Deming’s Curse: Employee Metrics
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.
Bookmark to:
I would also throw out one more point…
Be willing to change your metrics over time. Any motivated employee is going to be able to tell you where the flaws are in a metrics system. They’re going to know how they could game it and suggestions on how to improve things.
Ready, aim, fire, repeat. ;)
“Inspire your employees:”
This is the very best option. Enable the employees own internal motivation. I’d also suggest that if you do measure that you get buy in from the employee and give a “reward” that helps them do even better.
Project comes in on time? Give the programmer a faster computer and 3 monitors. This has the benefit of not distracting them and sends the message that the goal is important enough to you that you’re going to spend your money helping.
I’m a reformed behaviorist. I used to think you could just incentivize people to do anything. Then I read Punished By Rewards by Alphie Kohn. Completely changed my mind.
Either your employees are actually interested in doing a good job and thus have an intrinsic (internal) motivation to “do well” or they don’t. If they have internal motivation, your best bet is to work with that motivation, not dangle extrinsic rewards in front of them.
There’s a great story about Steve Jobs trying to motivate a programmer to make the Mac boot up faster. Instead of offering stock options he paints the picture of how many hours of human frustration will be avoided by shaving just 5 seconds off the boot time.
He merely facilitated the programmer’s own internal motivation. Yes, there was measurement, but the programmer was internally committed to the goal.
If you have time, take a look at Punished By Rewards.
Keith -
Good point. If metrics are used to constantly improve, the metrics themselves may be capable of improvement. If there’s no cost, it may be useful to run the old and new measures in parallel until history is built up.
Mr. Analogy -
We don’t use any employee metrics here, but I think it’s much harder to get away with this in a larger organization, like a bank.
Appreciate the comments - I used them to revise the article.
One way to avoid gaming is to automate more of the decisions so that employees can focus on interactions with customers not the mechanics of decisions.
JT
Great comments.
Metrics can be very helpful to those wanting to improve their own performance. (Self created metrics) However, they can be very dangerous if used to evaluate/reward/punish others. (Imposed metrics)
The management challenge is not determining “the right” metrics, it’s inspiring employees to self-police their own performance.
To be fair to Deming he was quite aware of the difficulties of measuring knowledge workers. He doesn’t get a lot of credit for this because he didn’t write a lot of books, but he should get credit for being very much opposed to the Taylor system of microscopic measurements of people and he did much to discredit it.
Joel -
Agreed. Deming takes an unfair rap in this country (but this is balanced by his deification in Japan).
To be truthful, I also have a lot of sympathy for Taylor - who made tremendous progress in virgin territory.
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