The Psychology of Measurement

  • CHIP MAURI
  • DECEMBER 3, 2018

Do you know that feeling you get when you drive past the sign, “Speed monitored by aircraft?”

This usually prompts me to lean forward and look up through my windshield, attempting to spot that nefarious ‘eye in the sky.’ I may not necessarily slow down, but I don’t believe I’ve ever sped up. Furthermore, that plane must have cloaking abilities – I’ve never seen it, not once.

The Psychology of…Measurement?

So, what’s happening here?

“What gets measured (and clearly defined) does get done.” ― Mike Schmoker, author and educator

In the late ‘20’s and early ‘30s, a Chicago company (Hawthorne Works) commissioned a series of experiments to determine if the lack of light inside their production facility negatively impacted productivity. The researchers conducted controlled studies of performance at differing levels of light.

Interestingly, productivity went up. Even more interesting, productivity went up when they introduced other variables as well. Researchers (Elton Mayo, the research head, and 25 years later, Henry Landsberger, who re-reviewed the data and analysis) found that changing the variables made no difference in productivity. Rather, the researchers concluded that workers performed better merely because they were aware that they were being measured. This phenomenon was dubbed the Hawthorne Effect.

The Hawthorne Effect is well-known in the discipline of social psychology, and is a cornerstone in the field of Industrial Psychology. Subsequent research has questioned how significantly the Hawthorne Effect moves behavior, but that’s akin to arguing how many stripes a zebra has. Its enough to know that the zebra has stripes.

Measurement Drives Performance

Let’s magnify this point: as a leader of your business, you WANT to improve behaviors and outcomes. The act of measuring, focused on a specific goal, improves the likelihood your team (or you) will achieve it. You can use human psychology as a tool to achieve positive results.

Researchers concluded that workers performed better merely because they were aware that they were being measured.

In prior posts, we’ve made reference to the archer. The archer, in his/her desire to improve, practices by shooting at a colorful set of concentric rings (the target). Hitting the target is the standard of success, and hitting the bullseye repeatedly is world class. We would all strive to hit the bullseye as much as possible, right? That is, two measurements of success have been established: a standard, and world class. Actual performance is then measured against those two markers with every arrow. It is the act of measuring that tightens focus and fuels better performance.

Measuring Financial Outcomes and Driving Performance

So, you might ask, “How can I deploy this concept in my business?” Well, if you have an annual budgeting process, you have already made a significant first step. Whether you have a budget or not, let’s unpack this a little more:

  • Prepare a budget: Think about it like this – it’s an outstanding way to 1) face your fears and uncertainties, 2) dig in and understand your business better, 3) establish an appropriate standard of success, and 4) envision what world class might look like. Re-read above if this doesn’t make sense.
  • Start measuring actual performance against the budget: After the first month of the budgeted year, pull your finance team and functional leaders together and ask, “How’d we do?” Corporate financial performance is a team affair, so share the measurement experience. No one wants to fail, everyone desires world class. Congratulations, you have begun to institute the Hawthorne Effect in your organization.
  • Keep measuring: As you go through the year, you will quickly identify the things that are keeping you from the financial achievements you are aiming for, and almost invariably, they will be non-financial metrics. For example:

“Our payroll costs are too high because we have too many low performers, and attracting better talent has proven to be hard.”

“Shipping costs are too high because we rely on FedEx overnight deliveries too much.”

So, create a non-financial action plan (or two) that strives for a minimum standard that constitutes improvement (“No more than two FedEx overnight deliveries per month!”), then measure that performance every month, and share it across the team.

  • Celebrate wins, and point out the failures: This is the amplification of the Hawthorne Effect – by highlighting the outcomes in front of the whole team, the whole team will kick their performance into overdrive.
  • One year later, do it again, but refine the target: After the first year, additional insights will be coming into focus:
  1. You will have a much better sense of what the standard and world class measurement markers should look like.
  2. You will start establishing financial key performance indicators (financial KPI’s): stop focusing on everything, and heighten your focus on What Really Matters.
  3. Your operating teams will establish non-financial KPI’s, as they adjust their measurements of success within their functional areas.
  4. Your Performers will begin to stand out from your Pretenders – this is the first turn towards a true data-driven culture.
  5. Invariably, you will begin to broaden your “What if?” thinking beyond the current year, into a multi-year vision. This is sowing the first “strategic planning” seed.

Speed Monitored by Aircraft

It turns out that municipalities actually do monitor vehicle speeds by aircraft (so don’t take my word that you can ignore the sign). Law enforcement officials are not trying to punish; they have statistical proof that shows that excessive speeding leads to traffic deaths, and they are trying to create safer travel for all. Putting up road signs is more cost effective than keeping planes, helicopters and drones in the air 100% of the time, so I suppose officials can be forgiven.

So, as a leader in your organization, find ways to measure (financial or otherwise), and your teams will improve performance.

The Calculation Bar is an organization driven to creatively transform corporate finance through compelling data visualization, technology and responsive customer service. Our goal is to optimize how business leaders use data effectively, improve profitability and engender deeper conversations with lenders and investors. For more information, please visit calculationbar.com. To get financial management content delivered to your inbox, you can subscribe here or click the button below.

LET’S TALK
Your browser is out-of-date!

Update your browser to view this website correctly.Update my browser now

×