Measurements are crucial for reaching goals, but pay attention to what’s being measured.
 |
| Peter McGinn |
One of my colleagues, a health care CEO, is among the most goal-oriented people I know. His performance outshines that of others, even when they possess roughly comparable ability. He has a record of success and progress in each organization he has led. He taught me the discipline of setting measurable objectives and tracking progress.
Another colleague taught me the value of breakthrough objectives. He was a vice president of a high-tech firm when it took a huge leap forward several years ago—also because of measurement. First, his CEO measured the baseline performance of the firm. Then he set targets, exceptionally high levels of improved quality and growth. These breakthrough objectives were so demanding that the firm needed to change fundamental assumptions and practices to achieve them. They did so and, in that fashion, provided another example of the power of good measurement.
More Good Measurement
An even more ingenious use of measurement is described by Michael Lewis in his book Moneyball: The Art of Winning an Unfair Game (2003). He asked and answered the question “How could the Oakland A’s consistently achieve one of the highest regular season winning percentages in baseball, when they also had one of the lowest payrolls in the major leagues?”
The secret was in the measures used by manager Billy Beane. He carefully tracked statistics—like pitches required to retire a batter—that were generally overlooked by the other teams, which focused on obvious measures like batting average, stolen bases, etc. Beane and the A’s organized and deployed their limited resources to the greatest effect, beating teams with more apparent talent.
When reengineering was in its heyday, its proponents preached the power of measurement. Michael Hammer famously said: “If you can’t measure it, you can’t manage it.” If you have no measurement controls in place, you are not in control, and your business is likely to be out of control.
A Caution
I am a champion for measurement, but there is an important difference between what is measurable and what is meaningful. Einstein said it this way: “Not everything that counts can be counted. And not everything that can be counted, counts.”
I have seen any number of individuals and organizations pursue trivial goals because they were countable—not because they were important. This is where the true genius of measurement lies: identifying and tracking the right indicators. Billy Beane provides a good example of that.
So do Robert Kaplan and David Norton of “balanced scorecard” fame. They argue that you should measure the things you believe are the critical success factors of your business. In other words, your theory of your business determines what you measure. If you are measuring other things, you are counting but not managing.
Bad Measurement
Another measurement error is false precision. Survey results of executive compensation, for example, can vary depending on the nature of participants, the number of participants and a variety of extraneous factors. The correct use of such surveys is as rough approximations of a market subject to other tests of reasonableness.
For instance, I recently received a report from a compensation consultant showing that in homecare organizations, COOs were earning more than CEOs. Delving into the data, I discovered that the COOs’ organizations were not at all comparable to the CEOs’, explaining why the result was nonsensical. To have relied on these surveys would have been an example of false precision—as well as bad judgment. Common sense is always necessary for interpreting surveys: Just because it’s a number doesn’t mean it’s correct.
Ugly Measurement
Measurement turns ugly when it misdirects your attention and leads to actions opposite of what you need or intend. Once again, you can find examples in the area of compensation, particularly incentive compensation. In a classic 1975 article in The Academy of Management Journal, Steven Kerr described this as “the folly of rewarding A, while hoping for B.” (See “On the Folly of Rewarding A, While Hoping for B.” The Academy of Management Journal, 18[4]: 769-783.)
Kerr used examples from politics to business to child-rearing to make his point. What you reward is what you get, but if you are measuring the wrong things, what you get is not what you want.
One consulting company with whom I worked professed a value of teamwork but rewarded individual billing. The company directors acted surprised when consultants kept clients for themselves rather than bringing colleagues into engagements with them. How could they be surprised? They were getting what they paid for. This is an area where board members, especially, should pay careful attention. What do they say they are rewarding their executives for, and what do they actually reward them for?
Avoiding the Pitfalls
Over the past few years, I have had the opportunity to witness the power of measurement when the pitfalls are avoided. A nursing home CEO who reported to me had created a short, balanced scorecard for herself with specific targets for each measure and with a weighted scoring system for tabulating overall results. When we began using this scorecard, she achieved outstanding results in both quality and service but missed her budget targets and did not achieve growth objectives. My subjective assessment based on stellar service and quality was that she was exceptional. The calculated score said that she was poor to mediocre. Which one was right?
Discussions led us to reconfirm that the finance and growth objectives were legitimate and important while also reaffirming the essential value of her service and quality performance. We didn’t let ourselves ignore the scores we didn’t like nor give them a substance that would undercut our appreciation of her accomplishments. We used the measures as a guide to redirect and supplement some of her efforts. As a result, the CEO and her organization achieved much greater success than would have occurred otherwise.
That is the overall lesson of the good, the bad and the ugly of measurement: Measurement is a tool, not a good or bad thing in and of itself. The right measurement applied with good judgment and perspective boosts performance for both individuals and the organizations they lead. The wrong measures lead to missed opportunities and counterproductive actions.
Peter McGinn, Ph.D., is president of Leadership Impact and former president and CEO of United Health Services, a regional health care system headquartered in Binghamton, N.Y. He is the author of Leading Others, Managing Yourself, published by Health Administration Press, and Learning to Lead, a self-study course published by the American College of Healthcare Executives.
GIVE US YOUR COMMENTS!
Hospitals & Health Networks welcomes your comment on this article. E-mail your comments to hhn@healthforum.com, fax them to H&HN Editor at (312) 422-4500, or mail them to Editor, Hospitals & Health Networks, Health Forum, One North Franklin, Chicago, IL 60606.
If you would like a FREE Subscription to H&HN OnLine, please click here to register.
This article 1st appeared on October 30, 2007 in HHN Magazine online site.
To respond to this article, please click here.
