Focusing on the wrong metrics

Business is all about incentives.  Getting people to buy your product is about providing them a value that exceeds the cost.  Motivating a sales team may involve tying some revenue incentive to sales successes.  Driving improvement is about understanding where things aren’t quite right.

The issue is making sure the incentives align with what you want to actually happen.  Measuring or emphasizing the wrong metrics will drive wrong behavior – this is why the concept of the balanced scorecard was developed.  If you incentivize a supply chain team to reduce inventory, you may find yourself hurting your customer service levels and fill rates.  If you incentivize your real estate team to cut space per person you may end up hurting collaboration and communication.  Understanding the impact your incentives are going to have on other areas is critical.

When building an incentive and metrics framework make sure that you balance all sides of the equation.  Don’t focus on one or two things that may lead to detriments in other areas.  Focus on the balance.

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