Wells Fargo and the Misuse of Metrics

Have you been fined recently by your bank? Then you may have enjoyed a bit of Schadenfreude at the news that Wells Fargo was fined $185M by the government this week.

But Wells Fargo wasn't fined because they missed a credit card payment date. The fine, as well as a substantial drop in their stock (which cost them their crown as "America's Most Valuable Bank"), was a consequence of the revelation that thousands of Wells Fargo employees were creating bogus checking and credit card accounts in order to meet their strict quotas.

Apparently, the creation of fraudulent accounts has been going on for years. Over two million fake accounts were created and, as a result, over 5000 people were fired. Clearly this scandal reveals multiple cultural and management problems at Wells Fargo. There are probably many lessons to be learned from this crazy story, but certainly one of them is: The Misuse of Metrics.

"What gets measured gets managed" is a common truism held by management consultants, and in my experience it tends to be accurate. When you want teams to prioritize key business outcomes having protocols in place for real-time measurements, to give the team feedback on their progress toward measurable goals, is an excellent way to keep the entire team focused on the outcome. In the case of Wells Fargo, it also seems to have encouraged many people to achieve this goal by any means necessary – including cheating.

If you think about it, this further underscores the power of clear and measurable goals. Wells Fargo employees were so focused on the goal that they were willing to break multiple banking laws in order to achieve it. While it's obvious there was a colossal failure of compliance monitoring, the fact that people are cheating doesn’t necessarily prove that the goal itself was wrong, only that there was something wrong in the culture and the oversight.

But there’s a deeper lesson that’s also applicable to all of us in the digital space. Forget for a moment the cheating and illegality: all of these fake accounts were providing practically no business value to Wells Fargo. Apparently about $2M worth of fraudulent fees (now refunded) were collected over the last few years. But that's a rounding error for Wells Fargo.

The bank was apparently so focused on achieving this one metric of total number of accounts per household that they failed to notice that many of these new accounts were not actually producing revenue or transactions. Despite this, Wells Fargo continued to focus on that metric and drive their people harder and harder to raise it.

Could this metrics myopia be happening to you?

Here’s an example: website traffic is a valid metric, and one that you should be paying attention to. However, if you initiated a new program that ups your new traffic by 1000%, but none of that traffic makes a purchase, you haven’t necessarily gained anything.

And the reverse is true as well. If you want to increase conversions (i.e. the percentage of visitors who buy) on your online store, here's an easy way -- stop marketing to anyone who hasn't bought from you before. When previous customers visit your site they are far more likely to convert than someone who has never made a purchase. So just keep those pesky new customers off your site and the percentage of visitors who buy will shoot through the roof. Of course your traffic will fall and, more importantly, so will your revenue -- maybe by a lot -- but your conversion rates will be higher.

To combat misuse of metrics, take a smarter approach, and realize that you need to consider multiple metrics in order to understand the “bigger picture", and intelligently comprehend how those metrics are driving or not driving business value. Any one metric looked at in isolation tells you nothing. If your focus is too near-sighted, you might, like Wells Fargo, wind up paying the price.