E215 Be Careful What You Measure with Guido van Drunen

In today’s podcast we have Guido Van Drunen back on the show to discuss with us how what we are measuring may not be what we SHOULD be measuring.

While measuring certain data points, it can be easy to create certain situations where we bring about unintended consequences.

Despite the fact that some of these consequences may not be nefarious in nature, it can lead to quite destructive behavior.

One common example would be that if a company tracks safety metrics, it may lead to employees no longer reporting on the job accidents in order to continue receiving certain incentives.

So listen in to today’s episode and see how policy can be changed for the better… as with all episode there is a business and personal applicability of what we are discussing.

Check out Guido’s article “Benchmarking Drives Behavior” at: https://guidonvandrunen.substack.com/p/benchmark-drives-behavior

Get a VIP backstage pass and behind the scenes information when you sign up for The Jamming with Jason newsletter: https://bit.ly/3k53OjS

Transcript

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Jason Mefford: Welcome to another episode of jamming with Jason hey today I have my friend Guido van drone and back with me and we are going to talk about.

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Jason Mefford: How we need to be careful what we measure and so again we’re going to talk a little bit about how this shows up in business, but also in how it shows up in life.

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Jason Mefford: Because I don’t know if you’re like most people, but often you find out that what you’re measuring may not actually be what it is that you need to measure.

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Jason Mefford: So with that whatever you do, listen to the whole episode and make sure, and let your friends know about the jamming with Jason podcast and here we go let’s roll that episode.

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Jason Mefford: All right, gado it’s great to have you back man, I know, last time we had a lot of fun, there was a lot of laughing which is going to be this time too.

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Guido van Drunen: yeah Well, first of all thanks for having me back Jason I really appreciate it, I think it’s I think it’s a lot of fun to do these with you and you’re you know you’re a master of your trade or your craft and.

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Guido van Drunen: I certainly appreciate the opportunity to spout off a little bit on some of the things that i’ve seen in my career.

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Guido van Drunen: And you know, one of the things, as you know, as i’m starting to write a little bit about something that I call benchmark driving behavior.

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Guido van Drunen: And, and this, this is something that’s come up over the years, where i’ve observed various things, both in the investment realm.

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Guido van Drunen: In the safety realm in the you know financial performance realm and the performance appraisal realm where it’s like.

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Guido van Drunen: hmm is this outcome, really, the one that we wanted, you know and and and and regrettably sometimes that has led me to the conclusion of you know that it never ceases to amaze me the caliber of people, the organization can do without.

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Guido van Drunen: As a result, or four benchmarks.

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And so.

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Jason Mefford: Because we all we often make bad decisions.

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Jason Mefford: Right using numbers that we think are right and and and that that’s.

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Jason Mefford: How we end up killing ourselves sometimes because I tell people this and risk management, especially right is they think they’re making a good decision, but they’re relying on bad data.

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Jason Mefford: And so you know, sometimes the data doesn’t really tell us what we think it’s telling us right.

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Jason Mefford: And so again, so I just wanted to kind of because I know you’re using the term benchmark and then, so I just want to kind of level set for people because.

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Jason Mefford: Sometimes that term has different meanings to different people right so so while we’re kind of talking about when we use the word benchmark.

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Jason Mefford: it’s it’s tracking data or using data to try to drive behavior.

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Jason Mefford: So sometimes you know again that could be like budget, you know tracking a budget is a form of benchmark right to manage your actual spending versus what you budgeted.

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Jason Mefford: They could be things like key performance indicators right kpis sometimes people talk about our US that’d be another kind of example of this, but we’re even going to pull in some personal.

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Jason Mefford: stuff as well because, again we all track data or do certain things in our own personal life even and these same concepts relate there as well, so.

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Jason Mefford: So yeah I know you’ve been working on an on an article about this so let’s just kind of dig in you know with that I loved some of the quotes that you had the drucker quote and the Einstein quote in there which are great.

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Jason Mefford: In some of the kind of examples that we can talk through to just show people, what do we mean by this, how can this.

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Jason Mefford: You know, because, again, most people that I made her like data is good, we need data, we need to analyze the data we need to be tracking the data and we do, but right, and I think that’s what you want to share and I was talking about today.

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Guido van Drunen: Right and and again i’m certainly not suggesting, and I think your your your distinction here of what i’m turning as a benchmark is i’m not comparing.

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Guido van Drunen: You know, a company to its peers or or somebody to its peers, because I think that’s that that that brings with it a whole different set of problems that you could probably do 20 other podcasts on.

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Guido van Drunen: yeah but what i’m more looking at is okay, what are we measuring people against, and how does this cause them to behave.

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Guido van Drunen: And and is that necessarily in the best interest of the organization is it necessarily in their own best interests.

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Guido van Drunen: You know there’s a variety of things that come into the mix there that could be problematic, and you know, one of the things that I.

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Guido van Drunen: do want to stress is is that you know a lot of this is anecdotal and it’s based on experiences that i’ve had personally or have seen during the course of my career.

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Guido van Drunen: You know I have not done any you know statistical analysis of this and and and you came back you know to one thing is is data, I mean there’s just so much data out there right now.

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Guido van Drunen: And we should not necessarily always use that data or when we do use that data, we should think about Okay, what is this going to cause and what behaviors will it drive and I think that’s you know that’s that’s key.

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Guido van Drunen: You know you did mention that you know the Einstein quote I mean, to paraphrase.

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Guido van Drunen: We.

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Guido van Drunen: We should we shouldn’t always measure what we’re measuring and sometimes we can’t measure what we should be measuring right and and and that’s.

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Guido van Drunen: You know that that’s key and you know drucker has had had had.

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Guido van Drunen: You know, significant influence on management and the way things are done in business.

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Guido van Drunen: But I would say that spilled over to some of the things that you’ve mentioned earlier, as well.

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Guido van Drunen: But, but he you know he does stress that things need to be measured from a performance perspective but he’s not looking to drive perverse outcomes and sometimes our benchmarks.

