It is an old and clichéd saying that ‘what gets measured, gets done’. I think that there is an element of truth in this but I think it is more a question about what is important to you. If it is important to you, you’ll obsess over it. You will measure it and take steps to change your behaviour to have a positive impact on the numbers. People that are trying to loose weight (or gain it) will weigh themselves regularly in an attempt to measure their progress.
The world of business is obsessed with numbers. Companies are valued on the basis of EBITDA x ‘multiple’. The multiple figure is dependent upon the sector and a range of other criteria. We focus on increasing revenue, cutting costs and getting strong return on investments. I understand this because I am living in that world. As a small business owner, I know what I need to bring in every month to generate a profit.
Paradoxically, ‘we measure the things that we can’ and then ‘we focus on the things that we can measure’.
But what about the things that are very difficult or impossible to measure?
I was fortunate enough to be able to attend the IoD Conference on Tuesday where I heard António Horta-Osório, the Group Chief Executive of Lloyds Banking Group talk about the need to rebuild trust in the banking sector. He spoke well and I share his view that one of the priorities of the UK Banking industry has to be to rebuild the trust it has with their customers. But how do we measure that?
His speech started to get me thinking about the ‘intangibles’ and how they are vital to building a successful business yet easy to ignore because they’re difficult to measure.
How do you measure the alignment of your employees? How do you measure their levels of motivation? How do you measure your ability to attract the best talent – or the speed at which they might be leaving?
The trial of six men who are accused of manipulating LIBOR is currently taking place. The LIBOR scandal happened because it became culturally acceptable to break the law in that bank. The damage done to the entire industry has been significant. I don’t want to jump on the ‘banker bashing band wagon’ because I don’t think that it is fair to tar the reputations of the many because of the actions of the few.
I use this point because I want to bring up the risks leaders take if they just focus on the measurable activities. If you just focus on growing revenues and profits and reward people accordingly (with large financial incentives), you will create the conditions for them to do everything and anything to make more money. The environment affects the individual’s decision making. It doesn’t take long for people to start pushing boundaries of what is morally and then legally acceptable if their decisions are left unchecked.
An ability to manage the numbers is precisely that – management. Leadership calls on a far greater number of skills, many of which are intangible.
This is where an organisation’s values can be very useful. Leaders need to believe and demonstrate your organisational values. Employees should be measured against them and new hires should be able to explain what they are, what they mean and how they can demonstrate their alignment to them.
If your values actually live and breathe in your organisation, it will be clear to people where the line is – what is acceptable and what isn’t. This reduces your exposure to the risk of poor decision-making.
Decision-making is just one area, which is hard to measure. If it is held too far up the organisation, you will rob people of the opportunity to take responsibility, make mistakes and ultimately learn from them. Talented people need to be given responsibility – they want it. If you remove it from them, you’ll fail to give them opportunities to develop and you won’t make the best use of their potential.
Leading in business is not just about focussing on the numbers. An ability to understand the numbers and improve them gives you ‘permission to play’. In order to master the game, you need to understand the value of that which you cannot measure.
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