Fundamentals: Metrics and Rewards

The concept of feedback loops includes two fundamental subsystems:

* Metrics that keep people informed about their own performance against target levels of performance (benchmarks). Metrics occur at two levels:

- Organizationwide.
- Profession-specific.

More on the design of metrics....

* Rewards that are tied to performance.

More on the design of rewards....

Metrics are the "feedback loops" that allow people to monitor their own results and adjust their behaviors accordingly. A simple example is the thermostat that measures room temperature and adjusts heating and air conditioning systems to keep a room comfortable.

Metrics are not always quantitative. In practice, we often find that the more interesting the concept, the less tangible the metric.

It's far better for a reward system to be comprehensive than to be precise. Anything less than a comprehensive system of metrics will induce suboptimization -- winning at the chosen metrics while neglecting other critical goals.

The role of metrics in transformations is often overstated. The saying, "If you want to fix it, measure it," applies to incremental change -- fine tuning an organization -- but not to transformation change. In fact, the opposite is generally the case. Tight metrics make people less open to significant changes, and more focused on maintaining the known status quo so that they can more easily make their numbers.

Metrics are used in a transformation when people don't know what they're supposed to be good at, or don't know whether they're succeeding or failing.

Rewards are the consequences (positive and negative) associated with those metrics, including the incentives for improving performance. The primary purpose of rewards (consequences) is to amplify the power of the metrics. Thus, rewards are important to a transformation process only when people don't care how well they're doing.

How to determine where metrics and rewards fit in your broader organizational-change strategy....