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Monday, July 15, 2013

"What gets measured gets done"

When you can measure what you are speaking about, and express it in numbers, you know something about it; but when you cannot express it in numbers, your knowledge is of a meagre and unsatisfactory kind; it may be the beginning of knowledge, but you have scarcely, in your thoughts, advanced to the stages of science whatever the matter may be.

The reason it is seldom attributed is that, as is often the case when business borrows from science, the quote has since become a lot more pithy, but its meaning a lot less clear! Bastardized and forever diminished by the business community, Kelvin’s famous observation on the interplay between measures and progress became the hackneyed and ad nauseam quoted ‘what gets measured gets done’ But ‘what gets measured gets done’ doesn’t only diminish the value of Lord Kelvin’s words, it also exposes leaders to catastrophic consequences. What gets measured gets done is wrong. What gets measured gets done is poor logic (after all only what has been done can be measured). What gets measured gets done is a flawed belief.

By leaving out the fundamental truth of Kelvin’s statement, the power of the quote has been lost. There are a number of steps between measurement and action that need to be identified, To be closer to the truth ‘what gets measured gets done’ should in fact read as follows:

What leaders are interested in, they measure. What gets a leader’s attention tends to get a follower’s focus. What gets attention and focus gets talked about. What gets talked about is seen as important. What is seen as important gets done.

I grant you that’s not a sentence you are likely to quote in your next meeting but it identifies the three factors at play when trying to meet the requirements of the achievement dimension and underscore the importance of measurement."

--- Follow the Leader: The One Thing Great Leaders Have that Great Followers Want / Emmanuel Gobillot

"For an organization to act upon its members, the formal reward system should positively reinforce desired behavior, not constitute on obstacle to be overcome” (Kerr, 1995, italics added).

So, in Kerr’s terms, “if you want it done, you should measure and reward it”. The oft-heard aphorism “if it doesn’t get measured. it doesn’t get done” makes the same point in negative: Measurement and reward are necessary conditions to obtain desired behaviors from members of an organization.

Over the past 20 years, the performance measurement and reward rhetoric has continued to evolve. First, the notion of reward has become progressively narrower. In many articles I read and in conversation with accounting and control colleagues, the question seems to have shifted from “Rewarding A” to “Paying for A”, to “Designing an annual incentive plan based on A”.

Second, “if it doesn’t get measured, it doesn’t get done” has often become “what gets measured gets done”, and “you get what you measure”. The latter two sentences go much further than the first, as they position measurement and reward as sufficient conditions, when previously they were presented as necessary ones. A sufficient condition means you can get the desired result by simply measuring and rewarding for it. “What gets measured gets done"...

This is a gross over-simplification. Studying and working with executives a significant proportion of my time, I see many things that are being rewarded but do not get done, and I see things that are not specifically rewarded still getting done. I also see organizations use a great variety of influencing mechanisms beyond the reward system.

These two gradual shifts seem to underpin what I perceive to be a pervasive implicit acceptance of “incentive alignment” as the dominant paradigm of the accounting and control community. In fact, it sometimes feel as if “let’s get the incentives right” has become our only response...

Kerr’s subsequent encouragement actively to reward the desired behaviors assumes that it is possible to define better measures to capture performance. But in reality, we can rarely find the “right measures”! Organizations then keep changing metrics to correct for side effects of the previous metrics; they try to shift behavior a bit one way, only to find it needs to be pulled back in another direction ... Could it be that in many cases, there will not be a perfect measurement solution and we will be condemned to keep changing metrics to correct side effects that we created in the first place?

The second reason why an intense incentive alignment focus may be self-fulfilling is motivational. Ghoshal (2005, p. 77) presented the argument as follows: “A particular ideology (essentially grounded in a set of pessimistic assumptions about both individuals and institutions) has increasingly penetrated most of the disciplines in which management theories are rooted”. (...) A theory that assumes that people can behave opportunistically and draws its conclusions for managing people based on that assumption can induce managerial actions that are likely to enhance opportunistic behavior among people”...

Adult human beings have all learned how to be selfish and narrowly (short-term) self-interested. Most of us can produce this kind of behavior if we want to. Most of us have also learned to broaden our focus and to behave collaboratively and less selfishly, especially for a group we care about. An intense focus on individual short-term rewards may actually “activate/reinforce” employees’ selfish side, thus increasing the need to guide and constrain employee behavior through carefully designed incentives that people will take into account in order to increase the rewards they draw from them.

Ferraro, Pfeffer, and Sutton (2005) support this view: A growing body of evidence suggests that self-interested behavior is learned behavior” (p. 14). “There are feedback processes that cause an emphasis on pay and extrinsic incentives to create attitudes and behavior that make emphasizing pay essential for motivating and directing behavior. That is because emphasizing pay actually makes pay more important to employees (...) creating a cycle of behavior that makes the use of incentives, once begun, more and more necessary to continue to motivate and direct behavior’ (p. 20).

Underlying this argument is the hypothesis that individuals who choose their behavior in order to obtain behavior- or outcome-dependent rewards will continue to do so, and in fact will increasingly do so. This hypothesis has been the object of considerable research over the last few years...

Weibel, Rost, and Osterloh’s (2007) meta-analysis and vignette study finds that while performance-contingent pay strengthens extrinsic motivation, it also tends to decrease intrinsic motivation. More generally, they argue, pay-for-performance “always produces hidden costs of rewards”... Mulder, van Dijk, Wilke. and De Cremer (2005), Mulder, van Dijk, and De Cremer (2006a), and Mulder, van Dijk, De Cremer, and Wilke (2006b) fascinating studies on sanctioning systems (showing that the presence or introduction of sanctioning systems can lead to a decrease of cooperation, in part because they decrease individuals’ confidence that others will behave cooperatively).

Intuitively, I think we will find over time that the over—justification effect tends to occur more frequently and more intensely under some circumstances. Some evidence already points in that direction (see Gagné & Dcci’s, 2005, review). I am struck. in particular, by Forehands (2000) fascinating study examining the reaction of customers to marketers’ promotion efforts. The motivational impact of promotional rewards turned out to depend on the consumer’s attribution of the marketer's objective: When the marketer was perceived to be “promotion-focused” (i.e., to care mostly about maximizing sales), customers reported lower purchasing intention than when they perceived the marketer to he “reward-focused”. (This is exactly what Tesco’s Vice-President Tim Mason said, when he argued that the first retailer to introduce a consumer-friendly innovation (such as Tesco’s “loyalty card”) has a much greater likelihood of being perceived by consumers as “doing something for them”, while followers/imitators’ efforts are more likely to be attributed to a desire to reduce the first mover’s advantage.)

James (2005) examined the issue using analytical models, and he too proposed a contingent outcome: Motivation crowding out will occur when rewards are perceived as controlling, which is more likely to occur when the object of the agent‘s intrinsic motivation is the source of the agent's extrinsic compensation and when the incentives offered to the agent are loo large."

--- On the folly of hoping for A, simply because you are trying to pay for A / Jean-François Manzoni
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