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Are you measuring the right things?

February 2012

At the beginning of a year, it is good to reflect on how you are measuring your success. Whether it is personal success, or that of the team or an organisation, we tend to get caught up in the same measurements over and over, because everyone else uses them. Maybe it is time to change?

Think of how different the world could be if, instead of using GDP as a measure of a country’s success, GNH - Gross National Happiness - was used? This is the case in the kingdom of Bhutan. GNH takes into account psychological wellbeing, health, time use, education, culture, good governance, ecology, community vitality and living standards.

The story of the peahen and peacock is a wonderful example of when the “wrong measures of success drive decisions,
strengths can mutate into serious liabilities” (Runaway Capitalism, Christopher Meyer and Julia Kirby, Harvard Business
Review January – February 2012).

The ornamental beauty of the peacock’s tail has become even more flamboyant over many years due to a simple fact
 – peahens prefer a large-tailed peacock. In the early days, this was a good measure of success. It showed a healthy male
who was able to feed himself. Hence, these larger- tailed peacocks would breed more often than the smaller-tailed ones, and subsequently the larger tail was passed on more.
This was not sustainable – larger and larger tails required more and more food, plus it slowed down the peacock and
made them vulnerable to prey. At some point, the population of peacocks actually started to decrease, even as the tails continued getting longer – a type of “biological suicide”. Normally, there is an alignment between natural selection and sexual attraction, which went out of line with the
peacocks and peahens.

So are there any measures in today’s capitalist world that are committing “biological suicide”?

In the “Runaway Capitalism” article, the authors suggest that just using ROE – Return on Equity – is resulting in some of the failures of capitalism.

The DuPont equation - taught in all business schools - summarises ROE.
(It took one of its engineers, turned financier, to simplify the equation!)

  • ROE = (Return/ Sales) x (Sales/Assets) x (Assets/Equity)

He reasoned that if marketing worked on maximising the return on sales, production managers were rewarded for the number
of sales they produced in their factory, and financiers worked on minimising the amount of equity capital needed, there would be no problem with the ROE of the organisation. Unfortunately, this divided companies into three silos that more often than not would compete against each other, rather than integrate and work towards the greater good of the company.

And yet, ROE is still used as a key measure today. Are any of your measures resulting in “biological suicide”?

  • Are you just measuring silos?

  • Are you just using financial measures and omitting people-related measures?

  • Are you using measures that reward collaboration, as opposed to ones that perpetuate individual gain?