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Guido van Drunen: As as used within an organization for people from a performance management perspective or safety perspective or you know, a sales perspective, sometimes drive perverse outcomes.

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Jason Mefford: And I think that’s that’s a lot of time I usually use the word like unintended consequences.

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Jason Mefford: As well right where it’s like we think.

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Jason Mefford: We think by measuring this, we think, by doing this is going to drive a certain behavior but, in fact, sometimes like a safety example we’re going to will probably talk about it actually drives the complete opposite behaviour of what you’re trying to.

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Jason Mefford: To insurance yeah.

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Guido van Drunen: And, not to say that you know look i’m i’m a big believer in safety, I mean I you know i’ve worked in you know, a manufacturing and.

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Guido van Drunen: You know, oil and gas chemical industry and, and you know i’ve been to plenty of sites well first thing we do is we start with a safety meeting right, whereas you know, in the professional services industry, people like you.

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Jason Mefford: That paper cut paper.

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Guido van Drunen: That that’s anathema right, I mean it’s you know it, to the point of Okay, if you if you have.

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Guido van Drunen: A red eye flight you’re not supposed to drive more than 15 minutes to your hotel those types of safety tips that just don’t exist in the consulting industry right because it’s just a different mindset, because if things go wrong in a chemical plant or in a petrochemical plant.

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Guido van Drunen: deal.

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Guido van Drunen: yeah that’s a big deal.

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You know.

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Guido van Drunen: But, but since we’re on the safety incident, you know we’ve all seen it right, if you go if you drive by a manufacturing facility, you see when you’re 17 days without any incidents from a safety perspective and that that’s that’s a really.

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Guido van Drunen: good thing to have where you’re you’re tracking and you’re making sure that you don’t have any safety issues but i’ve also seen situations where.

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Guido van Drunen: You know if if you do have a safety incident that you can get blamed for that, in the sense of.

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Guido van Drunen: Oh you’re going to lose part of your bonus or you’re going to not get that promotion, because you had a safety incident.

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Guido van Drunen: Now that could be directly attributable to you or it could be somebody on your team that had that incident, but you’re going to get impacted by that.

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Guido van Drunen: And that can sometimes drive aberrant behavior, for instance, if I you know in some remote locations, I experienced.

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Guido van Drunen: People had fallen off a ladder and I learned that that wasn’t recorded as a safety incident, they were just.

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Guido van Drunen: They were okay they’re a little bit banged up so you know what we’ll put them in the in the GMOs office to kind of cool down and then we’ll send them home for a week to recover.

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Guido van Drunen: But we’re not going to report that as a safety incident, because then we’ve got a day against our name, and so the benchmark as such.

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Guido van Drunen: Is measuring something that’s really important, but because of the consequences, sometimes you have aberrant behavior which then means people aren’t reporting what they should be reporting and that can that can have some serious consequences.

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Jason Mefford: Well yeah and I used to see that a lot because, again, I mean, I have a big manufacturing background as well, and it was we always used to track what were called last time incidents which meant.

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Jason Mefford: If somebody haven’t had a safety incident and they had to go home or go to the doctor if they weren’t able to show up for their next regularly scheduled shift.

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Jason Mefford: Then it counts as a last time event Okay, and again I mean in most of these situations, you want people to be safe, you put safety equipment in place.

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Jason Mefford: But it’s it’s inevitable that something is going to happen when you’re working with big machinery right or heavy things.

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Jason Mefford: And so, but the problem would end up being is usually there would be some incentive associated with it hey if we go to 180 days or if we go 365 days without an accident.

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Jason Mefford: Everybody in the plant gets a bonus right here’s $100 gift card to home depot whatever right.

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Jason Mefford: And so you know it’s fine at first, but the closer you start to get to the hundred and 80 days.

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Jason Mefford: Or the 365 days what we would find is just like you talked about somebody falls off the ladder oh good oh you’re not really heard our yeah oh geez you know I can see that looks like you broke your leg well we’re gonna have to send you to the doctor but show up to your shift tomorrow.

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Jason Mefford: Because that I don’t have to count it.

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Jason Mefford: against me right, because if that happens, everybody loses out on that incentive, and so it encourages people usually to hide things that you don’t want them to hide right now report it not do stuff like that.

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Guido van Drunen: yeah and then you know let’s let’s take this out of it, you know and that’s not meant to be nefarious or anything like that, but I, you know another example is you know you measure spills and breakages right.

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Guido van Drunen: And so.

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Guido van Drunen: You know i’ve seen people saying well we’ve reduced our skills and breakages by 30% but in that same time period, you had a downsizing a 50% of the staff so in theory you’d have to say it kind of went up as opposed to.

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Jason Mefford: should have gotten out by 50% but.

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Guido van Drunen: But the measure you know so so you know you’re not comparing apples to apples in situations like that and that’s another area of risk and.

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Guido van Drunen: You know, I think that that almost kind of ties into the you know that there’s a big surge on with ESP reporting, we talked about a little bit at some point in time and.

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Guido van Drunen: And everybody wanting to be part of the you know, environmental sustainability and governance component and and I think the next area where we might see some of these benchmarks.

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Guido van Drunen: and frankly might see we’ve already seen it, you know there there’s this term called Greenwashing right where people are making claims in relation to this is what we’re doing to improve the environment.

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Guido van Drunen: And it might not necessarily actually improve the environment, it might actually when you start poking at it, it could actually be worse and and that could be from a slave Labor perspective or it could be from a.

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Guido van Drunen: Environmental impact perspective, but the whole SG you know initiative, which is now really gained a lot of force and steam.

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Guido van Drunen: does have some some problems behind it from a Greenwashing perspective, which is again, you know benchmarks put in place that might not necessarily achieve what you’re trying to achieve.

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Jason Mefford: Well, and that’s why there’s there’s you know the Greenwashing so again, that that might be a term that some of you are not familiar with so i’ll just.

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Jason Mefford: Just kind of explain that and then i’ll give you a real life example of that Okay, but Greenwashing is where is where you’re putting out numbers.

