Surrogation in Business Performance Management

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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.

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		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 measured.” But one must be very careful in choosing the metric or an indicator as the article points out… One who cares for the wellbeing of a person or a thing should devise the proper means and methods to measure it. This can help to assist in continual improvement initiatives. Sometimes the metrics need to be adjusted.

		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 representation of strategic objectives. The potential consequence of using measurement in this way is the tendency for managers to become victim of "surrogation": They then lose sight of the actual strategic constructs and behave as though the measures are what it is all about. In a study by Black et al. it was found that the mere presence of a measure (even absent compensation) is sufficient to lead managers to surrogate: compensation is not necessary for surrogation to occur. Also it was found that more cognitive effort is negatively correlated with surrogation. In simple words: if one is consciously careful to avoid this tendency, that helps. Source: Black, Paul and Meservy, Thomas and Tayler, William B. and Williams, Jeffrey, "Surrogation Fundamentals: Measurement and Cognition" (March 2019), SSRN.

		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 becomes a target, it ceases to be a good measure", you can use the story of the Cobra effect, which basically means the same. This is a much used story, picked up and written out here.

		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 measured it cannot be managed". It is comparatively easy to measure 'quantities', more difficult to measure 'qualities' but they do provide a valuable metric. I have usually worked on the basis of the three counter-actions. Unfortunately many people latch on to a particular method, promoted as a panacea, and from their 'expertise' fall in to the trap that when your tool is a 'hammer' every concern is treated as a 'nail'. Many of the measuring methods have considerable overlap, so participation to combine elements of the different processes to tailor a process to the organisation -relevant to what it needs to know and do better at- will involve and motivate. Setting simple numeric targets in an atmosphere of 'self-promotion' rather than 'organisation-personal achievement' may get you what you wished for, not what you need, as the cobra story indicates.

		1 Paramathmuni srinivas Kumar India
	Measuring Qualities @Maurice Hogarth: Agree that we need metrics for measuring quantities as well as qualities. I may sound to be repetitive in taking following example but I find it valuable and worth mentioning in the ...

		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 in the ORDER SYSTEM. This system is stable, predictable, with an idealistic future state. Here, sett...

		-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 manage it, and if you cannot manage it the organisation will suffer and eventually collapse. I don't a...

		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 relates to the future. We do not, however, MEASURE the future. We can only measure what is past; even i...