Manage For Mission, Not For Metrics

Most people found the General Motors ignition switch scandal appalling. Not only did the defect result in over 100 deaths, but it turned out that fixing the problem would have cost less than a dollar per car. For many, it was a horrible indictment of corporate greed. Profits, it seemed, were valued more than human lives.

Yet look a little closer and it becomes clear that that the real problem wasn’t callousness, but mismanagement. The defect in the ignition system was, in fact, relatively minor. The real problem was that it caused airbags not to deploy. Each subsystem was performing to standard, but the interaction between them that resulted in disaster.

Sadly, most organizations today are run much like GM. All too often, we optimize isolated metrics, but fail to see the whole system. Today, we have to deal with a level of complexity unimaginable a generation ago and we need to think in terms of ecosystems rather than linear value chains. We need to focus less on metrics and more on a shared sense of mission.

How We Got Here

The world wasn’t always so complicated. In earlier times, tradesmen like blacksmiths, weavers and tailors knew their crafts intimately. After a long period of apprenticeship, they were able to manufacture products from basic materials. Life was much simpler, but people were a lot poorer for it. Life expectancy before 1800 was less than 40 years.

The industrial revolution broke up these crafts into separately definable jobs. It was this division of labor, like that described in Adam Smith’s pin factory, that for the first time in human history began to raise productivity levels—as well as both life expectancy and quality of life— significantly and consistently.

Toward the end of the 19th century, Frederick Winslow Taylor took the idea a step further with his ideas about scientific management. For him, simply creating more specialization wasn’t enough, you also needed to optimize each part of the process. So, armed with a stopwatch and a notebook, he set out to find the “one best way” to do each job.

Before long, Taylor’s ideas became gospel, spawning offshoots such as scientific marketing, financial engineering and the six sigma movement. It was no longer enough to simply work hard, you had to measure, analyze and optimize everything.

Retail Reductionism

While Taylor’s ideas have been enormously influential, it’s also become clear that they can lead to an overly reductionist culture. The real world often defies logic and when you only manage what you can measure, you leave a lot to chance. Every system, no matter how well designed, is limited. There’s always data that you fail to capture.

In The Good Jobs Strategy, MIT professor Zeynep Ton makes exactly this point through her study of retailers. The conventional wisdom says to maximize profits through low wages, optimized scheduling and extensive inventory management systems. Yet her research finds that these practices often serve to reduce efficiency and profitability.

One example is how weather can wreak havoc with the system. A rainy day reduces store traffic, which lowers sales. That translates into reduced forecasts for staffing the stores. When the sun comes back out, stores are understaffed, resulting in poor service and inventory problems like phantom stockouts. The result is even worse sales, reduced staffing and a vicious circle of lost revenue.

Ton also points that some high performing retailers, such as Trader Joe’s, Costco and Quick Trip, deliberately increase their labor investment through better wages, increased training and over staffing. While these extra costs might not look good on a spreadsheet, it allows them to handle a lot more complexity and generate new ideas, which increases performance.

Seeing The System

In Iraq, General Stanley McChrystal describes another aspect of the over-optimization problem. Although his soldiers were winning every battle, somehow they were losing the war. What’s more, every time they began to gain the upper hand by shifting tactics, the enemy would adapt. It was beginning to seem like they were engaged in a neverending game of whack-a-mole.

As he describes in his book, Team of Teams, McChrystal realized that although his squads of highly trained commandos and intelligence analysts were performing their individual tasks with world class alacrity, they were failing to, as he put it, “see the whole system” and the greater mission was getting lost.

For example, teams of commandos would go on a raid and capture valuable intelligence, but then bags of documents and hard drives would sit in a closet for weeks before anyone got a chance to look at them. Other times, an analyst would make an important breakthrough, but was unable to get that intelligence to the ground units that could make best use of it.

McChrystal took the unusual step of decreasing emphasis on efficiency and focused his sights on agility and interoperability. By beefing up the roles of liaison officers and embedding specialists in each other’s units, he slowed each unit down slightly, but overall operational efficiency increased by a factor of seventeen!

The Efficiency Paradox

Managers often fall into the trap of thinking that by improving each part of their enterprise, they will improve the whole. However, the opposite is often true. By seeing an operation as a set of isolated metrics, you often lose a sense of context and decrease overall performance—as in the case of GM. That’s the efficiency paradox.

Success and failure are rarely determined by performance against a plan, but rather how you adapt for events that cannot be foreseen. Increasingly, we must learn to manage not for stability, but for disruption. If, as Zeynep Ton described, an errant thunderstorm or blizzard can throw your system off, it’s not much of a system.

The problem is that the world is far too complex to be reduced to excel sheets, organization charts and diagrams. What’s really important is not the nodes, but the network. That’s what McChrystal means when he speaks of “seeing the system.” You need to optimize for the overall mission, not for metrics.

Yet if everyone is trained — and compensated — to focus on only their part of the task, the shared mission is lost. That’s not a path to greater efficiency or to profitability, but to oblivion. In the final analysis, a successful enterprise is built through motivating employees, earning the trust of partners and serving customers well. Nobody cares what your internal metrics are.

– Greg
 
A previous version of this article was first published in Harvard Business Review.