You’ve potentially heard the Rio Tinto (world’s second-largest mining company) story, but if not, this article does a pretty good job summarizing it. Here’s essentially what happened.
In its most recent annual report, Rio Tinto included this portion:
As a mining and metals company, we recognise the impact our business can have on our many stakeholders and the wider responsibilities this brings. We work hard to understand our stakeholders’ needs and expectations. We want our success to allow us to invest to meet our obligations to our employees, our customers, suppliers, local communities, and host governments, as well as to generate superior returns for our shareholders. [emphasis added]
Then what happened?
Yet on the 24th of May 2020, Rio Tinto blasted into oblivion the caves of the Juukan Gorge, a 46,000-year-old Aboriginal sacred site in the Pilbara region of Western Australia, where the company mines iron ore. Rio Tinto did this in the pursuit of further expansion and in full knowledge of the site’s existence and importance. Not to proceed, the CEO has explained, would have cost the company $135 million. He was under pressure to maximize profits from iron ore.
So … a list of KPIs and commitments in an annual report was essentially worthless because money could be made? Admittedly this shouldn’t surprise us, but the article has a few more examples. Ready?
- Commonwealth Bank (Australia’s largest) identifies “customers, community, our people, and shareholders” as its key stakeholders in its annual report. But when it comes to the “key metrics” in its Annual Report report it it mentions eight, of which seven relate to shareholders and one to customers.
- {“This is despite the 2018 finding by a Royal Commission (high level inquiry) into banking misconduct. One clear issue the Commission had identified in its report was that banks gave too little attention to monitoring organizational culture and over- emphasized measuring corporate profit.”}
- Like Rio Tinto, BHP publishes its “key performance indicators.” There are nine. Five of these relate to shareholders, two to employees (both about safety), and two to the community. Fortescue goes one step further and reduces its “key performance indicators” to a list of three.
People vs. profits
I think we all know by now that companies cannot really put people over money, and there are many, many psychological reasons for this. One of the biggest, simply, is how executives think about their business — and how they think in general, which is often sociopathic. They also lack a fundamental understanding of how Peter Drucker conceptualized business, which is rooted in profits being the result of good organizational action, not the goal of an organization. That sounds semantic, but it’s not. So many guys that come to run businesses think they are “in the chair” to drive profits. They have no clue that the real goal is to provide a service and please customers, and then profits will come. As a result of this thinking, we turned “people” into a “resource,” “expense,” or “line item,” and work basically cratered for many people at that moment.
If we’re going to end the charade of KPIs, we should only have KPIs about profits, sales growth, revenue growth, product suite growth, or return to shareholders. Those are the only ones that actually matter, with the other ones being add-on lip-service niceness to please the media/PR side of the marketplace. That’s all they are.
What’s funny about KPIs and analytics/data too is that we openly pretend this stuff matters, even though we know a lot of people who supposedly “own” reporting have no idea what they’re doing with these elements. To wit:
“Can you imagine a CFO going to the CEO and saying, ‘I don’t really know how to read a balance sheet, but I have someone on my team who is really good at it.’ We would laugh that person out of the room,” Zettelmeyer says. “And yet I know a whole bunch of people in other disciplines, for example, marketing, who, without blinking an eye, would go to the CEO and say, ‘This analytics stuff is complicated. I don’t have a full grasp on it. But I have assembled a crackerjack analytics team that is going to push us to the next level.’ I think this is an answer that is no longer acceptable.”
There are, of course, other concerns with the KPI ecosystem. Notably:
- Many managers cannot name their own priorities. Hence, how they could set and manage/track KPIs?
- Many managers are unaware what the executives even want. Hence, how could they track, set, and manage KPIs?
- The left hand very infrequently knows what the right hand is doing inside companies.
- We don’t really understand “best practices” either.
In short, KPIs are a manipulated mix of “this stuff really matters” (money, shareholder metrics) and “this stuff is good to mention” (community, engagement, environment). In that way, KPIs perfectly mirror most all-hands meetings ever conducted, and essentially mirror what work is in general — “this stuff matters, and this other stuff we pretend matters but it really doesn’t unless we get caught or in trouble in some way.” So maybe they are the perfect metric indicator of our modern business climate.
But to think they’re real or mean anything about how the company really functions? No. Maybe a few do, but there are metrics and numbers executives look at, and everything else they maybe fall asleep in a meeting about once every 11.25 months.
