You Are What You Optimize For
I’ve listened to quite a few company earnings calls in my more than two decades of working on the annual Apparel Top 50 Report. After prepared comments from executives, analysts have the opportunity to ask questions. During one recent call, a company CEO fielded a stream of questions about the ladies’ spring line, which had not done particularly well. The analysts doggedly pursued the issue: Was it the category? Was it the allocation? Was it the assortment? Indicative of a larger trend? Just one bad buy? Was it related to a previous problem from years ago?
As I listened, I was reminded as I often am about the fast-paced, short-term focus of Wall Street, and how difficult it must be to maintain long-term vision and optimize for the entire company — including its employees and the impact of its supply chain — while striving to satisfy the demands and expectations of quarterly forecasting and reporting. It’s the nature of the beast, and all parties are doing the job as they believe it is to be done.
Much of our lives are like this, both business and personal, across intellectual, spiritual, economic, energetic, psychological and emotional realms. We are continually struggling to balance the seemingly more pressing needs of the near with the more distant or abstract needs of the further away, and the present often wins. Sometimes that’s okay. Sometimes it comes at great cost — to both future and present. I wonder what would change if the analysts ever asked, say, “Are your employees happy? What are their home lives like?”
Trade-offs are all around us, both big and small. Consider students who are driven to sacrifice a deep understanding of math or history, for example, to the short-term need to memorize formulas or dates, so that they can succeed on their frequent exams. Time-strapped, they must choose: study to pass the test, or study to truly learn the concepts. Seeing the big picture is more valuable in the long run — not only for the student, but for society at large — but it takes more time. And that quarterly exam is next week.
There are plenty of examples of how we make important decisions based on metrics, some far less easy to calculate than others. We might forego long-term health for chocolate cake or decide to acquire or start a business that takes company resources away from what has brought success thus far. But whether or not it’s easy to see the trade-offs we’re making, there’s usually judgment involved about what we value. Identifying core values is the first step to figuring out what to measure.
So, how do we decide what to focus on? I was thinking about this while listening to presidential hopeful Andrew Yang discuss his platform during an interview with podcaster Joe Rogan. Yang advocates for a universal basic income to help defray the impact of the unemployment crisis he expects will soon arrive in force as AI makes short shrift of jobs such as truck drivers and the retail establishments that serve them. Robot trucks will be great for GDP, he says, but they’re terrible for the humans they replace. He discusses what he calls “human-centered capitalism” and proposes alternative metrics to some that we currently use, such as GDP, for measuring the economy.
Yang proposes, for example, an updated form of GDP that incorporates the value of jobs such as ‘stay-at-home mom.’ Why? Because the country, like the companies within it, and the families and schools, will organize themselves to optimize the things that are being measured. When we’re deciding what to focus on, it’s not a bad idea to review what we’re measuring, and make sure it guides us where we want to be. We often discuss key performance indicators as if they’re written in stone. Times change, technology changes, people change. It’s good to reevaluate to make sure our metrics are aligned with our values.
In this year’s Top 50, Robert Wallstrom, CEO of Vera Bradley, cites a letter from BlackRock CEO Larry Fink that challenges all CEOs to have purpose at the center of their strategic plans, with a focus on all stakeholders, not just shareholders. That includes associates, customers and communities.
That’s an important step in the direction of being human-centered. If we want to live in a world that puts people before profits, we need to make sure we are measuring what matters to human lives.
At least until the robots take over. Then it’s all out of our hands, and we can just eat cake.