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Manage by Metric , not Manage the Metric Many times, teams are overly focused on Key performance indicators and forget the underlying goal that these goals represent. This situation leads to narrow and sort tern approach where the primary objective is to Hit numbers, and sometimes it is on the expense of organizational Goal, customer satisfaction, and sustainable growth. Impact on customer satisfaction and business goals Short term goals on long term losses Neglect the customer needs Stifled innovations, which has not impact on business goal. Misaligned priorities, etc. Preventive measures To prevent such situation of managed by metric - Use balance scorecard which has mix of financial and non-financial metric - Some metric should be defined such that they can reflect direct customer satisfaction and experience. - Regular review of metric so all metric are aligned with the organizational goal. - Create a culture to appreciate values which drive long term growth. Happy learning...

Management by Metrics is an approach that emphasizes the use of specific, quantifiable metrics to guide decisions, measure performance, or manage people and processes within an organization. The approach is rooted in the belief that “what gets measured, gets managed”. Originally, the “Management by Metric” approach was about using metrics as a tool to guide decision-making, identify areas of improvement and track progress, but when the focus shifts to ‘Managing the Metric”, the emphasis moves away from the actual performance or quality, and towards ensuring that the numbers in the reports look good. “Manage the metric”, as a concept arises when an organization’s focus shifts from genuinely improving processes, services or products based on meaningful metrics to simply manipulating or tweaking the metrics to present enhanced results. This shift or transition can lead to a cycle where organizations become overly fixated on the metrics, often at the expense of broader strategic objectives and customer satisfaction. Impact on Customer Satisfaction When an organization’s focus shifts to “Manage the metric”, the focus shifts from providing and generating genuine value, to ensuring that the performance numbers look good often resulting in shortcuts or superficial fixes that can damage customer experience. In this approach as the metrics are prioritized over meaningful outcomes, they risk losing sight of customer needs. For example, a customer service team’s performance is judged solely on the number of calls handled per hour. Due to this, the team might just rush through the interactions without truly resolving customer issues, but rather employing quick temporary fixes. This might make the metrics look good, but the customer is left unsatisfied. This eventually erodes customer loyalty and trust over time, which is crucial for long-term success. Example: Wells-Fargo Fake Accounts Scandal: During the early 2010’s, Wells Fargo implemented an aggressive sales strategy, to push employees to open new accounts for customers. As the targets were high and unrealistic, millions of fake bank and credit card accounts were created by the employees, without the customers' consent. While the number of new accounts grew, many customers weren’t aware that multiple accounts existed in their name, only to find out once the charges showed in their account. This scandal caused enormous harm to customer trust and Wells Fargo was fined heavily, losing thousands of customers who felt exploited and deceived. Impact on Business Growth The growth of a business is heavily reliant on delivering consistent value to their customers. When quality is sacrificed for the sake of hitting metrics, it can have a detrimental effect on the company’s overall trajectory. If teams are only concerned about hitting the targets without a focus on actual performance, the quality of products or services can decline, leading to high customer churn rates, negative reviews and damaged reputation, all of which stifle growth. Example:Blockbuster’s Failure and Netflix’s Rise: With a focus on revenue metrics tied to in-store rentals and late fees, blockbuster ignored the shift towards digital content. At one point, when Netflix approached them to sell the business, Blockbuster declined, focusing on its traditional video-rental model and improving the underlying metrics. In contrast, Netflix prioritized innovation and convenience, leading to its rise as a streaming powerhouse. Preventing the shift to “Manage the Metric” 1. Define Clear Metrics: The first step to prevent a shift to “Manage the Metric” is defining clear, relevant, attainable and measurable metrics in alignment with the organization’s goals and objectives. These metrics should align with strategic objectives and provide insights into customer value rather than just operational efficiency. 2. Use Outcome-Based Metrics: Shifting from output-focused metrics eg: number of calls answered, to outcome-based metrics such as customer satisfaction scores or retention rates, helps ensure that the focus remains on delivering value rather than merely meeting targets. 3. Drive a Culture of Continuous Improvement: Build a culture where employees are encouraged to question metrics and suggest improvements. This can help prevent an overreliance on metrics and also boost employee engagement driving a culture of continuous improvement. At PLS, Improvement Ideas’ generation is part of the performance criteria where employees get a few points on ideas generated and more points on ideas implemented; a total of 10% of performance criteria is based on this. 4. Regularly Review Metrics: Establish an annual or a biennial audit and review of the metrics to assess their effectiveness and relevance in the changing business environment. As the needs of the businesses evolve, so should the metrics used to measure success ensuring that metrics are aligned with the organizations goals and customer expectations. In conclusion, while metrics are essential for tracking progress and guiding decision-making, the shift from "Manage by Metric" to "Manage the Metric" can impact customer satisfaction and business growth. While superficial achievement of metrics may provide short-term wins, but it can result in customer dissatisfaction, damaged reputations, and missed opportunities for long-term growth. To prevent this, organizations must define clear, outcome-based metrics aligned with strategic goals, regularly review these metrics, and build a culture of continuous improvement. By focusing on delivering real value to customers, rather than just meeting numerical targets, businesses can ensure sustained growth and customer loyalty. Balancing the need for measurable outcomes with genuine performance improvements is key to avoiding the pitfalls of "Managing the Metric."

