It was a case of someone being perfectly wrong, even though he was absolutely right. He was right about the difference being in the decimals. What he failed to grasp was the single most important rule of business metrics. Call it Lewis's First Law of Metrics.
Lewis's First Law of Metrics: You get what you measure -- that's the risk you take
The sole reason to institute any business metric is to drive behavior. That's what it does. Start measuring employee turnover and every manager in the company, except for those too stupid to understand the rules of the new game they're playing, will start to assess every employee's performance as "exceeds expectations," doing all they can to give everyone compensation increases large enough that they'd never be able to come close to matching their income anywhere else.
In other words, some of the behavior that a given business metric drives is aimed at gaming the metric whenever that's easier than actually improving the business. It's especially true when a company ties anyone's compensation to measurable improvement.
Don't believe me? The proof lies no further than something you might be going through right now: the effort to "make the numbers" at the end of the fiscal year. The list of what companies do to make the numbers -- to hit budget and earnings targets -- is little more than a rogue's gallery of very bad ways to run a company, and you're probably asked to be part of the conspiracy of incompetence.
In fact, here are some common strategies:
- Defer filling open positions until after the start of the new fiscal year. If the idiocy of this technique isn't immediately apparent, try this: The company either makes a profit on the position or it doesn't. If it makes a profit, deferring that profit is dopey. If it doesn't, filling the position is dopey.
- Defer important purchases until after the start of the new fiscal year. The same logic applies here as applies to delayed hiring.
- Offer customers extra discounts and incentives to buy products now instead of in January or February, thereby reducing profits in order to gain revenue a month or two earlier than would otherwise be the case.
There's a science fiction story I probably won't ever get around to writing. The premise: Humans colonize Mars. Ten years later, the first Martian corporation opens its doors for business. Ten years after that, the last corporation on Earth closes its doors, unable to overcome the overwhelming Martian competitive advantage: As the Martian year is twice as long as Earth's, Martian companies have half the number of year-end closings.
Take the survey: The relative importance of processes and practices
On an entirely different subject, a frequent topic here in Advice Line is the difference between processes and practices, and how much trouble corporations get into when they confuse the two. Over in my other blog, Keep the Joint Running, we're conducting a survey to get quantitative information about the relative importance of the two in modern businesses.
I'll report the results both here and in KJR once I've had the time to tabulate them.
This story, "Stupid consultant tricks," was originally published at InfoWorld.com. Read more of Bob Lewis's Advice Line blog on InfoWorld.com. For the latest business technology news, follow InfoWorld.com on Twitter.