Surrogation in Business Performance Management

Surrogation in Business Performance Management

🔥 In wars and extreme poverty, desperate people use various kinds of inferior substitutes for products like bread, coffee and tobacco. These are called "surrogates". Likewise, in performance management the human tendency or cognitive bias to confuse and substitute what's being measured with the metric itself can also be called "SURROGATION".

As we all know, a business strategy is typically long term oriented, and quite complex and abstract. So various tools and metrics like CSFs and KPIs, Strategy Maps, and Balanced Scorecards are being used to cascade the strategy downwards in the organization, to make it more concrete and simpler to grasp, and to measure the progress made (in the short run). All fine.

But sometimes managers and employees mentally mix up and replace the actual strategy with the hard metrics which were meant to assess whether the organization is succeeding at it. They might even start "gaming" the performance metrics.

According to an interesting article by Professors Harris and Tayler surrogation is destroying a lot of value in businesses. Why? Because business metrics are inherently imperfect. Especially if they are used to gauge intangible goals (like is the case in strategy). And still more so if the metrics being used are not well matched to the particular strategy.

Of course, metrics have their merits. They are useful to provide some direction where the strategy may otherwise be perceived as too abstract. And they can also help to track the progress made and to coordinate behaviors and efforts. But it's important the inherent distortions of metrics are properly understood. That's why I prefer the term "indicators" over "metrics".

To counteract surrogation, the authors recommend companies to:

• Use multiple metrics. But also don't overdo it, see: "How Many CSFs and KPIs should there be?");
• Be careful with tying financial incentives (rewards) to some metric, because doing so increases the focus on making the numbers even more; See: Pay per Performance?
• Involve the people who have to implement a strategy in its formulation, so they understand and appreciate what's behind the KPI's.

I found the introduction of the term "surrogation" and its explanation by Harris and Tayler a useful addition to our management dictionary, because it explains the core issue in performance management so well. To use the famous words of Prof. William Bruce Cameron back in 1963: "Not everything that can be counted counts, and not everything that counts can be counted."

Source: Michael Harris and Bill Tayler, "Don't Let Metrics Undermine Your Business", HBR Sept–Oct 2019.

		Comments Sort by date Sort by rating Rating
		0 Paramathmuni srinivas Kumar India
	Metrics for the People Who Care for the Wellbeing of Thing or a Person I read somewhere that “If something exists, it must exist in some quantity and that quantity can be ... Sign up

		4 Gandhi Heryanto Management Consultant, Indonesia
	The Effect of Incentive Compensation and Cognitive Efforts on the Occurrence of Surrogation Measurement is a fundamental component of (management) accounting. Companies use measurement as a re... Sign up

		1 Bernhard Sterchi Management Consultant, Switzerland
	In Other Words: the Cobra Effect To raise the attention to the topic of surrogation, also known as the Goodhart's law: "If a measure ... Sign up

		0 Maurice Hogarth Consultant, United Kingdom
	Measure Qualities as Much as Quantities @Srinivas: In the world of Organisation & Method one of the principles is that "If it cannot be meas... Sign up

		1 Paramathmuni srinivas Kumar India
	Measuring Qualities @Maurice Hogarth: Agree that we need metrics for measuring quantities as well as qualities. I may so... Sign up

		1 Gary Wong Consultant, Canada
	The Order System versus the Complex System Terms like "What gets measured, gets done" and "If it can't be measured it can't be managed" reside ... Sign up

		-1 HUGH BILLOT Business Consultant, United Kingdom
	Surrogation However you want to sum this up we should remember that if you can't measure something you can't man... Sign up

		1 Maurice Hogarth Consultant, United Kingdom
	Past Measures & Future Forecasts @Gary Wong: As you state, Gary, measurement resides in the ORDER SYSTEM while the COMPLEX SYSTEM rel... Sign up