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Jason Mefford: To show that you’re environmentally friendly, when in fact your actual actions underneath it are not.

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Jason Mefford: necessarily what you are are presenting to the public Okay, and so this happens, sometimes I mean people could could call it fraud, you know at that point if you’re if you’re.

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Jason Mefford: You know intentionally misleading the public that would be fraud but what’s funny is this this comes about with environmentally friendly.

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Jason Mefford: movie stars public figures people like this Okay, and so that here’s here’s like a real life example is you know you get somebody who is.

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Jason Mefford: let’s just say they’re a social influencer they’re an actor or an actress everybody knows who they are okay.

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Jason Mefford: And so you see them they’re driving around here in La you know in their pre s or in their tesla.

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Jason Mefford: Because you know they want to show that they’re being environmentally friendly so they’re driving a car that runs off electricity okay or that’s hybrid so that they’re not.

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Jason Mefford: polluting right like people that would you know the in and sometimes they might even sneer at somebody who’s who’s driving a big truck you know put this pumping out exhaust out of the back.

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Jason Mefford: And they say oh look at me i’m driving the tesla or the Prius i’m i’m environmentally friendly.

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Jason Mefford: And so, on the one hand they’re doing that, and then they go jump on their private jet to fly across the country to New York for a gig.

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Jason Mefford: And in that one flight right they put more more greenhouse gases into the environment by taking a private jet.

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Jason Mefford: Then they will, for the rest of their life in any car that they drive right and so that’s an example to where sometimes we get a little we think we’re managing it well, but there’s another part that we’re not right.

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Guido van Drunen: yeah and and I look again, not to say that there shouldn’t be benchmarks and that we shouldn’t be measuring things are measuring performance but you know if you don’t.

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Guido van Drunen: really think about these benchmarks that you’re using for performance or other things you can you can end up with.

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Guido van Drunen: You know we’ve referred to it as a law of unintended consequences which can be really severe I mean if we take an example, just on the on the HR side of the House, you know performance appraisals, I mean you know every organization does them.

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Guido van Drunen: You know G was was known.

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Jason Mefford: You know, in the wealth oh yeah you know ranking yank.

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Guido van Drunen: Everybody everybody wanted to adopt the rank and yank system, so they so they did G got rid of it, years ago, because they you know if you take it to its logical conclusion, every 10 years you’d have all new people.

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Guido van Drunen: You know if you if you just extrapolate that out and and that they would see and there’s a there’s a.

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Guido van Drunen: Very good book out at the moment called lights out it’s about the G story and how you know underwhelm mo from the successors to those guys what what actually happened along the way.

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Guido van Drunen: And that they provide an anecdotal example of where people were you know, had been deceased during the course of the year or die during the course of the year were put into the system so that they could use them as being one.

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Jason Mefford: Of them.

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Guido van Drunen: that’s right.

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Guido van Drunen: And, and so you know G is kind of said look, this is, this is no longer a suitable methodology to use, but other people adopted it after JI said no, this doesn’t work and and have proceeded with it anyway right so it’s.

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Guido van Drunen: Again, it can drive.

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Guido van Drunen: What I would consider to be aberrant behavior i’ve seen people saying okay look.

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Guido van Drunen: This year you’d be in the bottom quartile and the next year i’ll be in the bottom core tile so they you know they’re you start rotational programs along those lines and that’s totally inappropriate as well.

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Guido van Drunen: You know, so if if you’re really doing something from an HR perspective I you know, there needs to be a real cohesion.

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Guido van Drunen: Between the development of that benchmark the people that are getting measured and and how that is going to get tied to.

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Guido van Drunen: You know, compensation and everything’s and to some extent, you know if we bring it back to auditing for just a second.

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Guido van Drunen: You know the the external auditors in the internal auditors are already looking at this right so what’s the compensation scheme, what is the compensation scheme and centralized So where are some of the risks that might arise as a result of this, but it’s it’s not necessarily.

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Guido van Drunen: as well.

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Guido van Drunen: thought out and disciplined as it should be, from my perspective, because there’s there’s there’s some things that can really go wrong here and and and I think we’ve seen that in the past.

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Guido van Drunen: You know, look, this is this not, this is not anything new, this is old as Roman times right, you know the word audit comes from Latin to here, which is what they used to do here, the accounts, the only problem was if you feel the audits back then.

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Guido van Drunen: The consequences were a little bit more severe.

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Jason Mefford: than they are now.

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Jason Mefford: Well, and so I wanted to kind of because what you were just talking about their brings up.

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Jason Mefford: kind of two other things, there you know with the performance evaluations that I that I thought i’d bring up and and one is to kind of you know, set the stage a little bit with.

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Jason Mefford: You know any of you that might have kids or that have gone through academics right we’ve had a bell curve forever right a B, C D E, F okay and and.

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Jason Mefford: And a traditional bell curve there’s a certain percentage of the people that would get a’s b’s and c’s d’s and f’s right and most people.

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Jason Mefford: Average is C right, and so, in theory, under traditional bell curve almost 70% of the people would get a C and that used to be acceptable.

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Jason Mefford: right because we just understand, so it, how it works see is not bad it’s just average, but over time, there has been this you know grade inflation to where now.

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Jason Mefford: We have to give everybody a’s and b’s and if you get a C it’s really like you’re failing right, and so, because of that, even though we had a a mechanism.

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Jason Mefford: For for grading it’s it’s gotten out of whack right, but some of these unintended consequences of what it’s it’s not supposed to be, and this has crept its way into performance evaluations as well right.

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Jason Mefford: And i’ve seen this on the on the positive side and on the negative side, the one is where same thing everybody gets a four or five why, because if I put a three.

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Jason Mefford: then that person feels like they’re fail and I got to go through a bunch of red tape to explain why this person is just average right.

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Jason Mefford: So you’ve got that one side, the other side that i’ve seen as well, is where draconian methods are used to say, well, nobody on your within your team, you have to make the bell curve, which means so so sometimes if people have let’s say a group of 10 people.

