The Pitfalls of Management by Measurement

 

shutterstock_144543284The news is full of Wells Fargo’s follies since they got hit with fines totaling $185 million last week. What happened was a case of management by measurement. Wells Fargo employees were heavily pressured – including threats of job loss – to rack up customer “solutions,” which translate into selling additional services to the bank’s customers that included additional bank accounts and bank credit cards. In order to meet the strict quotas that management had imposed, employees opened accounts for customers without first receiving customers’ permission or informing them.

Though this practice was widespread (some 5,300 Wells Fargo employees have been fired since 2011 for opening fake accounts), it does not appear to have been the result of a conspiracy. Rather, it was an example of spontaneous order that emerged from employees acting in their own best interests — in this case, reducing the pain of management pressure — given the incentives and constraints imposed by the system. In an article appearing on Bloomberg, Matt Levine explains how this sort of thing happens:

Two basic principles of management, and regulation, and life, are:

  1. You get what you measure.
  2. The thing that you measure will get gamed.

Really that’s just one principle: You get what you measure, but only exactly what you measure. There’s no guarantee that you’ll get the more general good thing that you thought you were approximately measuring. If you want hard workers and measure hours worked, you’ll get a lot of workers surfing the internet until midnight. If you want low banking bonuses and measure bonus-to-base-salary ratios, you’ll get high base salaries. Measurement is sort of an evil genie: It grants your wishes, but it takes them just a bit too literally.

I’ve run into the same sorts of unintended consequences of the “if you can’t measure it, you can’t manage it” mindset. For example, getting support from our IT department required that a “ticket” be opened describing the issue or problem. Management decided that ticket count was a good way to measure productivity, so IT supervisors put pressure on analysts to boost ticket numbers. One result was that tasks that used to require a single ticket were suddenly divided into multiple “sub-tasks,” each requiring its own separate ticket. As a result, IT work entailed a lot of unnecessary overhead. It got so bad that you needed a ticket just to talk to your database administrator, whose office was a couple of doors down the hall.

Do you have any examples of “mismanagement by measurement”?

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  1. Bryan G. Stephens Thatcher
    Bryan G. Stephens
    @BryanGStephens

    My goal is for staff to treat the clients like they were their own family. Hard to measure that.

    • #31
  2. Chuck Enfield Inactive
    Chuck Enfield
    @ChuckEnfield

    Bob Thompson: Effective managers will follow-up to insure that the thing being measured is authentic, otherwise management performance is superficial.

    Agreed, but how do you measure the effectiveness of managers?

    • #32
  3. Chuck Enfield Inactive
    Chuck Enfield
    @ChuckEnfield

    Bryan G. Stephens: My goal is for staff to treat the clients like they were their own family. Hard to measure that.

    You wouldn’t say that if you attended a holiday gathering with my family.

    On the more serious side, it’s hard to measure that with a high degree of accuracy on any absolute scale, but if you’re engaged I don’t think you’ll have any trouble figuring out if you’re successful.

    On the other hand, you may be better able to measure it indirectly.  Why do you want staff to treat customers this way?  What tangible benefits will that have for your company?  Can you measure those?  What negative consequences do you anticipate if you fail?  Can you measure those?

    • #33
  4. Bryan G. Stephens Thatcher
    Bryan G. Stephens
    @BryanGStephens

    Chuck Enfield:

    Bryan G. Stephens: My goal is for staff to treat the clients like they were their own family. Hard to measure that.

    You wouldn’t say that if you attended a holiday gathering with my family.

    On the more serious side, it’s hard to measure that with a high degree of accuracy on any absolute scale, but if you’re engaged I don’t think you’ll have any trouble figuring out if you’re successful.

    On the other hand, you may be better able to measure it indirectly. Why do you want staff to treat customers this way? What tangible benefits will that have for your company? Can you measure those? What negative consequences do you anticipate if you fail? Can you measure those?

    Customer Satisfaction and Employee Engagement are the best ways to measure.

