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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!)
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”?
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Are you just
measuring silos?
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Are you just
using financial measures and omitting people-related measures?
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Are you using
measures that reward collaboration, as opposed to ones that
perpetuate individual gain?
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