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Jason Mefford: Right well if they can only give maybe one five and two fours and the rest, have to be in whatever right which which can sometimes.

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Jason Mefford: disadvantage certain groups who may be have a higher percentage of overachievers over performers than some of the other groups.

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Jason Mefford: And so, because of that these high performing people actually end up getting a lower grade simply because of the department that they happen to be in right and so again I don’t know if you’ve seen that too or.

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Guido van Drunen: That look you raise your rates three things there that are really quite crucial from my perspective, first of all, what I call the lake wobegon issue where everybody is above average right.

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Guido van Drunen: Gary garrison keillor made that very clear.

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Guido van Drunen: You know lake wobegon everybody is above average did you know that that’s not the case, but suppose you have a hiring manager, who has a team of three.

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Guido van Drunen: But he’s tough as nails and who we hires and what he hires and he really get some really top performers and he’s got three people.

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Guido van Drunen: And they’re all mocking the cover off the ball, but yet he has to force rank them and he’s got a small population so he’s got 151.

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Guido van Drunen: And two threes or whatever you know, whatever we want to call the numbers right and then you’ve got somebody else who is also a manager, who has 12 people but he’s not as or she is not as.

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Guido van Drunen: What I would call a.

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Guido van Drunen: disciplined in hiring top talent, that person is going to you know you could have three people in the one group who should be ranked number one but they they won’t be because.

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Guido van Drunen: You know there’s there’s there’s not enough of them, whereas the other people.

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Guido van Drunen: In that group they’re going to have at least two or three number ones in that group which might be lower performers and the ones that are there so that that’s that’s inherently unfair I don’t know how you fix that it is an issue it’s a benchmarking issue.

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Guido van Drunen: But I don’t know what the solution is in that situation, what I do know is that the fastest way to lose really, really good employees is not to deal with the bad employees.

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Guido van Drunen: Right, and so you know if if they see that inequity occurring and and they’re good they can vote with their feet and they will yeah.

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Jason Mefford: And so, and.

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Guido van Drunen: Yes, Jason.

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Jason Mefford: Well, I was gonna say totally totally true because, like you said, the problem is and like I said i’ve seen this over my career, because I like to think that I had some above average people in my in my group.

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Jason Mefford: You know who were outperforming.

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Jason Mefford: Some of the people in my peers groups, but they had they got lower performance ratings right and then on the flip side another one that that that that.

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Jason Mefford: i’ve heard a lot, too, is this came from a lot of people like to do surveys to collect data again to kind of benchmark off of right, and so one of the.

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Jason Mefford: The Auto manufacturers won’t say which one, but every time you get service done and I actually probably all of them do this but i’m thinking of a particular one, this is a real life example okay.

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Jason Mefford: Is you know, every time you go and you have your car service right you go and you get oil change you get whatever right put new tires on it whatever you get a survey in the mail.

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Jason Mefford: or on the phone that you have to fill out now i’ve had.

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Jason Mefford: People at the dealerships say this to me and, in fact, one of my friends used to be a service writer, for one, this manufacturer that one of their dealerships, and so I heard this from several different places of you’re going to get a survey.

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Jason Mefford: And if there’s any reason why you can’t give me a tan I need you to let me know right now, so I can fix it so when that survey comes, you will give me a 10 out of 10.

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Jason Mefford: And so, like the first time I heard this i’m like what are you talking about and they’re like.

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Jason Mefford: Our corporate is pretty stringent about this if we get anything less than 10 you know all hell breaks loose on us right and we can end up losing our job or having their compensation cut back.

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Jason Mefford: And At first it kind of blew me and I was I stopped in my tracks like are you kidding me to yet not everybody can do 10 out of 10 it just doesn’t work.

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Jason Mefford: I mean no matter how good you do.

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Jason Mefford: Some people would would not rate you as a 10 anyway, and your your service level is probably never always going to be at a 10 what’s wrong with a seven or an eight.

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Jason Mefford: Right, but so because of that they’re there they’ve put this whole intricate system in place they’re collecting all of this data and, at the end of the day, the data means nothing.

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Jason Mefford: because all the data has been manipulated to be 10s.

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Guido van Drunen: Right, well, I guess, we must drive the same car.

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Jason Mefford: The same survey.

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Jason Mefford: off air, we can talk about it, but having said that i’ve got i’ve got two different makes and they you know it’s this it’s the same thing, so you know.

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Guido van Drunen: I that that is a situation where you know people have become so cognizant of what they’re measured against that they start to manipulate the benchmark.

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Guido van Drunen: And the monitoring of those benchmarks, as a result is flawed right it’s not just having a benchmark and then say oh everybody achieved it but also how did you achieve the benchmark right, I mean it’s like I got the most sales well had to do that Okay, the most bribes.

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Guido van Drunen: Well there’s a bit of a problem here right laughing about that, but that is.

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Guido van Drunen: So what.

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Jason Mefford: happens in real life.

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Guido van Drunen: Right and and you know it’s it’s it’s one of these things that.

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Guido van Drunen: You know you have to be very, very careful and you know, one of the things that I write about in the article is that it, you know if you look at these benchmarks.

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Guido van Drunen: You should always pull them back towards the you know code of conduct and the mission statement and the value statement of the organization and say how does this tie in.

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Guido van Drunen: And how does it actually help us achieve this within the framework right and and I i’m not sure.

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Guido van Drunen: As to whether those individuals devising the benchmarks can actually show me a documentary trail.

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Guido van Drunen: That would tie them to the core values of an organization, where the code of conduct, you know say Oh well, the Code of Conduct overrides everything right well.

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Guido van Drunen: You know it’s just just just do the right thing well you know what is the right thing, because Fred next door is getting.

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Guido van Drunen: Six grand a month more because he’s going to X, Y and Z entertainment and I can’t go to that entertainment because it’s kind of it, you know you think start to slip you know so it’s it’s that kind of situation that you’re dealing with.

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Jason Mefford: Well, I think a lot of times to like you said you know, we need to have, because this is another mistake that a lot of people make.

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Jason Mefford: Is they start measuring things without really having that line of sight.

