Trade Offs and False Proxies.

I see a lot of smart people giving audiology practice owners dumb advice. Your in-box and social media feeds are filled to the brim with mostly well-intentioned people trying to make a buck convincing you this one metric or that one metric will solve all your problems. They promise efficiency and growth in new patients, revenue, case starts; more of this, more of that. They sell magic weight loss pills while Grumpy Jared tells you to eat your vegetables and go to the gym. I’m clearly not here to win any popularity contests. Listen. There’s nothing wrong with efficiency and growth, but these swindlers and self-professed gurus use the wrong proxies for efficiency and growth. They look at labor costs, marketing investments or cost structure and set about in an attempt to improve them. But what if increased efficiency or growth in these areas cause the customer experience to suffer or referrals to decline? What if their proxy keeps you from achieving your goals?

Seth Godin says, “When we fall in love with a proxy, we spend our time improving the proxy instead of focusing on our original (more important) goal instead. Gaming the system is never the goal. The goal is the goal.” This phenomenon isn’t unique to hearing care or audiology.  For years, Warren Buffett and Charlie Munger have been calling on investors and boards to stop pressuring CEOs to produce quarterly earnings. This hyper-focus on shareholder value is driven out of Milton Friedman’s philosophy in the 1970s and 1980s that “the only purpose of a business is to create more profit.” Peter Drucker disagreed and said the purpose of a business is to create a customer. And in mining the customer relationship for the mutual benefit of both parties, you don’t stuff the wrong proxies down the throat of the golden goose.

In an interview, Roger Martin, the retired dean of The Rotman School of Management and advisor to Proctor and Gamble, Lego and Ford, said “you must have more than one measurement by which you will judge performance. What happens when you only have one measurement is the phenomenon of surrogation, in which the measurement becomes the thing.” Let’s take Wells Fargo as an example of surrogation. Wells Fargo wanted deeper customer relationships. But the firm measured “depth of customer relationship” as the average number of accounts per customer. They gave incentives to employees to get more accounts per customer and if they didn’t, Wells Fargo installed punishments. What started out as a good idea – deep customer relationships – became a measure (i.e., how many accounts per customer) and a tool (i.e., paying branch employees an incentive to open accounts) which resulted in employees feeling pressure and signing up customers for accounts they never agreed to open. This resulted in billions of dollars in fines and the reputational destruction of a very successful bank and brand up to that point. This is what happens when you have one measurement.

As an alternate example, let’s look at Southwest Airlines. Southwest wants more than one thing. They want to be the lowest cost, highest customer-satisfaction, highest employee-satisfaction, most-profitable airline in America. The first reaction when you read these goals is that none of this can possibly fit together. However, because these goals are hard and because there must be more than one measurement to achieve them, the company is forced to think cleverly about how to go about solving problems and driving sustainable results. So, instead of chasing one proxy for success, Southwest Airlines is forced to make clever trade offs in pursuing many measurements of success. As a result, Southwest figured out a system that requires fewer employees per passenger seat mile so they can pay their employees more than they would make at any other airline. And Southwest does this while maintaining a stronger cost structure, providing their customers with the lowest fares. Brilliant.

Write this down: the pursuit of more profit does not result in more profit. You start to do all sorts of dumb things and commit all sorts of business sins in order to get that one thing or chase that one proxy. Aristotle said, and I’m paraphrasing, “If a person sets out in life to be happy, they’re unlikely to end up happy. If instead they set out to live a good life in servitude to others and society at-large, they will probably end up happy.” In other words, saying you really want something doesn’t necessarily mean you get that thing. It might make it less likely you’ll get that thing. In fact, research from Gabriele Oettingen confirms this phenomenon, where people who say they really want to lose weight, stop smoking or make a career advancement are actually less likely to achieve those goals than someone who has addressed the reasons why they want those things and is prepared to face the obstacles that are bound to appear on the road to success.

So, the next time you see someone on a stage or in a Facebook video promising you the stars and the moon if you’ll just sign up for their practice transformation program, ask them what are their proxies for success? Ask them what it says to your customers, clients, patients and stakeholders when you scream from the mountaintop, like many CEOs and business leaders or gurus might teach you, that you want to extract maximum profit and maximum shareholder value from a business? It tells your customers or patients they’ve got a large target painted on their back and you’re going to attempt to extract as much revenue from them as possible while delivering more profit to your company and shareholders and almost certainly a poorer customer experience for them. This is not sustainable. It’s not desirable. It’s the wrong way to approach your business and it will force you to make the wrong trade offs, sending customer satisfaction and referrals down the drain. Avoid this trap like the plague.