The dark side of process metrics

In my last post I talked at some length about how to define Key Performance Indicators (KPIs) or metrics to measure your processes. But there is a risk here. Too many companies decide that the best way to ensure process-adherence and continual improvement is to give people an incentive, so they tie employee bonus payments to the achievement of specific process metric goals. 

Superficially this idea sounds reasonable. Don’t people work harder when they have incentives? Shouldn’t you pay people more when they do what you want? But in practice it can drive perverse consequences.

Once upon a time I worked in a branch office for a company, where I was responsible for implementing the Quality Management System. It was important to my boss that all of the corporate processes be fully in place and fully adopted, so he gave me a goal – one that counted in my annual bonus – that there should be no Major Nonconformities in the internal audits at that branch. In the abstract, this kind of made sense: a Major Nonconformity would mean that some entire process had never been implemented or had completely broken down, and therefore would suggest strongly that I hadn’t been doing my job. The only problem was that I also did most of the internal audits. So when I encountered a potential Major, what was I supposed to do: overlook it, or torpedo my bonus?

In fact I always wrote them up, and just accepted losing that fraction of the bonus. And I was so inexperienced back then that it didn’t occur to me to explain to my boss that he was (unintentionally) incentivizing me to fake my audits. But when I look back in retrospect I just shake my head in dismay. How could neither of us have seen what a bad idea that was?

More generally, when you incentivize a specific outcome, be prepared for people to increase the frequency of that outcome, even if it becomes disconnected from the overall Quality goal. Once again Scott Adams captured this effect perfectly, in a cartoon strip where the company offers its software engineers a ten-dollar bonus for every bug they find and fix. (Like last time, I am providing only a link and not a copy of the strip in order to stay on the right side of Fair Use.) Nor can you avoid the problem by defining the metric more cleverly, because:

There is no metric in the world that cannot be gamed.

So if bonuses are paid only when the process metrics are green, be prepared for the metrics to turn green regardless how well the processes are doing in real life. This doesn’t have to mean that anyone is actually lying: I assume most people care too much for their integrity to sell it so cheaply. But people are also remarkably creative; so if there is a way to do more of the incentivized activity by disconnecting it from the broader goal, people will figure it out and even think that they are doing the right thing. It’s what you asked for, isn’t it?

You need accurate process metrics to know if the processes are working, so tie your bonuses (if any) to something else.