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Jason Mefford: As to what it is that we’re trying to accomplish and what really is important right because, like we said, you know I think I think the Einstein quote not everything that counts, can be counted and not everything that can be counted counts right and i’ve seen a lot of people that.

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Jason Mefford: they’ll default to using certain metrics because they’re easy to calculate it’s easy to get the information so we’re going to track that.

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Jason Mefford: But, are you tracking that because it’s really what’s important right and that’s where, again, we need to have a lot of those discussions, so I thought i’d bring up a little bit more of a personal nature into this because we were talking before about.

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Jason Mefford: Like are.

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Jason Mefford: You know the iPhone or the the the I watch the wall.

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Guido van Drunen: I watch her yeah I got I got whatever you call it.

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Guido van Drunen: I got a fitbit so.

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Jason Mefford: You got a fitbit so.

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Jason Mefford: same same concept side, but I know you know, for those of you that have apple watches there’s.

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Jason Mefford: there’s a little activity monitor on it and they it’s it’s called closing your three rings right so apple puts on there, and says hey you know you should probably.

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Jason Mefford: Stand up at least a certain number of times during the during the day, you should have a certain number of exercise minutes you should probably.

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Jason Mefford: burn a certain number of active calories and so again, you can kind of decide what your goals are going to be on it, but there’s a lot of pride in closing the three rings okay.

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Jason Mefford: In the end, it’s a way to motivate you I mean they’re doing it, to help us become more active and fit I get it, I love it, you know and that way but.

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Jason Mefford: I know, for me, I got to a point where it’s like you know why is my exercise ring not close.

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Jason Mefford: it’s like i’m going out for my walk and walk in 35 or 40 minutes, every day, how come my watch is not giving me credit for that right.

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Jason Mefford: And it was because my heart rate wasn’t high enough right and so again it’s like well what’s more important me burning the number of calories.

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Jason Mefford: me moving my body for that much of the day, or is it really that important that my exercise ring closed and, at the end of the day, if it didn’t matter whether my exercise ring closed it matters right, the reason behind why i’m tracking this and why that means anything, or why it’s important.

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Jason Mefford: And why it even want to spend any time.

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Jason Mefford: Focusing on it right and i’m sure it’s the same way with your fitbit too right, I mean there’s something similar to.

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Guido van Drunen: Absolutely, and you know I don’t know I don’t know if you remember that commercial where the lady is sitting in the park.

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Guido van Drunen: eating an ice cream and she’s got her dog she’s got a pedometer on the dog’s tail.

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Guido van Drunen: Right right so so it’s one of those things where you know you get so obsessed by.

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Guido van Drunen: Oh, I got to make this thing day where it needs to date, so I get my little 10,000 steps, or I get my 3000 calories or I do this or I do that.

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Guido van Drunen: That well why are you actually trying to do this kind of become secondary now, one could argue that well if you get that stuff you get the benefits absolutely.

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Guido van Drunen: But you know what what is the ultimate purpose of doing this right it’s it’s to get healthier and and do we want to.

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Guido van Drunen: You know manipulate that or or you know, and you tied it to a personal situation, I mean you know you can tie that to a business situation, I mean in the article I also tie it to a.

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Guido van Drunen: You know, a war situation which is, which is effectively horrendous but you know these benchmarks are something that you know they get etched in people’s minds and and that becomes the be all and end all of you know perfect attendance awards right great award to have.

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Jason Mefford: Any of those in grade school, by the way, I was never.

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Jason Mefford: sick.

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Jason Mefford: When grown up yeah.

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Guido van Drunen: Well, well, maybe you were but you’ve got everybody else sick.

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Guido van Drunen: You know.

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Jason Mefford: I was the carrier right everybody else was out.

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Guido van Drunen: Right, so you know it’s it’s one of those things that yeah it’s great to have this but.

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Guido van Drunen: You know, like you said safety issues you get close to that hundred and 80 180 380 385 school days 179 you know i’ve got i’ve got the plague but i’m going in because i’m getting that award right, and so you get these these.

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Guido van Drunen: These situations that really don’t work well from a from an ultimate outcome perspective, I mean in the article I write a little bit about the Vietnam War where they were using body counts.

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Guido van Drunen: to determine, you know the efficacy of what what they were doing in South Vietnam via via North Vietnam, and you know that resulted in inflated statistics for.

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Guido van Drunen: For casualties and it resulted in including civilian casualties as being casualties that were supposedly warriors that weren’t and it and it resulted in.

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Guido van Drunen: People getting more resources to continue doing what wasn’t working right and and and that’s kind of.

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Guido van Drunen: The you know the the ultimate outcome here is, is that you know if you give people a benchmark and it doesn’t make any difference whether it’s from a personal perspective $1 and cents perspective.

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Guido van Drunen: It could be from a you know, a power perspective, it could be across the board, they will achieve that benchmark because they’re going to say well where’s my reward.

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Guido van Drunen: I have achieved my benchmark and that reward could be additional headcount.

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Guido van Drunen: It could be you know, a larger sales area, it could be a variety of different things right, because, if I have achieved my benchmark and I want to want to keep growing like that, I mean.

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Guido van Drunen: I mentioned, I think, in our previous podcast Jason about you know the organization that I did some work with where they had a annual Award for the best salespeople the top three sales people in a multinational organization.

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Guido van Drunen: We suggested, you might want to have a look at their travel expense reporting accounts and they went back three years and of the nine people that they looked at six of them were terminated for expense fraud abuse in achieving those awards right so again it’s it’s it was a benchmark.

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Guido van Drunen: That was beneficial in the short term, to the organization, but in the longer term, it was detrimental to the individual was detrimental the organization.

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Guido van Drunen: And they didn’t necessarily achieve what they wanted to achieve and in in a in a manner that could stay in the light of day, which is problematic.

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Jason Mefford: And I think what you just brought up there, too, is is an important important thing to remember is the time horizon right is is is again a lot of times.

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Jason Mefford: A lot of times what’s right in the short term is not right for the long or mid term.

