“You cannot manage what you don’t measure.” You may have heard that before. Certainly this truism holds today. However, John Hauser, professor of marketing at MIT Sloan School of Management, takes it further: metrics influence the behaviour of the entire organisation, and affect both actions and decisions related to future strategies. According to Hauser, “you are what you measure”! I’m inclined to agree.
Let’s say a firm measures a and b, but not y or z. Pretty soon, managers begin to pay more attention to a and b. Managers who perform well against a and b are promoted or given more responsibilities, increased pay and bonuses. Recognising these rewards, managers start asking their employees to make decisions and take actions that improve these metrics. Often, management won’t even need to ask – employees will start to focus on delivery against a and b of their own volition. These metrics become embedded in the culture of the organisation, and the entire organisation focuses on ways to improve a and b. The firm even gains core strengths in producing a and b. In essence, the firm becomes what it measures.
Value of data and analytics
This is also true of metrics associated with investments in data and analytics. Some organisations consider such investments an overhead. As an overhead, data and analytics investment is viewed as a necessary cost, but one that does not add value. An alternative approach is to view such investments as part of the process of creating value for the organisation. Differences in measurement approach determine the culture of the organisation: either cost driven or growth driven.
What is the right approach to measurement?
In Australia there’s currently a cost versus benefits public debate raging, with a focus red-light speed cameras. A quick calculation shows the differing views of cost versus value, with each having implications on investment decisions.
- Total annual costs are $5.6million for 227 fixed camera sites and 5 mobile vehicles
- To reach break-even point the police must catch 93,000 offenders per annum, each with a $60 average infringement fee
- The associated speed warning and safety awareness campaign has reduced deaths from 120 per annum to 81 per annum
- ‘Financial benefit’ is $64.5million from avoidance of cost per death of $1.65m (ambulance, pathologists, hospital, police, etc.)
- ‘Real benefit’ is 39 lives saved