All companies are evaluated based on the performance on some of their key metrics such as Market Share, Earnings Before Income Tax, Depreciation and Amortization), PBT (Profits Before Tax), Earnings Quarter to Quarter Growth, etc. This is a good way to evaluate and compare the performance of the organization against some standard or benchmark metrices. This is referred as Managing by Metrics. And in today's age of ultra-sensitive market dynamics and volatile market conditions aggravated by issues of bonuses/payouts of key decision makers linked to the achievement of short-term goals(humorously referred to as the Quarter-Se-Quarter-Tak attitude, punning the name of the popular Bollywood movie Qayamat Se Qayamat Tak) the key team responsible for decision making in organizations chase the numbers of such metrics by hook or crook at the detriment to the larger interest of the organizations. This is referred as Managing The Metric. This also explains the evident jump in the closing dates of every month, quarter and annual calendar of metrics like deals signed, sales no., OEE nos. etc. And dip in metrics such as Consumption of Raw Materials, Incoming Inventory, Losses, etc. The impact of this at the CSAT(customer satisfaction) and business growth is the following: - 1. Growth of dissatisfied customers In order to paint a rosy picture or a less painful picture of the current state organizations attempt to manage the metrics, organizations falsify or close customer complaints, feedbacks without addressing it properly. This would though in the short-term bring down the resolution time & pending customer complaints it would leave customers dissatisfied and damage the customer relations in the long term. 2. Risky decisions to meet targets The 2008 financial crisis started off due to the practice of US financial institutions of giving out risky loans without any due diligence in order to show growth in businesses and for fatter bonus payments. This eventually led to the closing down of many such banks. Similarly many established organizations had to close down or downsize their operations due to the mismanagement of their businesses just in order to meet business targets. Very good example of this is GE which had actually popularized the use of Six Sigma to improve their operations but later had to sell their once most profitable business. 3. Diminishing Brand Value In order to meet short term goals, many organization may peddle in nearly unlawful or outright unlawful practices. When such practices are caught they eventually lead to loss of trust amongst stakeholders and lead to diminished brand value. This can affect the good will created by the companies over decades of responsible behaviour. Thereby causing business to degrow. 4. Negative Company Culture & Unintended Consequences Once the practice of Managing the Metrics culture catches on in a single team, it very quickly spreads like wildfire across the organization with over-enthusiastic participation and competition in order to manage the metrics. So much so that it would become near impossible to actually know what is current condition of those metrics are leading to unintended consequences. This would also generate animosity amongst departments, and further worsen the organizational culture. Departments and functions would work in Silos and eventually the customer and the business suffers. 4. Kill Innovation When teams focus on managing the metrics, they will go blind to available avenues of innovation and risk obsolescence. In pursuit of managing the metrics they will lose sight of the big picture and miss opportunities of growth and loss market share. The methods to control these are: - 1. Integrated Balanced Scorecard Having a integrated balanced scorecard, would allow organizations to measure how each department and each entity would be working towards providing value to the customer. And linking those with the customers' satisfaction metrics. This would ensure that there is a coherence in the leading and lagging metrics of the organization. 2. Business Excellence Culture By instilling a business excellence culture and through participation in thorough assessment of the organization be it for internal continuous improvement culture or for challenging different Business Excellence Awards such as the CII EXIM Bank Business Excellence(Based on European Foundation of Quality Management), the Ramkrishna Bajaj National Quality Award(Based on Malcolm Baldrige National Quality Awards Framework), Deming Prize for Total Quality Management and many other more. Through such exercise they can keep themselves abreast with the changes in the industries and assess their businesses holistically. 3. Conduct regular 3rd party audits Having regular 3rd party audits beyond the statutory requirements helps in desisting the malpractice of managing the metrics as most of the metrics which are managed are those of statutory nature. 4. Comprehensive Incentive Plans Many in HR functions believe that comprehensive incentive plans are complex good-to-haves rather than must-haves and follow outdated single or limited KPI(Key Process Indicators) incentive plans. For e.g. in Sales functions even now incentives are based on Q-on-Q business growth or absolute sales figures. This incentivizes fake invoicing, inflation in some metrics at the expense of others, poaching/encroachment of team members customer segment etc. Instead of this it should make the metric comprehensive through an integrated score based on customer retention, market condition, etc. 5. Real time-automatic data acquisition By automatization of data real time the opportunities for managing the metrics can be reduced and ensure that the actual picture of the business is captured without any embellishment.