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Jason Mefford: But if what you’re tracking is short term in nature, it can lead to some serious long term ramifications so we’ll give you a.

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Jason Mefford: Great example that crashed the stock market a couple of times folks okay So these are like real real examples is some of the short term nature back in the 90s.

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Jason Mefford: Right you remember this, to write all the.com bubble, and the stock option issue, the effective hiding of losses as a result of that and.

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Jason Mefford: And the fact that you know again it was what’s my stock price going to be on the quarter because that’s going to determine whether or not to get my stock option if it has any value or not.

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Jason Mefford: And when you’re talking about millions of dollars, there were a lot of the executives that were willing to fraudulently put out financial numbers to the street.

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Jason Mefford: To keep the stock price up kept the stock price up high enough only problem was next quarter.

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Jason Mefford: The next round of options had to be at a higher price right and so that’s how you ended up getting companies like Enron that I think we’re trading at 95 and within two weeks, it was trading it too right and this happened this happened a lot, you know and.

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Jason Mefford: In that in that timeframe short term incentive short term benchmarking and numbers.

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Jason Mefford: That have a big long term effect.

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Guido van Drunen: But let me give you another example along those lines, although it’s more in the private equity space for venture capital space right, I mean.

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Guido van Drunen: You know venture capital funds, they will they will have a.

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Guido van Drunen: company that goes public right and those those are thinly traded shares.

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Guido van Drunen: You know they don’t want to necessarily flood the market with 7 million shares, because it will cause a price to plummet right.

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Guido van Drunen: But i’ve seen, regrettably, where you know the right before fundraising starts and they want to boost the irr where certain venture funds have decided that you know what.

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Guido van Drunen: If we buy 10,000 shares of this $3 stock it’s going to go up to $8 or irr is going to look great because we hold this many shares in the fund that we can mark them to market.

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Guido van Drunen: Right and and so short term benchmark to go and raise funds to show a better irr and if you know, be careful.

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Guido van Drunen: You know that those are those are things that have occurred, I think you know people are watching that more closely now and there’s there’s there’s a lot more focus on that.

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Guido van Drunen: But the other thing is, I mean I sit here in a position of luxury right, I mean I got I got my computer I got my coffee I got everything I got my car in the garage, even if I have to put a 10 on the.

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survey.

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Guido van Drunen: But you know if you’re running a startup and and you’ve you’ve got to drive sales to be able to get your next round of funding or you’ve got to drive you know visits, you know I don’t know.

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Guido van Drunen: visits to a website or drive you know, whatever whatever you’re using as a metric and it’s going to be.

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Guido van Drunen: You know, death or success, you know, based on that it becomes very, very difficult and it takes a lot of character to say you know what we’re not going to hit that target this month, but we’ll hit it next month.

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Guido van Drunen: You know we’re seeing the fair and I was trial, which has just started as well.

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Guido van Drunen: And you know they were they were saying we have this many tests that are successful apparently that wasn’t the case, the trial will reveal what was the case we’ll see what happens.

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Guido van Drunen: But you know there were benchmarks set for themselves, which then they reiterated outside of the organization as to what they were going to achieve.

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Guido van Drunen: And they couldn’t hit them and it caused aberrant behavior and and and it was a matter of survival.

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Guido van Drunen: And so again, it takes a very strong person to be able to say you know what we’re not going to be able to make it this quarter.

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Guido van Drunen: But we can make it next quarter, I mean I take my hat off to target who really got hammered when they decided they were going to do this revamping in the in the long term, it was the right thing to do, and if you look at their stock price that that’s evidenced but.

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Guido van Drunen: The street punish them for you know reinvesting capital into the stores and things like that so there’s there’s a variety of.

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Guido van Drunen: individuals and and, ultimately, it always comes down to people right it always comes down to people can you say no, when you have to say no, and and frankly i’m not sure I could always say no, when I have to say no i’d like to think the answer to that would be yes.

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Guido van Drunen: But it comes down to people.

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Jason Mefford: Well, and like you said it’s it’s it’s the behavior or it’s it’s it’s a lot of times the pressure on it right, I mean I mean again like you talked about if you if you’ve you know the livelihood of your businesses hey we can’t raise our next our next 90 days of cash.

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Jason Mefford: From a startup company.

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Jason Mefford: Unless I meet certain things right you’re going to do whatever it takes to get to that point and know there’s a whole concept in in the law about duress right.

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Jason Mefford: If somebody holds a gun to your head and you sign a contract you didn’t really sign the contract right because duress, you were under duress, therefore, you were not making it if you’re on free well right.

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Jason Mefford: And how many people end up onto the equivalent of duress, because sometimes some really ludicrous or over overarching things you know reminds me the wells fargo eight is great.

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Jason Mefford: They just came up with the number eight because the rind with great there was no foundation for having eight accounts.

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Jason Mefford: You know, with each customer it just rhymed with the word eight I think the average in the industry was 2.2 or 2.7 something like that.

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Jason Mefford: Right so but, again, you had thousands of people at one of the biggest banks in the world who felt like they had a gun to their head that you do it or you’re out on the street.

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Guido van Drunen: And for a lot of people that’s their livelihood right, I mean your their families, going to lose their house.

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Jason Mefford: If they don’t do some of those things.

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Guido van Drunen: They effectively did have a gun to their head and and you know my understanding is that.

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Guido van Drunen: You know that that reporters is is available online and they felt a significant amount of pressure.

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Guido van Drunen: You know.

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Guido van Drunen: and acted accordingly, which was not the way you should have acted and even when they tried to run it up the flagpole it was like.

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Guido van Drunen: You know nothing, nothing happened.

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Guido van Drunen: But you know, so be it, you know, the thing that I really think is is very important here, though, is is that you know if.

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Guido van Drunen: What we need to do, and we don’t do this often enough, and this needs to be done, not just from an audit perspective or a business perspective, the thing I would really like to leave people with is saying okay i’m measuring this this is success what why.

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Jason Mefford: Why.

