Dashboards, metrics, and KPI’s are incredibly valuable tools for managing your business. But there can be too much of a good thing. It’s possible for leaders to spend more time collecting, reviewing, and adjusting data on spreadsheets than taking action to improve and grow their business. There is a diminishing return to this kind of obsessive analysis. It’s akin to stopping to check the gas tank every 15 miles.
Imagine you’re on a cross-country road trip, trying to cover a lot of distance in a day. Everyone knows that continually stopping will only slow you down, making it difficult to reach your desired destination. The same is true when leaders are overly focused on performance metrics. Gathering all the necessary data is incredibly time consuming and often counterproductive to achieving bigger goals.
The high volume and frequency of updates on performance metrics is in large part about creating a sense of control. We gain confidence about our understanding of what’s going on, but it rarely improves performance.
Psychologist Paul Slovic illustrated this in a study evaluating the effect of information on decision making. He gathered eight professional horse racing handicappers to see what effect data had on how well they predicted the winners. His test subjects were all seasoned pros who made a healthy living solely on gambling skill. Each of them would predict the winners of 40 races in 4 consecutive rounds. In the first round, each gambler could receive any 5 pieces of information they wanted on each horse. One gambler might want to know a jockey’s years of experience as one of his top variables, while another might want to know the fastest top speed recorded for each horse. After picking 5 pieces of data, each handicapper would then submit two things: their race predictions and their level of confidence in those predictions. In round one, the group was only 17% accurate on predictions and 19% confident.
In each progressive round of the study, the handicappers could increase the amount of information they received for in-depth analysis. In round two, they picked 10 pieces of information. Round 3, 20 pieces. Round 4, 40.
But the added information and increased efforts in analysis produced no better result. Their accuracy remained the same throughout the study, at around 17%. Their confidence levels, however, increased significantly with more information and nearly doubled, hitting 34% by the final round. The additional data made them more sure of themselves, but no more effective.
We’ve all seen leaders who focus on inspection and don’t dedicate enough effort to improvement. Don’t be that leader.