If what gets measured gets managed, measuring the wrong thing matters!

Management guru Peter Drucker is credited with the phrase “‘what gets measured gets managed” — a truncated version of the full and much more powerful quote: “what gets measured gets managed — even when it’s pointless to measure and manage it, and even if it harms the purpose of the organisation to do so”.

In The Case for Responsible Business, I argued that focusing on profit and shareholder value as measures of performance, especially when that means managing and meeting or beating the quarterly expectations of the markets, are examples of measures that harm the purpose of the organisation. The correct goal should be maximising share holder value over the long-term, not share trader returns in the short-term. But, in the pursuit of quarterly targets, a surprising number of CFOs admit to actions that destroy long-term shareholder value.

Another example of a measure that is pointless and harmful is Gross Domestic Product (GDP) — a measure of the performance of the economy. It is the national equivalent of a company focusing on profit or shareholder value as a measure of performance. In both cases, the monetary values largely ignore the quality of any value increases and the way in which increases were achieved.

In another article I argued companies should focus on values-driven value creation. I explained that this forces answers to questions such as “what does it take to grow the value? What do we mean by value? And, value for whom? This kind of thinking can bring about congruence of the interests of all stakeholders, inside and outside the company, and between the company and society”. It could do the same for a nation.

Reading a recent Financial Times article entitled Has GDP outgrown its use?, it occurred to me that as a nation we should care even more that growth and value creation are values-driven. But as the article notes, instead we invest GDP with much meaning despite it being “an artificial construct…an abstraction”, and an amoral one at that. It is a crude measure, “defined simply as the total monetary value of everything that had been produced in a given period”.

Continue reading this article which was first published on Medium

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