Don’t Let Metrics Undermine Your Business

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Over the past few decades, tying performance metrics to strategy has become an accepted “best practice.  Strategy is abstract by definition, but metrics give strategy form, allowing our minds to grasp it more readily.  With metrics, Ford Motor Company’s onetime strategy of “Quality is job one” could be translated into Six Sigma performance standards.  Similarly, Apple’s “Think different” and Samsung’s “Create the future” could be linked to the percentage of revenues generated by new products.  In short, if strategy is the blueprint for building an organization, metrics are the concrete, wood, drywall, and bricks.

But there’s a hidden trap in this organizational architecture: A company can easily lose sight of its strategy and instead focus strictly on the metrics that are meant to represent it.  For an extreme example of this problem, look to Wells Fargo, where employees opened 3.5 million deposit and credit card accounts without customers’ consent in an effort to implement its now-infamous “cross-selling” strategy.

The costs from that debacle were enormous, and the bank has yet to see the end of the financial carnage.  In addition to paying initial fines ($185 million), reimbursing customers for fees ($6.1 million), and eventually settling a class-action lawsuit (for $142 million) to cover damages as far back as 2002, Wells Fargo has faced strong headwinds in attracting new retail customers.  In April 2017, it reported that first-quarter credit card applications were down 42 percent year over year, with new checking-account openings down 35 percent.  Meanwhile, more revelations about unauthorized mortgage modifications and fees, improper auto loan practices, and other missteps surfaced throughout 2017.  In the fourth quarter, the bank had to set aside a $3.25 billion accrual for future litigation expenses.  In February 2018 the Federal Reserve prohibited Wells Fargo from growing its assets any further until it strengthened its governance and risk management.  This was followed in April by a joint $1 billion fine from the Consumer Financial Protection Bureau (or CFPB) and the Office of the Comptroller of the Currency (or OCC), which led Wells Fargo to increase its...

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