Quick Insight
Your metrics are not your strategy. They measure key aspects of your strategy. Employees can focus on the metrics at the expense of the company’s success. For each of your metrics, identify how your employees may act, both good and bad, to achieve the target. Performance metrics must be paired with the guardrails of strong company ethics and internal control structure.
Your metrics are not your strategy. They measure key aspects of your strategy. Employees can focus on the metrics at the expense of the company’s success.
A cautionary example of this was Wells Fargo’s cross-sell metrics. Wells put great emphasis on increasing the number of services each customer used. Selling additional services to a customer is called cross-selling. It eventually led to a massive loss of reputation and over $2 billion in fines.
For each of your metrics, identify how your employees may act, both good and bad, to achieve the target. You can’t anticipate everything, so closely monitor employee actions after adding a new metric.
One way to reduce the negative effects of a metric is to add another metric as a counterbalance. For example, high production targets may cause quality to suffer. This leads to lower customer satisfaction and lower profits. You could add a quality KPI to balance the negative incentives of the production metric.
This second metric could be a company-level KPI, or you may make it a key metric only for production people. You could keep a single production metric but penalize production amounts for quality defect rates or product return rates.
Finally, performance metrics must be paired with the guardrails of strong company ethics and internal control structure.
I wish you metrics that serve your company, customers, and employees. I wish you well.
- Rob Stephens
Further Insight
CFO Perspective Resources
Get all the CFO Perspective resources with a FAST (Finance and Strategy Toolkit) membership.