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Samuel Obara

Sammy Obara: Since metrics drive behavior, we want to be careful about how we establish them

By Samuel Obara, - Last updated: Sunday, January 27, 2013 - Save & Share - Leave a comment
old question but very current,
A friend of mine, ex-Geek Squad, told me BestBuy created an incentive
bonus to those store people who sold the highest number of gift cards that
month. Gift card sales indeed went up that month, I'm not sure revenues
did, though.  He said he and his friends sold their gift cards by easily
convincing customers to pay for their already planned purchases using a
gift card.  It worked like this: They would get customers' payments for
say a laptop (cash, charge or cheque), buy the gift card with that money,
pay for the purchase with that card, and get bonus points from corporate
for one more card sold, at a thousand dollar amount.

I guess that if the goal was to sell more gift cards, they certainly met
it.  Metrics were based solely on the number and amount of gift cards sold
by employee.
If the goal was to increase revenues, then that may have not changed much
judging by how easy it was to meet the metrics in creative ways.  If all
employees followed this legally perfect way to get bonuses, Best Buy would
have a newly created cost, which not only included the cost of bonuses but
also the issuing of more cards, added commercial transaction, longer time
to process a purchase, etc.

I believe that the measure for productivity can quickly backfire into the
same situation as it happened to BB.

Sometimes, companies focus their attention on productivity metrics such as
number of parts per employees per hour.  This largely utilized metric
drives managers to squeeze extra parts to make better numbers in their end
of the month reports.  The "productivity" improvement is visible and met
some goals.   But if the goal was ever to increase revenues, then it
didn't.  If it was to increase margins, then it backfired (now you have
consumed resources you didn't need to, now you have parts that may become
obsolete, cause other costs such as storage, spoilage, etc).   If the goal
was to "do lean", then it just did the opposite of lean as it created what
is considered the worst type of waste.

Maybe a good measurement for productivity will somewhat depend on factors
such as the industry in question, where you can measure productivity:
hopefully not only at the end of the process but also along the process,
etc.  at the end all measurements stem from the same core concept:   How
much input you need to get the output you are getting. How much money you
need to get the money you are getting.

Since metrics drive behavior, we want to be careful about how we establish
them.  Producing more parts may be as easy as selling more gift cards.

On a side note: this year we will do our Toyota gemba study in Toyota
City, Japan.  We will visit Honsha and Motomachi.  I appreciate it if you
can distribute the announcement to people in your network who may see
value in that.  More info:  http://www.honsha.org/jpexecutivemission/

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