Measure What Matters
By: Jess Reif & Rodney Evans
“What gets measured gets managed.” — Peter Drucker
The unspoken corollary to this mantra is that what doesn’t get measured doesn’t get managed. Intangibles are the invisible advantages and disadvantages that make businesses successful or derail them. Yet, these powerful forces often go unmeasured simply because there is not a readily available instrument for measuring them.
Gilb’s Principle states, “Anything you need to quantify can be measured in some way that is superior to not measuring it at all.” In our personal lives, we comfortably employ approximations and imprecise measures to make better decisions. You may not know exactly how much you are going to pay for your meal after reading a Yelp! review, but you can reasonably expect that you are going to pay more at a restaurant with a “$$$$” rating than a “$$” rating. A measurement does not need to be statistically significant to have value for decision making — it just needs to reduce the uncertainty you would have had without it.
At work, we commonly mistake what is measurable for what matters. We manage what we can easily measure instead of finding measures for what matters most. Companies ineffectively measure or resist measuring things that do not naturally lend themselves to quantitative metrics, such as collaboration, information sharing, the value of education, and contributions to cultural activities. Important intangible assets and liabilities go completely unmonitored because businesses are unable to quantify them.
We recognize the need to manage many things that do not easily lend themselves to metrics, but it is impossible to reduce our uncertainty when we make no attempt to measure them at all. Fortunately, there is an easy method for creating metrics for intangibles.
Two pointed questions will help us create the metrics we need:
1. What do we want to manage? In other words, what problem are we seeking to address by employing this metric?
2. Why does it matter? If it didn’t matter, we wouldn’t care about measuring it. If it matters, it must be detectable in some way.
First, we’ll walk through this exercise using a real example of IT security at the Department of Veterans Affairs. Next, we will use a fictitious example to demonstrate how the same concept can be applied to determine the costs of a cantankerous coworker.
IT Security
In the aftermath of the recent data breach at the U.S. Department of Personnel[1], the intangible asset of data security is top-of-mind. In his book, How to Measure Anything, Douglas Hubbard describes how he used the method above to help the Department of Veterans Affairs (VA) measure the benefits of “IT security”[2]. Leaders at the VA were considering seven proposals and wanted to know which, if implemented, would improve IT security enough to justify the investment. Hubbard was surprised to learn that no one at the VA had clearly defined what was meant by “IT security,” but all knew it was important. First, he asked the leaders to come to an agreement about what IT security was, and they realized that the problem they were really trying to manage was the frequency and severity of certain costly events, such as unauthorized system access and virus attacks.
Second, by asking the leaders why IT security was important, Hubbard helped them solve their own measurement problem. The VA wanted to avoid the costs associated with these undesirable breaches — the losses in productivity, damaged equipment, legal liability, etc. All of these costs can be quantified in a way that allowed the VA to better assess the value of each potential investment. While imprecise, these measures reduced uncertainty and allowed the VA to make a more informed decision. In Hubbard’s words, “it’s still a measurement if it tells you more than you knew before.”
Cantankerous Coworkers
We can apply the same method to develop a unit of measure for another seemingly immeasurable workplace problem. Let’s say you are the CEO of a financial institution. One of your senior vice presidents, Steve, is a jerk and is hated by the rest of your executive team. Your other five SVPs regularly complain about him to you, and two have even threatened to leave if he stays. But Steve is an all-star when it comes to closing deals. You have retained Steve because he is by far your top revenue generator. You know that Steve is a problem, but how big of a problem is he? How much is Steve’s actual cost to the company? There isn’t exactly a standard metric for assessing the costs of being a jerk in the office.
Next, you must answer the question of why you care about the problem, as this will frame how you measure it. If you, the CEO, spend about 2 hours per week fielding complaints about Steve from your team, that’s an annual 104 hours from you alone. Divide your salary by the number of hours you work in a year to calculate your hourly rate (which is $5,000 an hour for the average American CEO[3]), and multiply that by 104 hours. Apply the same math to the other executives on your team and add in the search costs to replace the two executives who plan to leave, plus the cost of the lost productivity from on-ramping new execs.
Now, you have a much more complete picture of how much Steve actually costs you. Is the high performer still worth retaining? This measure, while imperfect, gives you a more accurate idea of Steve’s cost to you than traditional metrics on your P&L would. With this analysis you are able to make a more informed decision.
Takeaway
Seemingly immeasurable constructs are best measured by breaking them down into the detectable impact we wish to monitor. For any single intangible there will be many possible measurement techniques at your avail, some of which will be easier to employ than others. As Jason Larson aptly observes in the popular Rent song, there are a lot of ways to measure the construct of a year (he suggests daylights, sunsets, midnights, cups of coffee, love, among others). Similarly, intangibles lend themselves to many units of measure, and one is not necessarily better than the others. It is up to you to choose which particular metrics best represent the problem you wish to manage. If the measure reduces your uncertainty at all, it will allow you to make more informed decisions.
Jess is a CrossLeader on the Research and Development Team and Rodney is the Chief Innovation Officer at McChrystal Group, a leadership and management consultancy composed of a diverse mix of professionals from the military, academic, business, and technology sectors.
[1] “Social Security Numbers of Every Federal Employee Stolen in Data Breach.” 11 June 2015. http://www.huffingtonpost.com/2015/06/11/federal- tgovernment-data-breach_n_7564218.html
[2] Hubbard, Douglas. How to Measure Anything. Wiley. 2014.
[3] CEO Earnings Report. 2014. http://www.forbes.com/sites/kathryndill/2014/04/15/report-ceos-earn-331-times-as-much-as-average-workers-774-times-as-much-as-minimum-wage-earners/
