Why Not To Measure?

February 9, 2024

It is one of the pillars of management and/or leadership education, to manage by results. Peter Drucker, the guru of management, said that if you cannot measure something,  it's not important.

Management by results might apply with tasks where the only factor that counts is the measurable output, like sales for which salespeople get commissions, or in the case of production workers, a bonus for beating the average production quota of the department. But it's wrong for managing those that manage.
The MOST important asset a company can have does not appear on its balance sheet nor in the profit and loss statement. It is the company culture. If there is no mutual trust and respect, for instance, the company will suffer energy loss and not perform well. One of the most important roles of being a leader is to build and nurture a constructive organizational culture. It can be measured by a survey but there is a danger if the measurement is the variable by which rewards are granted. The purpose of what is being measured can be lost, and the measurement itself becomes the purpose the organization aims for.

Take economic theory.

The purpose why a company is established is to satisfy certain market needs. The paying customers are the clients to focus on, the owners are stakeholders whose finances are necessary for the company to operate. Owners need to be satisfied otherwise why would they provide financing but their satisfaction is not the purpose of why the company exists otherwise the company is not established to satisfy but to exploit the market. 
Profit measurement was born to measure how well the company is doing, having more revenues than costs and providing enough return to the owners to justify financing the company. But once profit is measured and made the goal to be surpassed, client satisfaction can be forgotten or ignored; The measurement becomes the goal and the purpose for which the organization exists.

There is more to the dangers of measuring.

When one sets measurable goals to award bonuses or any other remuneration depending how well the measure is met, it is a normal tendency, for people to set goals low, goals they are sure they can achieve, and get the bonus. The result is people do not aim to excel, to try new things, to stretch to their peak capabilities. Managing and rewarding by results produces mediocre managers.
An alternative way to manage is disengaging results measured from rewards granted. The company should set up aggressive goals. The rewards however, the bonus or profit sharing, should be awarded strictly as a percentage of what was achieved in reality, independent of what was planned or budgeted. Thus, the better the results, the more are the rewards shared.

The deviation, (whether the actual is significantly higher or lower than planned) is a call to analyze the PROCESS of achieving the results: Where did we go wrong when we planned?

Here is an analogy to explain this point.

We want an organization of Olympic winners. They should always aim to improve their previous record. After the competition, the review of the game or of the race that happened is to review the actual vs the plan, to analyze where the plan failed or the actual could not deliver the plan and why, so that next time we can do better.

If there is no deviation from the plan there is no learning.

If there are no deviations from the plan, our plan is not aggressive enough or is too conservative. Neither are good management. 

Manage the Process.
Reward by actual results.

Written by
Dr. Ichak Adizes