Article: Are you rewarding the wrong metrics?

#Outlook2020

Are you rewarding the wrong metrics?

Organizations have been increasingly relying on individual and team performance metrics to achieve their strategic goals. But if the wrong metrics are rewarded, it can be counter-intuitive and negatively impact the business.
Are you rewarding the wrong metrics?

The highlight among talent organizations in 2010s was a constant reinvention of their prevailing performance management systems and processes. While there was a move away from force-fitting employees into the ranking system, there was an increased focus on becoming more data-driven and measure and reward performance indicators.

A recent People Matters article asked a pertinent question, “Are you measuring the right metrics?”. This article asks a follow up - are organizations rewarding the wrong metrics?

From obsession to surrogation

In the quest to transform the performance management system and focus on becoming more data-driven, organizations have been at the risk of falling into the trap of ‘surrogation’, which is defined as the phenomenon of mentally replacing strategy with metrics. An unprecedented focus on having lots of performance metrics is likely to lead to allowing proxy metrics creep into the setup - metrics which are assumed to have trickled down from the company strategy when they are actually not. A ripple effect of this is having employees lose the view of the original organization strategy. 

Consider the example of the Customer Success and Service vertical of a telecom behemoth. Their strategy is to enhance customer experience, and one of the key performance metrics (among many) is to have the employees get a customer survey filled up. What if different business units start flooding customer inboxes with requests to take a customer satisfaction surveys, keeps calling to remind them, or sends push notifications and pop-ups on their desktops. It may force customers to fill the survey, but was it really aligned to the strategy of enhancing the customer experience? Could the time spent on getting the survey filled be used to innovate on customer experience journeys?

As prominent organizations over the years have witnessed - when rewarding employees for achieving metrics which are not aligned with the company strategy - ends up taking away the organization from its vision. 

The cost of misaligning strategic goals and performance metrics

An obsession with achieving metrics (which are misaligned with the business strategy) and then rewarding those behaviors, can be hugely counter-productive for organizations. Especially if metrics and strategy are not aligned. Don’t look any further than the 2008 global economic crisis. There was a complete structural problem with how banks were encouraging loans which created a housing bubble which eventually burst - it was more about banks rewarding their employees who would manage to sell more housing loans. Even Raghuram Rajan identified incentivizing workforce for selling loans (no matter the quality) in his paper, “Has Financial Development Made the World Riskier?" as a prominent reason for the impending financial risk.

Escaping the surrogation trap

Knowing the pitfalls of surrogation, then the question for organizations is - “how to avoid it?” The first step in the process is to understand the core reasons behind surrogation. 

Michael Harris and Bill Tayler quote the work of Nobel laureate Daniel Kahneman and renowned academician Shane Frederick in their article for Harvard Business Review. Kahneman and Frederick argue that three conditions lead to surrogation.

If these conditions can be prevented, then organizations also have a chance to escape the surrogation trap:

“The objective or strategy is fairly abstract”

What it means: The strategy hasn’t been clearly defined and the implementers interpret it differently than what it really means.

How to prevent it: Involve employees, especially the implementers in the process of formulation of the strategy, rather than only asking them to execute it. The participation in the process increases the understanding and retention of that understanding.Taking the telecom example, if the team leaders on the shopfloor were a part of creating the strategy of enhancing the customer experience, they would not insist on their employees to get the survey filled at the cost of customer experience. 

“The metric of the strategy is concrete and conspicuous”

What it means: If the strategy has only one metric as a performance indicator, the workforce will assume it to be representative of the strategy. The chances of surrogation are higher in this scenario.

How to prevent it: Using multiple metrics as performance indicators can prevent this fallacy. This would also mean employees striving to achieve different targets. In the telecom company example, if there is a metric which is meant to measure the customer experience (like Net Promoter Score), then the employees are not driven by getting the survey filled up. As they are aware they stand a risk of upsetting their customers if they are spammed.

“The employee accepts, at least subconsciously, the substitution of the metric for the strategy”

What it means: An environment is created where employees are unaware that their approach to achieving the metrics undermines the organization’s strategy. In some cases, they aren’t informed about the organization objectives in the first place.

How to prevent it: Do not tie monetary incentives with performance targets with no filter of quality checks in between. Going to the same example, an employee at the telecom company may be more incentivized to get more customer surveys filled up if there was a bonus attached to the number (s)he achieves. This can be hugely counter-productive. Pay for performance is an important part of the talent organization today - but an environment needs to be created where the metrics do not overshadow the actual strategy.

So do you plan to relook at the metrics you are rewarding going into 2020?

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Topics: #Outlook2020, Performance Management

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