Playing To Win
Performance Measurement Transparency
Last week, I was working with client on translating its strategy into a performance measurement framework and had an interesting conversation. I decided that the topic warrants further exposition. So, my 39th Year III Playing to Win/Practitioner Insights piece — and 150th in the series — is on Performance Measurement Transparency: More is Better. You can find the previous 149 PTW/PI here.
I had been working on strategy with the client for most of the year. It is a terrific organization — the best performer in its sector — and it is dedicated to keeping it that way. We were at the point of creating a performance measurement system for tracking its progress toward achieving the Winning Aspiration laid out in the strategy.
As is usual for this client, it had done a lot of good work coming into the meeting. It had created five main categories of performance that it sought to measure, such as talent fitness and decision-making fitness, and had created a long list of potential measurement criteria in each category — 10–12 in each. They were thoughtful — some entirely quantitative, others entirely qualitative and still others somewhere in between. Many of the measures, though not all, were collected already for one purpose or another, so they weren’t proposing a whole lot of new work for the organization.
The leadership team wanted to identify out of the long lists, the three indicators that would be chosen as the performance measures for each of the five categories — so, 15 overall. Under the proposed system, the CEO would be responsible for providing to the organization an evaluation of performance/progress in each of the five areas — they hadn’t settled on a frequency yet, whether annual or multiple times a year.
The team was seized with the challenging task of honing down the long list in each category to the three that would be the measures in each and wanted to make sure they got the best three in each category.
My advice to the group was threefold. First, don’t sweat the selection of three per category too much.
Do your best to name the three. But be transparent and tell the organization that these are anything but set in stone. You will rotate other measures in to replace the currently chosen trio as you watch the system work.
Second, don’t toss out the others. Evaluate them (as long as it isn’t an onerous amount of work to collect information and make the evaluation) and modify the score per category (that is based on the three chosen measures) based on these other measures.
Third, be entirely transparent on the evaluation. The CEO should say, for example, on the talent fitness category, I would have rated us as an 86 (or B+ if you prefer) on the three primary measures, but I am docking us a couple of points because our performance on this other measure worries me for this reason. So, our overall score is an 84 (or B). (Or maybe it is the opposite — I liked something else so I am giving us an 88 (A-)).
I believe that flexibility and transparency are critical in performance measurement.
Flexibility is essential because you can never be perfect in advance on performance measurement. You won’t know the effects on the organization — good, bad or indifferent — until you put the measurement system to work and see the extent to which you find its impact consistent with your hopes. No matter how much thinking you do up front, you won’t get it right. But if you want to make sure it is perfect before you launch it, you will be unproductively wedded to it and the organization will think of you as having failed when you (inevitably) need to change it.
So, tell the organization that you will be changing it as you learn how well it is working — or not. That way you won’t be reluctant to make changes to improve it and the organization won’t be shocked when you do — they will be expecting it.
Transparency in the thinking of the CEO (and leadership team broadly but the CEO in particular) because non-transparent performance measurement systems have huge downsides. I think that most people working in business organizations are good-hearted people and want to do the right thing — I am not utopian, some are not and do bad things purposefully, but they are the small minority in my experience.
What is good is defined primarily in their minds by the performance measurement system. That is the signal to members of the organization of what outcomes they should be attempting to produce. But often an organization has few measures, and they are straight line with no limit — e.g., one more dollar of sales is always better. But in truth, one more dollar of sales is not always better. It depends how it was gotten. Was it by strong-arming the customer, or stuffing the distribution channel at the end of the quarter, or holding a brand-damaging sale?
The danger in these cases is surrogation, whereby the performance measure becomes the goal in the minds of workers. I have written about it briefly here and more extensively here. The Wells Fargo scandal provides a vivid example. The goal was deep relationships with customers. The singular measurement was number of accounts per customer — with more being better. Number of accounts per customer became the goal in the minds of customer-facing employees and in their enthusiasm for achieving (what they thought of as) the goal handed down from on high, they started opening accounts without the permission of customers — creating a scandal that irreparably damaged Wells Fargo.
Now I am sure that some Wells Fargo employees were craven and opened undesired accounts knowing it was wrong but wanting to pad their bonuses. But I am equally sure that some employees thought they were doing the right thing based on their understanding of the performance measure masquerading as the goal.
The countermeasure against damaging surrogation is complete transparency on the part of senior leadership, particularly the CEO because CEOs are watched more than any other person in the organization. When assessing performance, CEOs should spare no nuance: e.g., “here is the quantitative performance that I liked last quarter, here is the qualitative performance I liked, here are the two things that I am most worried about in our performance.” Whatever is on the CEO’s mind in terms of performance should be shared with the organization. Lots of it will involve judgment — not simple numbers — and many CEOs are nervous about sharing their judgment. They want to stay in the domain of objective, quantitative measures. But, if CEOs want their people to pay attention to the things that they are most concerned about, they have to help their people understand the same nuances to which they pay attention. Treat them like adults and they are more likely to act like adults!
If you want to be any kind of leader, you need followers. The way to have followers is to be as transparent as possible about what followership looks like. I will always remember legendary New England Patriots coach Bill Belichick on the sideline, while trailing the Seattle Seahawks by 10 points in the fourth quarter of the 2014 Super Bowl, admonishing his defense to “just do your job.” He was confident that if they just played exactly the roles that they had been taught in practice, it would be good enough to come from behind and win the game. He didn’t want heroics. He didn’t want freelancing. He was a leader being completely transparent in how he was going to measure performance: just doing their jobs. They did and the Patriots won — though by the skin of their teeth. That was leadership.
Regardless of who you are leading — a small team, a business unit, a function, or the whole organization — be flexible and transparent in your performance measurement. Think of any system as a prototype that you will improve as you use it and assess its contribution to your performance. Be fully transparent with your assessments of performance. Don’t hide your qualitative judgments. The nuances will help your followers better understand how their actions can contribute to your goals.
But be a great follower too. If your leader isn’t being transparent with your organization’s performance measurement, ask for more transparency so that you can contribute better to your organization’s performance. But make sure that you can handle nuance. You won’t get transparency if you insist on being measured only by way of objective quantitative criteria. If you object to your leader using judgment to evaluate your performance, your leader will view you as lacking maturity and will treat you more as an adolescent than an adult, and that will stunt your growth as a leader.