of the danger of focusing on a single measure came when I first started my own consulting practice in California. My second client was in the fast food business and had a chain of fried chicken restaurants that was growing in both the US and internationally. One of the challenges they faced was training new restaurant managers. They wisely chose not to buy a generic canned training program and decided that they would develop a custom workshop that taught people the best practices of their best run restaurants. They hired me to document those best practices by spending time in a number of their best run restaurants around the country. My report on best practices would then serve as the foundation for the new management training program.

The first place I visited was Alcoa, TN, which is outside of Knoxville. I recall this like it was yesterday even though it was over 25 years ago. The manager’s name was Roy and he weighed about 120 pounds and was full of enthusiasm and energy. I told Roy that management had picked him for this study because he was one of the best managers in the USA and let him know I would be observing him while he worked and then talk to him from time-to-time throughout the day. After watching the lunch crowd come and go, I had very little written down on anything Roy was doing differently. Around 2:30 we got a chance to sit down and talk and I started by asking him what he measured that management considered important: “Well the first thing I keep track of every day is the employee’s errors.” I replied that keeping track of mistakes sounded like an important metric. He replied: “I don’t keep track of their mistakes, I keep track of their errs.“ Again, I repeated that errors were an important thing to track. He corrected me saying: “Errs like 8 errs in a day – how many errs people work per day.“ I realized the communication problem we were having and tried to listen more carefully to his Tennessee accent.

Roy went on: “The one metric that is really important to management is Chicken Efficiency. At the end of every day, I have to calculate my Chicken Efficiency score, and they make me mash these chicken stickers on a graph in the back room that is the size of a poster. Then I have to call in my Chicken Efficiency score to my boss every evening. This is the measure that all the managers talk about all the time.”

Looking at Roy’s chart it looked like he was achieving 99-100% Chicken Efficiency every day that month that must be good. However, I still didn’t know what the measure entailed. Roy explained: “Chicken Efficiency is basically a scrap measure. You take how much chicken you cook and divided it the number of pieces of chicken sold. If you sell all the chicken you get 100% chicken efficiency, which is the goal – no waste or scrap.“

When I asked Roy how he achieved near perfect Chicken Efficiency every day he answered: “I’m gonna let you in on a secret, but don’t put my name in the report saying you heard this from me. My secret is I stop cooking chicken around 7:30 and only cook to order after that. That way none of the chicken sits under the lights for too long, everyone gets hot and fresh chicken, and I don’t throw any of it away – 100% chicken efficiency.“

I asked, don’t you get people coming in here all evening until the restaurant closes? Roy replied: “Oh yeah we get tons of kids coming in here after baseball or soccer practices or games, families, and lots of people. I tell them I’m going to make their chicken to order and it will take 15-20 minutes.”

I asked, do most of them wait? Roy answered: “Heck no, they file right out the door and head off someplace else, but management doesn’t measure that. They do want to make sure I don’t throw any chicken away every day, however. My buddie Leon taught me this trick – he got promoted to run three restaurants by not cooking any chicken.“ I went on to visit other restaurants and every one of them talked about the importance of Chicken Efficiency.

When I gave my report to management they were surprised and horrified that managers were purposely not cooking chicken, making customers mad and could not understand how this metric became so important. They explained that all they talked about was customer satisfaction and it is stressed in every meeting. However, customer satisfaction is only measured once a year with a survey done by Mystery Shoppers the third week of March each year. Restaurant Managers focused on good customer service for a couple of weeks in March each year and then new they could slack off for the remainder of the year on this metric. However, Chicken Efficiency is measured and reported daily, and promotions are tied to this metric, as well as bonuses.

The lesson of this story is in spite of your efforts to tell people that all your KPIs/metrics are important. Many organizations focus too much on one or two and too little on the others. The concept behind the Balanced Scorecard is that you can’t judge the health of an enterprise by looking at a single metric. A healthy well-performing address organization shows good performance on a suite of metric that much more than just short-term financial results. Yet, it’s rare for me to work with an organization that does not have a few Chicken Efficiencies, so you might want to take a hard look at what you measure and talk about all the time to avoid some of the unwanted side effects seen by the bank and chicken restaurant.