Businesses Are Measuring The Wrong Things

by Jay Deragon on 04/17/2013

WHEN-YOU-STOP-CHASING-

How does a business know if it is doing well? Some people would say it is the measure of profitability. Others would say the health of the balance sheet while others might say the stock price over time.  Most everyone would chose some financial measure to determine how well and organization is doing.  But those are the wrong measures for these times.

Early in the industrial era what mattered was the organizations financial performance. As markets matured organizations realized that a customer satisfaction was important to financial performance. Then the organization realized that employees needed to be satisfied in order for the organization to truly satisfy the customer. Subsequently everyone became obsessed with measuring satisfaction then realized that measuring satisfaction only made people realize just how unsatisfied they really were.

So everyone tried to improve quality. From zero defects to six sigma, the suits had to go back to school to learn how to count new things and learn how to measure things they thought counted.  All this counting was geared towards improving quality and reducing cost because that is what they thought the customer wanted. They were right and they were wrong.

Through all these measurement attempts we’ve discovered that the things that we were measuring really didn’t tell us anything about whether we were creating sustainable value for all the stakeholders not just our stockholders. What the old measures told us were the financial results of our efforts and not the meaning, in human terms, behind those results.

Tangibles Thinking

 

In the Social Era meaning is measured by more than money while at the same time money does indeed create meaning. The issue in the hearts and minds of people is which measure ought to come first, meaning or money.

Look at the difference in the meanings between the old measures and the new measures in the chart above.  The old measures reflect the financial aim while the new measures reflect a human aim. The difference in meaning is significant. A corporation can be viewed as having been obsessed with a financial aim while a network of people (organized or not) is usually viewed as having a human aim. That doesn’t mean that a network of people don’t include financial gains as a benefit of their work efforts but those gains come from the fulfillment of their work purpose not from the fulfillment of reaching a short or long term financial objective.

Whether you are a company or a network of people (or both) doing something with meaning is usually created from intangible capital. Intangible capital creates human connectivity to an organizations strategic purpose and leverages structural capital to attract relational engagements with key stakeholders seeking the value created.  Money then follows the value.

{ 1 comment }

David Albahari April 17, 2013 at 1:46 pm

Interesting piece. while reading, I became irritated over the time and ultimate costs or savings in the ultimate value proposition. We are of course dealing with stock and stake holders with immediate gratification in mind. Then I thought of GE in past tense. Your commets on Jack and how he handled human captial?

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