I don’t think there is such a thing as a perfect performance metric.  They all have a dark side, i.e., some feature that causes people to behave in a way that was not intended.  Although the literature is loaded with pitfalls that result in metrics going awry, I believe the top one for a leader’s attention is “messaging.”  An example will illustrate the point.

In my leadership seminar, I talk about Alice, a former member of the top team in a regional business that produces oil and gas.  The team submitted a proposed operating budget for the upcoming year to the corporate headquarters for review and approval.  A cost issue was apparent to the corporation’s CEO when he saw the roll-up of all of the businesses’ budgets.  Costs were forecasted to increase at a rate faster than revenues.  Left unchecked, profitability would decline to an unacceptable level.  The CEO intervened by creating “flat lifting costs” as a new performance metric.  

Lifting cost for a crude oil operation is the cost of producing oil after the drilling is complete.  Typically, lifting costs include:  labor, supervision, supplies, chemicals, electricity, repairs, and maintenance.  It is expressed as costs divided by units of production (or $/barrel).  The use of the word “flat” meant that lifting costs would not increase from year to year.

Shortly after the new metric was created, the top team was convened for a conference call with the CEO.  Each of the three business units in the region (Alice was in charge of one) presented their plan to meet the flat lifting cost metric.   Alice’s unit and one of the other units identified initiatives that would help meet the metric but the third unit could not—and it got most of the CEO’s attention.

Alice felt that the executive in charge of the third business unit presented a thoughtful case to support his position that flat lifting costs were not achievable.  His oil field operation was over 30 years old.  It was very large, with equipment and infrastructure deployed over many thousands of acres. The cost to maintain the old equipment and infrastructure was increasing, especially the cost of repairs to pipelines and the chemicals used to inhibit corrosion.  He showed photos of major pieces of infrastructure in urgent need of repair.  Even more problematic was the fact that production from the field was decreasing at the rate of six to eight percent each year, which is normal for a field of this age. With rising costs and declining production it was practically and mathematically impossible for him to meet the flat lifting cost metric.  

Alice thought her colleague had presented a solid case.  She was stunned when the CEO calmly and directly said “I don’t think you heard me; the target is flat lifting costs.” She wondered what message the CEO had sent the troubled executive.  Was the message to try harder?  Did he think the executive was sandbagging and needed to be pushed more?  Surely, he was not telling him to indiscriminately cut costs to hit the metric.  Surely, he understood that employees thought their rewards would be tied to hitting the target.  How would this incentive motivate them to act?  Did he understand what the executive would do?  What did he think was going to happen when he went to his operations team and told them that the target had to be hit?  What would happen when those managers cascaded this down to the front line of the operations where accountable people take actions and make decisions?  What options did he think they had to cut costs?  Had he thought all this through?

Alice said that she is “haunted by memories of the teleconference.”  She did not know how the executive and his teams handled the challenge put in front of them, i.e., which decisions were made and which actions were taken.  She did know, however, that less than two years later the executive’s oil field had a major oil spill, the largest in the history of oil production in the region.

As a leader, the CEO should have thought about the “context” within which his statement about the metric would be heard.  To illustrate what I mean by “context”, take a look at the statement below.  What do you conclude from it?

It is reported that, “He beats his wife.”

Most people would conclude that we are dealing with an abusive husband who beats his wife.  We can immediately bring up mental images from news reports of a wife beater or a woman who has been physically abused.

Now, what do you conclude from this statement?

It is reported that, “He beats his wife … at playing chess.”

The conclusion is entirely different.  Note that the “content” is exactly the same (He beats his wife), but the “context” has changed.  That is, in the former, I did not provide any context and left it up to you to infer one, and in the latter I gave you context (playing chess).  

The common expression, “you take things out of context” is incorrect; you actually, “take things into your context.”

A leader’s accountability with regard to all performance metrics is to make sure that people get the intended message.   The message must be aligned from the top to the bottom of the organization.

Aligned messages result in a unified purpose upon which a viable organization exists.  Conflicting or ambiguous messages are some of the primary factors that diminish an organization’s potential.

A message is determined by the sum of “content” plus “context” – a leader must manage both.  Content is the substance; context is the set of circumstances.  Let’s use the CEO’s statement as an example.

Scenario #1:

Content:  “I don’t think you heard me; the target is flat lifting costs.”  

Context:  Inferred by the listener.

Likely Message:  Costs are most important.

Now let’s add some “context” to the CEO’s statement.

Scenario #2:

Content:  “I don’t think you heard me; the target is flat lifting costs.”  

Context:  “And I want you to track all cost savings initiatives that were not implemented because they would have put the safety and integrity of the operation at risk.  I will take them into consideration when we assess performance.”

Likely Message:  Safety and integrity of the operation are most important.

Scenario #2 is obviously far more effective for the organization in terms of employee behaviors (i.e., the decisions they make and actions they take) and the long-term viability of the company.

In order to emphasize the value of context, I am introducing an axiom that I was taught in my graduate program in the 1970s.  The axiom is “trust escapes authority”, meaning that the higher a leader rises as an executive, the less likely they will be trusted by those within the organization.  The reason has to do with the fear of unequal information.  Specifically, a boss is perceived as possessing information that he or she cannot share for any number of reasons: political, commercial, legal, etc.  The fear becomes more intense when employees believe that the boss is holding back his or her true feelings about them, their performance, or management’s view of their potential in the organization.

The importance of the axiom is manifested in messaging, especially the context component.  Providing context diffuses the fear of unequal information, and can actually super-charge a team.  Great leaders distill information about their world, their level in the organization, or themselves, into information that is digestible at lower levels in the organization.  This is not about manipulation; rather it’s about being open with information while being thoughtful about how it will be heard in different situations.  People are inspired when executives do this.  It is perceived as respectful because the executive is putting forth an effort to understand where they are coming from.  In many ways context-sharing by executives cultivates a larger context within an organization—it an can open up new possibilities as it is “re-shared.”

This article was excerpted from a new leadership book, Applied Leadership Development.

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