The Price of Everything

My buddy Mark measures physical properties like outer diameter, durometer, and Young’s modulus when he builds custom rubber parts for F500 companies. He’s constantly improving quality along whatever dimensions his customers need. That’s life in the ISO-9001 world.

Business took a page from the manufacturing book with an adage from Edward Deming, “you can’t manage what you don’t measure”. Unfortunately, the quality guru never said it - because many important parts of your business can’t be gaged well. This applies most to employees.

Humans are much trickier to measure than rubber boots for submarine telecommunication cables. People game the metrics to look good.

Look at software. Programming managers like to measure software bug counts and lines of code. Coders naturally respond to bug counts by arguing with the testers about bugs instead of fixing them - or even avoid the bug tracking system. If you measure lines of code written, developers will tend to write bloated, unmaintainable code. Either criteria will cause worse performance.

Expect similar fun in banking:

• Measure number of incoming customer calls handled? The call center will cut the customer short.
• Pay branch managers according to deposit growth? They’ll push harder for unprofitable rate exceptions.
• Pay tellers on customer satisfaction? They’ll waive fees too easily.

Employees are a little like subatomic particles - the very act of measurement will change them. Even if the yardstick is not explicitly linked to pay, people know that you are measuring because it’s important.

So what’s left?

• Make the measurements ungameable: combine multiple measures together to make sure there’s no way to adversely affect the numbers. For example, profits measured with funds transfer pricing are much less vulnerable to bad rate exceptions than deposit growth. Or just stop using rate exceptions completely. Note: Fair Isaac’s James Taylor rightly points out that decision automation has side benefits of reducing gamesmanship while focusing employees on the customer.
• Allow your employees to skew their outlook: it may not be a bad thing if tellers are solely focused on the customer - even if this drops fee income a little.
• Manage subjectively: Throw out the worst metrics and replace them with good judgement.
• Inspire your employees: Most people want to do the right thing. Make sure everyone understands how important banking is to the rest of society - a world without mortgages or savings accounts puts people in worse homes and keeps money hidden under the mattress. Explain how better customer service lets someone’s grandmother relax a little when worrying about money; higher profits allow the bank to help more people. Listen to their own ideas for how to improve.

Bankers: We rely heavily on yardsticks - and even more since SarbOx came along. Take the time to ensure these measures clearly transmit the right information and help the business.

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