Blog

Michael Schrage Defends Metrics-based Leadership

Wednesday, October 23, 2019

Reliance on business metrics seems to be a lightning rod issue for advocates on both sides. Opponents, such as Michael Harris and Bill Tayler, the authors of a recent Harvard Business Review article, ardently rebuke the strict use, and overuse, of metrics to replace human decision-making and strategy-setting. Proponents, such as Michael Schrage, however, see anti-metric backlash as “wildly and measurably misplaced.”

Schrage, a research fellow at the MIT Initiative on the Digital Economy, takes on the critics in a new article in the MIT Sloan Management Review. Last year, he authored a report with the journal on Leading with Next-Generation KPI which details how “serious leaders from the most effective digital disruptors relentlessly fixate and focus on defining metrics and KPIs that inspire strategic success.” Metric fixation, he writes in the new article, “is neither a root cause nor a reason for unhappy outcomes or defective cultures. The opposite is true: Organizations hurt themselves and their customers precisely because they don’t value metrics enough.”

MIT IDE Editor and Content Manager, Paula Klein, asked Schrage to summarize his defense of KPIs and explain why the critics have it so wrong.

 

IDE: Apparently there is a “backlash” to the rise of data and KPIs in global business strategy and decision-making. What do you believe is the deeper source of unhappiness? Is it KPIs per se or organizational concerns about incorporating soft skills and more human, gut-level decision-making?

MDS: The real source of unhappiness is that both the balance of power and value creation are shifting away from knowledgeable people to knowledgeable machines. In an increasing number of use cases – from chess and Go, to medical diagnostics and customer care --deferring to human experience and expertise is no longer likely to yield superior outcomes. Your boss’ subjective judgment about your performance – and probably your potential, as well – is almost surely inferior to a well-trained algorithm. And that’s unsettling.

It’s a bit like what happened to portrait painting and scientific illustration with the rise of ever-more-sophisticated photography: The technology does a better job of capturing and rendering reality than all but the most talented people. In fact, most people aren't talented artists nor are most people very good leaders or managers. They need help. Put bluntly, would you rather work for, or with, a mediocre manager?  Or a world-class algorithm designed to learn from you, for you, and with you?

To be sure, the humanistic, holistic reason for the backlash is the fear that people will become thoughtless servants to numbers and algorithms. The critics see this as dehumanizing; they argue that smart and prideful people will seek to subvert rule by algorithm while compliant people will mindlessly do whatever their dashboards say. Agency and autonomy are dead, they say. That thinking is lazily cynical and cynically lazy. People can do better than that; especially with the right tools. The KPI design challenge I see is getting smart metrics to inspire, motivate, and educate leaders and employees alike. The digital dystopians get all the best headlines!

IDE: You’ve published research and commentary arguing that metrics and KPIs must become even more important to top management in an era of AI and machine learning, and you chide them for not taking on this responsibility. Fundamentally, what do the critics overlook or misunderstand? Isn’t adoption of metrics-based strategy still in the early stages?

 MDS: Many critics have anachronistic and legacy views of what meaningful metrics and KPIs can be. They seem unfamiliar and uncomfortable with the behavioral economics literature that explores and explains how people really make decisions. They seem to dismiss real-world examples of data-driven analytics that make world-class performance improvements possible. Look at the reliance on analytics by the Houston Astros and Houston Rockets, for example, as I describe in a recent Harvard Business Review article. Or you can look at the success of Jim Simons’ quantitative investments company, Renaissance Technologies. Measurement is a means to an end. What’s exciting to me is how this growing wealth of data, instrumentation, and analytic techniques can encourage serious organizations to revisit what key performance means and how it can be measured in real-time. The opportunities for metrics innovation are mind-boggling, but the critics don’t seem interested in having their minds boggled.

IDE:  What advice do you have for boards and top management to make sure they understand and reap the best possible value from their smart metrics investments? What examples can you offer the anti-metrics crowd to prove that there could be serious consequences to their inaction?

 MDS: KPIs are your strategy; your strategy is your KPIs. Serious boards and serious CXOs know what strategic success can be. The clearer and more compelling the strategic narrative, the clearer and more compelling the KPI portfolio should be. What KPI portfolio best captures the story of your strategic aspirations? What strategic success stories do your KPIs tell? I am astonished – and disappointed – by how difficult this concept is for so many senior executives and board members.

Does anybody think it’s an accident that Jeff Bezos explicitly discusses Amazon’s “culture of metrics?” Is it mere coincidence that market leaders and shapers like Netflix, Alibaba, Facbook, Google, airbnb, Starbucks, Uber, Danaher, Tencent, Booking.com, and TikTok are so relentlessly metrics-driven and defined? I don’t think so. When you look at the root cause of why these organizations have so effectively disrupted the markets they helped create, you see something I think is obvious: These companies don’t just use metrics to manage people and process, they use metrics to transform people and processes. That message is too often lost.