One of the emerging sub-themes in debates on the ‘great transformation’ at the engrossing Global Peter Drucker Forum a couple of weeks ago was measures. Everyone agreed that measures were important (‘what gets measured gets managed’, etc), but there was less clarity about what in the transformed world they should look like.
‘What are the metrics for the new economy?’ pondered one Silicon Valley entrepreneur. In a plenary on the same subject, along with junking shareholder value (MSV) and top-down hierarchical management practices, speakers and audience debated whether ‘creative companies’ should abandon narrow financial metrics for broader, more inclusive ones.
My observation that the three items the plenary was questioning (purpose, measures and method) were systemically linked brought a gratifying name-check from the platform. Actually, I claim no credit for the idea: that belongs to John Seddon, who along with his colleagues at consultancy Vanguard have observed and tested the link in hundreds of service improvement assignments in both public and private sectors.
Seddon’s insight is that this invisible link is not just important: whether managers know it or not, it is what makes the organisation tick.
Here’s how it works. When measures are derived from purpose (what the organisation is there to deliver from the customer’s point of view), they guide method, in a good way. Thus, when Taichii Ohno, architect of the Toyota Production System, was asked near the end of his career what he was working on, he replied: ‘Shortening the time between receiving a customer’s order and taking his cheque’. The purpose of the TPS is to deliver to the customer exactly the car ordered as fast as possible. The metric of end-to-end time drives quality (there’s no point delivering a manual if the buyer wants an automatic) and all the methods, from kanban to factory layout to near-instant machine set-up times, that managers and front-line production workers have devised to get delivery times for some Toyota vehicles down to one or two days. Apple uses similar principles and measures in building computers to order.
End-to-end time and quality put the emphasis on flow rather than quantity, and are the secret of high-performing customer service and service delivery systems too. One of the key functions of measures is to connect actions with consequences. They foster self-knowledge and learning. If this is our purpose, as defined by the customer, what is our capability and how reliably do we meet it? Knowing our real capability (often a wake-up call to managers who have never posed the question before), what methods do we use to improve against the purpose? If we do this, what are the consequences in terms of desired outcomes?
By contrast, look at what happens when purpose goes by default or is set by a manager or, as is usually the case in public services, by an inspector or regulator. Measures still drive practice and method – but not in a good way. In both public and private sectors, for example, customer contact centres use measures that reflect top management’s view of service. Based on the desire to control cost and achieve economies of scale, they usually measure functional performance and activity (time to pick up the phone, call-handling time, number of calls per day) and instead of learning and improvement are used to secure compliance and manage performance through targets, standards and league tables. In relation to real customer purpose (‘solve my problem as quickly as possible’) they are arbitrary and irrelevant; in the absence of connection to the customer, meeting them becomes the purpose – ie satisfying the manager or inspector rather than the customer. Because they ignore the hidden thread that links them to purpose and method, managers using such measures are, in systems guru Russ Ackoff’s immortal phrase, condemned to ‘do the wrong thing righter’, which actually makes them wronger, worsening service and driving up cost.
Why does customer service by banks, phone companies and public services never get better? Because what managers and politicians and managers view as great service – that is, meeting all their targets and standards – has no bearing on quality as experienced by the customer. Hence the phenomenon of MP’s surgeries full of constituents complaining loudly about lousy service by departments or services officially rated as five-star, or top-ranked units suddenly being placed in special measures as they are hit by scandal. As Vanguard’s Andy Brogan puts it, ‘It’s not simply a case of defining the right measures – that’s a hygiene factor. What’s critical is what the measures are used for. The problem is not just that we end up doing the wrong things, it is that they keep us blind to the impact on the true purpose.’
The relationship between purpose, measures and method also helps explain performance at corporate level too. Drucker said that the sole valid purpose of a business is to create and keep a customer. Toyota and Apple have internalised this insight, and their measures and methods are all geared to support it. In this vision profit is not the purpose but a function of how well they are meeting it. Chiming with this, Jim Collins and Jerry Porras in their research found that companies defining their purpose directly in terms of maximising shareholder value did less well for shareholders than comparators that focused on doing right for customers.
It’s not hard to see why. If you use measures that cause you to do the right thing better, then you’re driving in the opposite direction from those that are doing the wrong thing, however well, and customers reward you accordingly. The other way round, as has been said many times, no one gets out of bed in the morning itching to make money for shareholders. Workers have to be incentivised and dragooned into doing so with measures using budgets, targets and standards focused on the financials (what the manager wants, not the customer), all of which can be and frequently are gamed as people strive to meet their de facto purpose.
The tighter the linkages in such perverse couplings, the more likely they are to end in tears. At the extreme, the dynamic so corrupts the original goals that outcomes turn into their linguistic opposite, a process that John Lanchester in his recent How To Speak Money terms ‘reversification’: ‘enhancements’ that make service worse, ‘securitisation’ as risk, ‘credit’ as debt and HR as sacking people. At the far end of this road lie whole organisations that are negative versions of themselves: benefits offices whose job is to refuse applicants, banks that make people poorer, medical practice as at Mid Staffs that kills patients rather than cure, shareholder-value maximising companies that destroy value. These pathologies then drive ever tighter compensating rules and regulations until they end up reversifying management itself: a technology that, as Drucker pointed out, all too often makes it harder for people to work, not easier, a creator of problems rather than solutions.
So yes, measures are more important even than people think. While good measures foster learning and improvement, bad measures do the reverse, not only causing people to do the wrong things but also blinding them to the effects. The tests of a good measure are the same in the new economy as in the old: they are related to purpose and what matters as defined by the customer; they are used by people doing the work, in the work, to understand and improve the work; and they make visible to the people who do that work the consequences of their actions for the achievement of their purpose.