During his recent interview with Lex Fridman, Jeff Bezos discussed the importance of critically examining metrics and not blindly relying on them as accurate reflections of reality. Businesses rely on metrics as proxies for things like customer happiness, efficiency, etc. However, these metrics can become outdated or inaccurate over time. Here’s an excerpt from the interview:
Bezos: Well, I’ll talk about… Because I think it’s the one that is maybe in some ways the hardest to understand, is the skeptical view of proxies.
One of the things that happens in business, probably anything where you have an ongoing program and something is underway for a number of years, is you develop certain things that you’re managing to.
The typical case would be a metric, and that metric isn’t the real underlying thing. And so maybe the metric is efficiency metric around customer contacts per unit sold or something like. If you sell a million units, how many customer contacts do you get or how many returns do you get? And so on and so on.
And so what happens is a little bit of a kind of inertia sets in where somebody a long time ago invented that metric and they invented that metric, they decided, “We need to watch for customer returns per unit sold as an important metric.”
But they had a reason why they chose that metric, the person who invented that metric and decided it was worth watching. And then fast-forward five years, that metric is the proxy.
Fridman: The proxy for truth, I guess.
Bezos: The proxy for truth. Let’s say in this case it’s a proxy for customer happiness, but that metric is not actually customer happiness. It’s a proxy for customer happiness.
The person who invented the metric understood that connection.
Five years later, a kind of inertia can set in and you forget the truth behind why you were watching that metric in the first place. And the world shifts a little and now that proxy isn’t as valuable as it used to be or it’s missing something. And you have to be on alert for that.
You have to know, “Okay, I don’t really care about this metric. I care about customer happiness and this metric is worth putting energy into and following and improving and scrutinizing, only in so much as it actually affects customer happiness.”
And so you’ve got to constantly be on guard and it’s very, very common. This is a nuanced problem. It’s very common, especially in large companies, that they’re managing to metrics that they don’t really understand.
They don’t really know why they exist, and the world may have shifted out from under them a little and the metrics are no longer as relevant as they were when somebody 10 years earlier invented the metric.
Fridman: That is a nuance, but that’s a big problem. Right?
Bezos: It’s a huge problem.
Fridman: There’s something so compelling to have a nice metric to try to optimize.
Bezos: Yes. And by the way, you do need metrics.
Fridman: Yes, you do.
Bezos: You can’t ignore them. Want them, but you just have to be constantly on guard. This is a way to slip into day two thinking would be to manage your business to metrics that you don’t really understand and you’re not really sure why they were invented in the first place, and you’re not sure they’re still as relevant as they used to be.
You can watch the entire discussion here:
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