Peter Drucker, the management guru and great sage, gave us the phrase, “What gets measured gets done”. It’s a neat little one liner that’s trotted out at many a management meeting, but do we really pay the right attention to it?
The WGMGD phrase is most often used to instil the virtues of KPIs. Set every person, every team, project, every function, every product, every region, etc, a neat collection of goals and KPIs and measure progress against them regularly. Because the KPIs are in the spotlight, the people/team/project/function/product/region will focus their efforts on achieving them. It works – sometimes too well.
A professional services business reorganised themselves into a number of small teams. Overheads were apportioned according to the number of staff in each team and the team heads were measured on net profit as a proportion of fees earned.
The business happened to operate in an industry that had a dire shortage of staff. To protect themselves from having to hire in a very tight market, the business had adopted a strategy of hiring lots of very junior staff and looking after them (obsessively) so that a good proportion of them would stay on to take up the senior roles.
After the reorganisation, the team heads soon realised it would be easier for them to hit their KPIs if they staffed their teams with a few high earners rather than the (unmeasured) strategy of lots of junior staff: Fewer people, lower overheads. Within a year, and almost by stealth, the business had morphed from the desired pyramid shape into something more like an American footballer. What got measured got done ¬– with unfortunate consequences.
Another – albeit rather extreme – example occurred in a smallish manufacturing business.
The business was owned by a fierce chap who was obsessed with achieving a particular gross margin but never focused on the net profit result. Eventually, after being harangued on a monthly basis by the owner for failing to achieve the gross profit margin, the accountant started to fudge it. Via a simple journal moving costs from above the gross profit line to below, he engineered the ‘right’ gross profit margin. The owner had many “happy” years before he realised he’d been duped. In this case, what got measured got manipulated.
Today’s tip then is do you have measurements in place which are getting work done too well? What behaviours do your KPIs encourage? And are some of them contrary to what you intended?
Julia Bickerstaff‘s expertise is in helping businesses grow profitably. She runs two businesses: Butterfly Coaching, a small advisory firm with a unique approach to assisting SMEs with profitable growth; and The Business Bakery, which helps kitchen table tycoons build their best businesses. Julia is the author of How to Bake a Business and was a partner at Deloitte. She is a chartered accountant and has an economics degree from The London School of Economics (London University).