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Guido van Drunen: You know, you know those five good friends have I who, what, when, where and why, in this particular situation, why is is just crucial what, why is this a good measure of how I am doing.

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Guido van Drunen: And, and that might actually result in you saying well, maybe I don’t fit here, because this isn’t the way you know that I necessarily do anything right, I mean you know if you look at professional services utilization rates or.

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Guido van Drunen: If you look at, if you look at manufacturing capacity utilization rates.

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Guido van Drunen: But those are those are very, very important.

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Guido van Drunen: But if I have a you know 90% utilization rate but i’m only collecting 50% of what.

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Jason Mefford: you’re producing yeah okay right.

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Guido van Drunen: So so again it’s it’s it’s not just having a benchmark it’s not just scrutinizing the benchmark, we also need to monitor.

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Guido van Drunen: The people that are actually saying okay I got this or I hit the target okay well how did you hit the target right.

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Guido van Drunen: And, and what are the you know because look gaming the system is is is in some situations, you know national sport, I mean if you look at you know back in in the old Cold War days Russia had the five year.

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Guido van Drunen: Communist plan right okay we’re going to make 700 tank turrets but we’re only going to make 300 treads.

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Guido van Drunen: So, how does How does that even fit together and everybody was just so focused on their measure of success that the overall outcome, you know, in addition to Reagan bankrupting them effectively.

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Guido van Drunen: You know, did not achieve what they were trying to achieve right so there’s there’s there’s the there’s the individual benchmark, it has to be looked at it from an organizational perspective, and you know you’ve run into the site agreement issue on sales probably a plethora of times.

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Guido van Drunen: You know I mean I don’t know what else you know Jason but I, my key key point is.

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Guido van Drunen: ask why and then continually look at these benchmarks that you’re actually being measured against and make sure that you’re not going off the reservation and make sure that the people who you’re measuring against benchmarks.

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Guido van Drunen: be treated fairly, because because, again, you know, the best way to lose employees is you know to to not deal with with non performers.

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Guido van Drunen: Who could per the benchmarks be solid performers right quite often we’ve mentioned professional services organizations is like well let’s put Fred on that project because it’s it’s.

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Guido van Drunen: it’s kind of mundane he’s not really that great he can he can just you know stamp the the the documents and and he’ll be 100% utilized year and comes around well let’s get Fred a bonus he’s 100% utilized.

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Guido van Drunen: he’s dumber than a box of rocks but he’s 100% utilized.

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Guido van Drunen: You know.

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Jason Mefford: Well, because, like you said a lot of times there’s you know so ask the questions because sometimes especially these individual things that you’re measuring by themselves to they fit in the bigger picture.

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Jason Mefford: You know and and how important are some of these things too, because you know I wanted to kind of into you know little bit on a you know personal note, as well right because coaching people, especially people that are high achievers I see this, a lot of the time where.

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Jason Mefford: they’ll set themselves.

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Jason Mefford: On on on the unachievable metrics targets as well right, and so you know, so what ends up happening or there or they’re measuring the wrong thing right like I.

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Jason Mefford: said right is it more important if you’re trying to be healthy, just to be moving.

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Jason Mefford: Okay there’s differences there then if weight loss is your intention right you’d be you’d be measuring different things if you’re looking for you know, health and energy versus weight loss right.

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Jason Mefford: But but, but the same thing too is is is sometimes we we tend to you know, do the equivalent of putting the gun to somebody’s head and saying you’re going to do this, that I know is completely unreasonable.

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Jason Mefford: But you’re going to figure out a way to do it, and the problem is when we do that, to ourselves what ends up happening is we start.

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Jason Mefford: Blaming ourself we start going down this spiral, where we think we’re a piece of shit because we didn’t meet some unreasonable goal that we set for ourselves.

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Jason Mefford: So, again right just to kind of think about it, too, is well you know, is it the right thing to measure to help us get the long term, result.

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Jason Mefford: And is whatever target or goal I sat Is it actually reasonable, yes, we want some stretch goals right, but again what’s what’s more important right is.

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Jason Mefford: I love the story that I heard attributable to Muhammad Ali I didn’t hear it from himself, but it’s a great story anyway right where he said I don’t count my push ups.

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Jason Mefford: What do you mean you don’t catch push ups right, most of us would say i’m going to do three sets of 20 push ups in a day so i’m going to do 60 a day i’m going to count them out right.

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Jason Mefford: And i’m going to mark on my little list that I did my three sets of 20 right good, so I do the 20 and he says no, I just do push ups until I can’t do them anymore.

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Jason Mefford: Well that’s the difference between a world champion and the rest of us to right.

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Jason Mefford: yep did Muhammad Ali have a need to track how many pushups he did no he just did them he didn’t count them in fact here’s subconsciously you’ll do more push ups, if you don’t count them.

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Jason Mefford: You don’t realize that.

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Guido van Drunen: i’m not doing any of them.

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Jason Mefford: So doesn’t matter anyway right.

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Jason Mefford: yeah you could you actually will do more push ups.

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Jason Mefford: If you’re not counting them because you don’t know where you’re actually at.

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Guido van Drunen: You know it it’s a valid point, and you know, bringing this back to in the beginning, when you when you mentioned, you know the you know my interpretation of benchmark, I mean I defined it in my article.

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Guido van Drunen: But one of the things that I found very, very fascinating I mean if you look at corporate salaries in the US, compared to the rest of the world, I mean they’re.

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Guido van Drunen: You know they’re they’re multiples I mean many, many multiples higher than they are in Western Europe, or in other jurisdictions for publicly traded entities right and.

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Guido van Drunen: One of the things that’s kind of interesting about this, all these.

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Guido van Drunen: salary and and advisors, to the board are going around and benchmarking against these other entities, and so this becomes an arms race.

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Guido van Drunen: Right, they all want to outdo each other so so you know that the benchmarking, there has become part of the problem of the of the inflation.

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Guido van Drunen: You know, used to be, it was about 40 times a line worker salary that the CEO got now it’s like 250 to 300 times.

