The Importance of Measuring Value
A recent economic analysis highlighted in the New York Times traced the impact of kindergarten teachers' abilities on students' earnings and life outcomes nearly a quarter of a century later. This first-ever study of its kind concludes that a good kindergarten teacher creates upwards of $320,000 of value each year. (Yet the high end of compensation for such a teacher is in the $60,000 range.)
At the most fundamental level, the study provides quantitative evidence that great teachers produce great value (verifying what many of us already accepted as true). But equally important, the study points to the need to have good measures of value creation. There is a growing recognition that "short-termism" - the focus on the short run at the expense of long-run value creation-is a fundamental structural problem that if left unaddressed will hobble the U.S. economy for years to come (see a recent op-ed piece by Edmund Phelps, economist and Nobel laureate).
So, for example, our schools need better measures of the value that teachers create so that they can be appropriately compensated for that value (this is what the "pay for performance" movement is about). And in the private sector, we need measures that go beyond quarterly earnings. In the absence of better measures of value creation, Wall Street will continue its focus on next quarter's earnings, and executives will continue to be paid for their ability to hit quarterly earnings estimates.
Cutting this Gordian knot is perhaps most important on the "people side" of business (where there are typically great measures of people as costs, but much less capability for accurately valuing people as assets).
That is why at McBassi & Company we focus relentlessly on developing better measures and methodologies for linking people and business results. Unless and until organizations make progress on this front, there will be a chronic tendency to focus on the short run, at the expense of long-run value creation. |
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