    Now, I know how to measure those, but I don’t have a lot of money to throw at Gallup. But they have years of research on this stuff. I have started by looking at strenghts.

    • #34
  5. Annefy Member
    Annefy
    @Annefy

    Fake John/Jane Galt:I doubt this problem is related to just Well Fargo, but is most likely a standard financial practice.

    I know a few people working low level retail sales. I am amazed at the pressure they are being put under to get people to open credit cards / lines. In many cases there are monthly quotas to open new account and if not met the employees are written up and eventually fired. One funny story a friend that works in the mall tells me is that most of the accounts they open are for other mall employees from different stores and not mall customers. It seems that most stores have these quotas so in order for everybody to meet their numbers the mall employees will fill out these applications for each other so as to help each other out and keep their jobs. Sounds stupid to me but welcome to corporate America where everybody has an angle.

    I worked at The Broadway department store (now Macy’s) back in the late 80s.

    We got $5 to take an application for an acct. If the account got declined, you still got $5. The guys I worked for saved every declined account and would resubmit them periodically. Getting $5 every time the application was submitted.

    Unfortunately the customer got a letter in the mail every time his account was declined. And one of those customers was a lawyer.

    Major lawsuit.

    • #35
  6. JamesAtkins Member
    JamesAtkins
    @JamesAtkins

    All right folks, wrap your brains around this. MEDICARE/MEDICAID reimburse hospitals based on how “happy” patients(customers) are with their pain management. Now think about that for a minute; as an RN (as well as our Doc’s), I am evaluated based on how  “happy” my “customers” are with how I medicate their pain. And now there is a national crisis associated with the over persecution and over use of narcotics. Cause and effect or just an association…. discuss this among yourself.

    • #36
  7. Guruforhire Inactive
    Guruforhire
    @Guruforhire

    Bryan G. Stephens:

    Chuck Enfield:

    Bryan G. Stephens: My goal is for staff to treat the clients like they were their own family. Hard to measure that.

    You wouldn’t say that if you attended a holiday gathering with my family.

    On the more serious side, it’s hard to measure that with a high degree of accuracy on any absolute scale, but if you’re engaged I don’t think you’ll have any trouble figuring out if you’re successful.

    On the other hand, you may be better able to measure it indirectly. Why do you want staff to treat customers this way? What tangible benefits will that have for your company? Can you measure those? What negative consequences do you anticipate if you fail? Can you measure those?

    Customer Satisfaction and Employee Engagement are the best ways to measure.

    Now, I know how to measure those, but I don’t have a lot of money to throw at Gallup. But they have years of research on this stuff. I have started by looking at strenghts.

    A free account with survey monkey, i believe they have some canned employee engagement surveys.

    Just a thought.

    • #37
  8. Chuck Enfield Inactive
    Chuck Enfield
    @ChuckEnfield

    Bryan G. Stephens:Customer Satisfaction and Employee Engagement are the best ways to measure.

    Now, I know how to measure those, but I don’t have a lot of money to throw at Gallup. But they have years of research on this stuff. I have started by looking at strengths.

    Gathering useless or misleading data is unfortunate, but common.  I’ve done it myself.  More times than I care to admit.  Paying somebody to gather useless and misleading data is foolish.  Surveys are useful if they confirm what you already know, and “flawed” if they tell you something you don’t want to hear.  Unless you know you can’t be trusted, trust yourself and forget the surveys.

    What’s different about your business if you have satisfied customers and engaged employees?  Can you measure those things?  Do you get the impression I can do this all day?

    The reason I keep going there is because I think your focus may be misplaced.  You have goals for your business (as of yet unstated, but I trust that you do.)  You have an idea how you might achieve that goal (customer satisfaction and employee engagement).  But you seem intent on measuring your progress in implementing the idea to achieve the goal.  It may be better and easier to measure the progress toward the goal?

    • #38
  9. iWe Coolidge
    iWe
    @iWe

    Chuck Enfield: But you’re probably safe if you have a complex system of metrics not tied directly to incentives. It requires a lot of effort to game such a system and offers little to no reward.

