The Power and Peril of Performance Metrics

Measuring performance has been a major feature of the business landscape ever since double entry accounting made its appearance in the 14th or 15th century. "You can't manage what you can't measure" is one of the most widely-repeated cliches in the business world, and it's been an article of faith for several generations of executives and managers.

It's easy to understand why business leaders view performance measurement as critical for effective management. Metrics give us a way to make sense of our environment and to describe our objectives and results in concrete terms that are easy to understand and communicate.

The fixation on performance measurement has affected virtually all business functions, including marketing. For the past several years, marketers have faced growing pressure to prove the financial impact of their activities and programs. As a result, they're placing greater emphasis on measuring the performance of marketing tactics and channels, and some marketing leaders are allocating budgets and basing marketing mix decisions on performance metrics.

Overall, this has been a positive development. It's hard to argue that business leaders, including marketers, shouldn't measure the performance of their activities and use metrics to guide important decisions. But, it's also important to remember that performance metrics must be used carefully because they can produce unintended consequences. These unintended consequences can result from several factors, but two are particularly important.

The Power of Performance Metrics

The first important thing to remember about performance metrics is that they have the power to shape human behavior. Almost a decade ago, Dan Ariely, the noted behavioral economist and author of Predictably Irrational, described the power of performance measures in a column for the Harvard Business Review. He wrote:

"Human beings adjust behavior based on the metrics they're held against. Anything you measure will impel a person to optimize his score on that metric. What you measure is what you'll get. Period. This phenomenon plays out time and again in research studies."

So the power of performance measurements to cause us to change our behaviors is reason enough to use them with care.

The Surrogation Problem

Another factor that makes performance metrics potentially dangerous is a psychological phenomenon known as surrogation. Surrogation is the human tendency to lose sight of the real objective or strategy and instead focus only (or almost entirely) on the metrics that are meant to represent the objective or strategy. In other words, we have a strong tendency to decide (often subconsciously) that scoring well on the metric is the desired objective or strategy.

The process of surrogation is easy to illustrate. Suppose that one of your company's important objectives is to provide outstanding customer experiences, and you decide to measure progress on that objective using a customer survey. The surveys are conducted periodically, and the results are shared with customer-facing employees and frequently discussed at management and staff meetings.

Under these circumstances, some employees may begin to think that the objective is to maximize scores on the customer survey, rather than to deliver outstanding customer experiences. This can become a serious problem if those managers or employees begin to entice customers to give only high scores on the survey even if they weren't completely happy with their experience.

Surrogation is likely to occur when three conditions exist:

1. The actual objective or strategy is complex and relatively abstract.
2. The metric is concrete and easy to understand.
3. The person involved does not consciously reject the substitution of the metric for the actual objective or strategy.

In an article appearing in the current issue of the Harvard Business Review, Michael Harris and Bill Tayler describe three ways to reduce the odds of surrogation occurring:

1. Make sure the actual objective or strategy is thoroughly understood by all relevant managers and employees. Involve as many of these people as possible in the formulation of the objective or strategy.
2. Avoid linking compensation to metrics. Research has shown that tying compensation to metrics increases the likelihood that surrogation will occur.
3. Use multiple metrics. Surrogation is less likely to occur if multiple metrics are used to measure the success of a strategy or the attainment of an objective.

As noted earlier, measuring the performance of marketing quantitatively has now become a common practice, and overall, this is a positive development. But marketing leaders must recognize that like any business tool, performance metrics need to be used carefully and wisely.

Image courtesy of James Whatley via Flickr CC.

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