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Guido van Drunen: You know and, and that is as a result of you know, the benchmarking that you were referring to as a start as but it’s it’s it’s it’s it’s a misuse and then.

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Guido van Drunen: And then talk about unrealistic goals and and and and setting aspirational goals for yourself and how that can go wrong.

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Guido van Drunen: And I can’t remember if this was Louis or if it was Clark, but you know they came back from the expedition one of them became the Governor of one of these massive territories.

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Guido van Drunen: and any he shot himself and said I really haven’t done much with my life.

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Guido van Drunen: And and and you know he had such high expectations for himself and the benchmarks, he said, for himself resulted in a what I would consider to be an aberrant outcome.

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Guido van Drunen: When he could have contributed a lot more and that’s that’s really a crappy way to end this we got it we got to come up with something a little bit.

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Jason Mefford: we’re gonna laugh a little bit on it, too, but but it’s.

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Jason Mefford: it’s it’s with this just with any of the other podcasts right folks everybody who’s listening there’s layers to this.

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Jason Mefford: And if you think we’re just talking about how to be a better leader or how to do this in the corporate world you didn’t hear us fully right go back and listen again.

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Jason Mefford: Because you know a lot of times you know, like you said whether it was Louis or Clark, whoever was right, how many of our organizations.

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Jason Mefford: are doing effectively the same thing, how many people within the organization’s maybe they’re not shooting themselves but they’re having a nervous breakdown.

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Jason Mefford: or they’re committing fraud they’re having to go to jail they’re doing some of these other things because of these unrealistic expectations and we’re placing on people.

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Jason Mefford: Because the benchmarks, the metrics are set too high or they don’t even matter right, in fact I would dare say, probably half the things we’re measuring stop measuring nobody’s gonna even notice.

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Guido van Drunen: But how often have you seen it, you know at year end well, what did we do this year we did 100 million well let’s increase that by 10% well, based on what right if.

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Jason Mefford: You go figure it out yeah.

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Guido van Drunen: You know it.

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Guido van Drunen: Is the economy, the economy shrinking.

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Guido van Drunen: there’s more competition, what we’re going to do an additional 10% well okay i’m happy to sign up for that 10% where do you think it’s going to be coming from.

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Guido van Drunen: You know and and that’s a that’s a top down approach you know people say well we’ll use a top down in a bottoms up approach to come up with what we’re supposed to do.

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Guido van Drunen: You know that that’s one reason that zero Based Budgeting is not necessarily a bad thing with brings brings other unique problems with it, but just just just saying or 20% more than last year.

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Guido van Drunen: Based on why you know why.

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Jason Mefford: Well i’ll tell you I don’t know that I have ever seen a bottom up approach that wasn’t top down.

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Jason Mefford: In essence, because what happens is the bottom up, brings it up and the top says, you said 8% nope 8% not good enough go back and make it 10%.

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Guido van Drunen: You know, conversely, i’ve seen the same thing, where you’re trying to figure out Okay, should we do this investment, you know, invest in this particular project or by this particular entity, what do we think the Roi is going to be well it’s only going to be a 7% Roi.

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Jason Mefford: nope it’s going to be the hurdle rate on my form.

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Guido van Drunen: exactly right, you know if somebody gets deal fever, the benchmark doesn’t matter because we’re going to you know we’re going to achieve that benchmark by either reducing the you know the CAP rate, or whatever you know what I mean.

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Jason Mefford: No, I went through a couple acquisitions, with a CEO that was that way I don’t care if the numbers don’t work we’re doing it.

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yeah.

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Guido van Drunen: which can make sense, I mean i’ve i’ve seen that worked out very, very well, where the only reason they bought the enemy was to put it out of business right.

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Guido van Drunen: yeah you know and and that that can make sense to some extent, but you know you’ve got to be careful because you know it is the CEO getting.

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Guido van Drunen: measured on how many deals get done, and you know, are we looking you know you know we have this clawback provision now for publicly traded entities.

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Guido van Drunen: it’s very rarely, if it’s been very rarely used right, but when you think about it, should an acquisition be measured.

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Guido van Drunen: On success in year one year, two or year three or year five year 10 right, I mean what is the what is this the the right measure there because.

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Guido van Drunen: You know just just because you’ve brought this entity in hasn’t been a creative and value or is it just basically a bolt on that has sucked up resources.

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Jason Mefford: Good stuff I know we need to kind of wrap up because I know people have to get back to their day to but maybe just kind of.

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Jason Mefford: You know kind of wrap up give everybody a little little some of the high points again because.

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Jason Mefford: You know first off if you’re if you’re not measuring anything, maybe you should ask yourself, maybe we should right because we use the perform if there’s some metrics.

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Jason Mefford: But if you are using these metrics are they the right numbers, is it measuring what you think it’s measuring.

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Jason Mefford: Are the expectations are unrealistic to where you could end up getting some of these unintended consequences as well because again we’ve shared several different anecdotal things of real life examples to have where this ends up sometimes going awry.

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Jason Mefford: So, again today’s you know just be careful about what it is that you’re measuring.

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Jason Mefford: And really asked the question right because again some so so many people now we just put our head down we do what we’re told we don’t ever question anything or everything about anything so again it’s meant to be thought provoking.

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Jason Mefford: Just chances are you’re measuring something you probably don’t need to you might be measuring it and thinking that certain things are happening and they’re not so any final final comments or you.

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Guido van Drunen: know I you know Jason thanks again I really appreciate it um you know I will post my article on linkedin and do course.

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Guido van Drunen: There will be more to follow.

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Guido van Drunen: You know I just think we just need to be very, very careful when we should be measuring things but we just need to be very cognizant of what we’re measuring and what the outcomes will be and hopefully this will help people just you know ask you know why am I doing this.

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Jason Mefford: Well it’s one of the important questions right one of your favorite friends.

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Guido van Drunen: Why yep.

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Guido van Drunen: So thanks again.

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Jason Mefford: Oh you’re welcome man we’ll have to have you back to, because we always have free time so.

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Guido van Drunen: Alright sounds good.

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Thanks.

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