While the strategy statement sets the pace for an organisation, metrics are the drumbeat that moves its resources, people and investments into action.
Metrics bridge the gap between ambitions and actions.
Metrics turn intangible ideas into coherent action.
A wonderful article published in HBR really highlights the power metrics have over performance. The authors describe metrics as ‘a tool for coordinating our behaviours and actions.’
Thinking of metrics as tools for establishing behaviours is a powerful reminder that any misalignment between your strategy and KPIs can lead you astray.
In this article I’ve written about the:
- Cause of misalignment between strategies and metrics.
- How metrics end up replacing strategy.
- What steps you can take to save your strategy from failure.
Let’s get started.
The Values Sphere
What we value and find valuable is subjective. Within teams, group and communities values are encouraged and enforced through both positive (rewards) and negative (punishments) reinforcement.
I consider an organisation’s mission, vision and strategy as values shared across its different people and functions.
Within small organisation e.g. a start-up, leaders and founders themselves often regularly and purposefully align individuals or small teams around their company’s shared values. This ensures that any potential conflicts between shared values and misaligned KPIs are quickly addressed.
I call this sphere of influence where alignment on values can be actively managed the Values Sphere.
Shared values are strengthened within the sphere through communication and reinforcement within formal and informal lines of communication.
Regular and purposeful alignment ensures that KPI doesn’t end up being at odds with the values of the organisation.
Google’s adoption of OKRs – a managerial tool for performance management, is a great example of how alignment between growth objectives and a shared mission can be proactively managed.
In most cases though, managing this alignment becomes challenging as organisations grow.
With often hundreds or thousands of people and process to manage, regular and purposeful alignment is replaced by complex hierarchies and function specific KPIs. Overtime metrics takeover strategy through what psychologists call a Surrogation Bias.
What is Surrogation?
Surrogation bias is a psychological phenomenon where one can become fixated on the measures of an activity rather than the activity itself.
Here’s a common scenario:
Strategic Objective: ‘Deliver the most innovative solutions.’
KPI: Number of new features launched.
Result: Focus on introducing x amount of new features, Each additional feature might add new functionality to the product but if the only metric in use is the number of new features then the product can quickly become too complicated and difficult to use.
Here’s another scenario:
Strategic Objective: ‘Improve customer lifetime value’
Function: Sales Staff
KPI: Average basket size per customer.
Result: For your sales team this might translate into getting people to buy more products per visit. This can lead people into compromising customer service and losing trust in order to make a sale.
Surrogation is both common and often impossible to detect. Any time the objectives become abstract and metrics become more specific you can rest assured that surrogation is going to happen.
Avoiding Surrogation Bias at your Organisation
The HBR article I mentioned above lists the three pre-conditions identified by Daniel Kahneman and Shane Fredrick that lead to surrogation.
- When an objective or strategy is abstract.
- The metric used to measure the objectives are concrete and clear.
- The person subconsciously accepts the substitution of the metrics for the strategy.
Now that you know the causes of surrogation, here’s what you can do to avoid it.
Involve both Thinkers and Doers
Most people are generally good at both thinking and doing. Still, some of us are more in our element when getting stuff done while others enjoy cerebral gymnastics.
When it comes to strategy creation involvement from both types of people is crucial.
Strategic initiatives are often developed by designated strategists or thinkers without any input from experts and supervisors. So many organisations make this crucial mistake only to see their strategies fall apart in weeks and months that follow.
You’re not going to repeat that mistake.
Get both the thinkers and doers to work together on strategic initiatives. That’s how you can get ambition and action to align.
That’s how you get ownership and commitment from the people who’re going to make things happen.
Use Qualitative and Quantitative Metrics
Make a habit to attach qualitative metrics for every quantitative metric you choose.
In the two example scenarios above, the quantitative metrics were ‘number of features’ and ‘basket value of an individual purchase’, in addition to these metrics you should follow ‘Customer Satisfaction Score’ or NPS (Net Promoter Score) to ensure that customer satisfaction isn’t being compromised.
This habit will guard you against focusing too narrowly on one metric and becoming blind to its impact on overall performance.
Separate Metrics from Financial Rewards
Multiple research studies and management theories exploring the relationship between high performance and rewards have concluded that connecting metrics to financial compensation is a bad idea.
It’s the easy way but it comes at a cost.
It’s bad for employee well-being, it discourages learning and it can hurt long-term growth.
Instead of using financial rewards as a carrot, build an apatite for setting goals that deliver the right amount of challenge, encourage collaboration and allow people to learn new skills and improve performance sustainably.
Here’s a great talk from Simon Sinek on rewarding people for the strength of the momentum they create instead of their end of the year performance alone.
Frequent and Proactive Follow-up
Setting goals at the beginning of the year and returning back to check progress after 12 months is never enough. Even though most organisations today use some form of quarterly performance reviews; maintaining alignment between your strategy and action requires more frequent and proactive involvement.
The method I use myself and advocate is Objectives and Key Results. I’ve written extensively about OKRs on this blog. Here’s a link to help you get started with OKRs.
Summing It All Up
- Best corporate mission, vision and strategy statements are designed to be ambiguous and inspiring.
- Metrics are a powerful tool for performance management because they can guide our actions and behaviours.
- Metrics provide clarity where strategy statements don’t. Misalignment between the two can lead to surrogation.
- Surrogation happens when people stop following abstract objectives and replace them with clearer metrics.
- Surrogation can be avoided with disciplined performance management.