    The downside is that performance also suffers…

    • #39
  10. iWe Coolidge
    iWe
    @iWe

    Bryan G. Stephens: Customer Satisfaction and Employee Engagement are the best ways to measure.

    Ultimately, the goal of a company is to maximize shareholder returns over the period prioritized by the shareholders.

    Everything else is, at best, merely a means to an end. Sometimes Employee Engagement matters. Other times it is easier to simply replace the Employees with machines.

    Goal of a business: make money. The more conditionals and caveats that are added to this goal, the more diffuse and confused the result.

    • #40
  11. Michael Shaw Thatcher
    Michael Shaw
    @MichaelShaw

    I’m retired now but several years ago my employer, a railway in Canada, incentivized local managers by giving bonuses if they reduced labour costs. They did this by not issuing bulletins for job vacancies so they need not hire extra staff for things like vacation relief. I recall being hounded by management to work crazy amounts of overtime when they belatedly realized they had no staff. Whenever I refused they said I must because it was “an emergency.”

    Websters Dicionary of Canadian English defines an emergency as “an unanticipated dangerous situation.” I would then enquire if there was an earthquake, act of war, terrorism, flood or fire I should know about and if not I was going home at the end of my shift. The Canadian Office of Railway Arbitration has ruled that a failure of management to anticipate staffing requirements does not constitute an emergency.

    Since the collective agreement specified that overtime was voluntary except in an emergency the company ended up paying managers bonuses to throttle company business.

    • #41
  12. Laura Thomas Boren Inactive
    Laura Thomas Boren
    @Laura Thomas Boren

    @jamesatkins – although that would seem to be the logical result – “Sure I’m happy because I’m doped up and out of pain,” my sense is that pain management is much more nuanced than that.  At least I hope it is since so far I have not had to avail myself of these services.

    I have, however, worked in hospice and spoken to both doctors and nurses who work there.  There is a fine balance in alleviating pain and handling both the side effects and the desire to remain as cognitively alert as most people want.  Mostly they were successful, but not always.

    • #42
  13. Richard Finlay Inactive
    Richard Finlay
    @RichardFinlay

    Chuck Enfield:

    iWe: Every system can be played – and will be, sooner or later.

    This is obviously true when you take one or two measurements and tie them directly to incentives. It’s probably also true if your metrics are more complex and tied directly to incentives. But you’re probably safe if you have a complex system of metrics not tied directly to incentives. It requires a lot of effort to game such a system and offers little to no reward.

    The value of metrics is in monitoring trends, assessing the effects of changing conditions, and informing decisions. If a few KPI’s can be used to reliably make all the important business decisions, then executives are superfluous.

    When it comes to incentives, every system known to man sucks. All you can do is use the one that sucks least for your business at any given time.

    I have observed that often managers want metrics tied to incentives because (assuming they work, as everyone does) it allows them to just monitor the metric instead of interacting/observing the actual work.  It allows them to expand their scope.  Another way of looking at it is that it makes the management job easier, as they need not understand the work in as much detail (especially true when the executive came up through finance).

    From this, I have formulated a pithy aphorism: if the reason for something is that it makes the job of management easier, it is probably a bad idea.

    • #43
  14. Fred Houstan Member
    Fred Houstan
    @FredHoustan

    Richard Fulmer: Do you have any examples of “mismanagement by measurement”?

    I’m eager to read through the 43 proceeding comments — but, I’m also eager to point out that measurement as a management tool remains essential. That it is implemented poorly is a different discussion, since sloth, carelessness and passive-aggressiveness are ubiquitous.

    Richard Fulmer: I’ve run into the same sorts of unintended consequences of the “if you can’t measure it, you can’t manage it” mindset. For example, getting support from our IT department required that a “ticket” be opened describing the issue or problem.

    This is where we live, and this is why we don’t use tickets for who we support. More on that shortly.

    • #44
  15. Fred Houstan Member
    Fred Houstan
    @FredHoustan

    WillowSpring: I have always felt that measuring any creative work by a timesheet was the epitome of dumb management.

    That’s novel. How do you bill your clients, then? Do you do total project billing exclusively? Is the market robust enough so that you don’t perform hourly billing?

    • #45
  16. Fred Houstan Member
    Fred Houstan
    @FredHoustan

    NCforSCFC: My biggest complaint though is not that too many things are being measured (though often that is the case) but that little to no time is spent analyzing the results for root cause, and fixing problems. Data rich, analysis poor.

    And that’s where measurement processes fail. I visually emphasized, above, the essence of management by numbers. It’s “easy” to measure, harder to take action, especially when you must identify root cause and affected personnel.

    • #46
  17. Richard Fulmer Inactive
    Richard Fulmer
    @RichardFulmer

    Fred Houstan:

    WillowSpring: I have always felt that measuring any creative work by a timesheet was the epitome of dumb management.

    That’s novel. How do you bill your clients, then? Do you do total project billing exclusively? Is the market robust enough so that you don’t perform hourly billing?

    I didn’t take @willowspring‘s comment as meaning that timesheets should be eliminated.  Rather I took it to mean that timesheets shouldn’t be used as a gauge for the quantity or quality of creative work.

    • #47
  18. Fred Houstan Member
    Fred Houstan
    @FredHoustan

    Bryan G. Stephens: If people would just do their jobs as they agreed to when they were hired, we would not need to measure anything.

    Not if you’re respecting your staff’s autonomy, and the day-to-day personal and professional “stuff” that happens to even the best employees. In a dynamic economy, with rapidly changing requirements and client’s ever changing needs, this sounds like too much hope and magic to bring everyone to the same goal as to what will be the most productive use of their time for that day and week, as individuals and as a team.

    • #48
  19. Fred Houstan Member
    Fred Houstan
    @FredHoustan

    Richard Fulmer: I didn’t take @willowspring‘s comment as meaning that timesheets should be eliminated. Rather I took it to mean that timesheets shouldn’t be used as a gauge for the quantity or quality of creative work.

    I suppose but it’s unclear in the comment.

    Tangentially, if I have one designer satisfying his clients with 30 – 40% less hour effort than the average for my creative staff, should I simply whistle past this? Yes, a poor manager only looks at one metric, this designer might take on more simple projects, less media channels, what have you, but it’s still a valid data point.

    • #49
  20. Richard Fulmer Inactive
    Richard Fulmer
    @RichardFulmer

    It’s easy to quantify what an employee costs a company – just add up his wages, benefits, and expenses.  But quantifying what that same employee is worth to the company is much more difficult, especially if he is not engaged in producing physical things or is not dealing directly with customers.  At some level, such an employee’s value has to be determined at a subjective level that cannot be translated into numbers.

    But in a litigious society, subjective valuations won’t stand up in a court of law should an employee, who believes he was unfairly passed over for promotion or unfairly fired, decides to sue.  Management has a big incentive, then, to resort to some sort of bean counting to lend credence to its HR decisions.  The beans that management chooses to count and how it chooses to count them can create unintended consequences.

    Any person who is new to a company or new to a team or department can pretty well size up her co-workers within a few weeks.  They quickly learn who to go to if they have a question.  They know who is cranking out the work and who are the drones.  But if you asked that person to quantify her assessments, she would likely be at a loss.

    Unfortunately, the threat of law suits and of government action forces managers to come up with numerical ratings based on objective and observable “beans” that are likely not worth a hill of beans.

    • #50
  21. WillowSpring Member
    WillowSpring
    @WillowSpring

    @fredhoustan and @richardfulmer

    I was thinking about jobs where I was part of a team of professional engineers (that is, not paid by the hour.  Sometimes with time sheets and sometimes not)

    This is a little OT, but I have also spent time as an independent consultant.  When I could, I would try to do work on a fixed price per project basis, but this almost never happened.  Most clients seemed happy to just pay me at my hourly rate.  That was fine with me, but it meant that they never sat down and really figured out what the goals of the project were and the value to them if the goals were met.

    • #51
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