For much of my career, I’ve argued that people design key performance indicators (KPIs) incorrectly. One of my own favorite blogs made the case that, unless you compare yourself against some external benchmark, you might be making progress towards achieving your KPIs but actually losing ground. Simplistically, if you’re growing by 20% and the market is growing by 30%, you’re losing market share.
I was explaining my performance management approach to a class on digital disruption when a student pointed out that I was referring to the Red Queen Effect. For those who aren’t familiar with the concept, it comes from Lewis Carroll’s classic book “Through the Looking Glass.” At the Red Queen’s urging, the heroine Alice runs faster and faster but never seems to get anywhere. Here’s a short passage:
The most curious part of the thing was, that the trees and the other things round them never changed their places at all: however fast they went, they never seemed to pass anything.
[…] Alice looked round her in great surprise. ‘Why, I do believe we’ve been under this tree the whole time! Everything’s just as it was!’
‘Of course, it is,’ said the Queen, ‘what would you have it?’
‘Well, in our country,’ said Alice, still panting a little, ‘you’d generally get to somewhere else — if you ran very fast for a long time, as we’ve been doing.’
‘A slow sort of country!’ said the Queen. ‘Now, here, you see, it takes all the running you can do to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!’
It’s not enough to run faster or perform better than you have in the past – you must be faster/better than those around you. But it’s unlikely you can continually exceed everyone else. Strong over-performance is usually followed by average or even under-performance. This is reversion to the mean.
You can see the Red Queen effect with Darwin’s survival of the fittest. In evolutionary theory, those that leverage their ‘strengths’ by adapting to their surroundings are more likely to prosper. This puts them ahead of their competition and therefore more likely to ‘survive.’ In many cases, however, these advantages are often temporary.
Suppose there are frogs that eat a certain kind of fly, which they catch by flicking out their tongues. If the frogs evolve a particularly sticky tongue, they will be adept at catching flies. The frogs will do well, and the flies badly, in the evolutionary stakes.
But if the flies evolve a particularly slippery body surface, they will be able to escape from the sticky tongue more easily – and the original balance will be restored. […] Overall, nothing has changed. There are still the same number of frogs, each other eating the same number of flies.
I see many similar examples in business. Companies continually try to out-innovate each other or run continuous promotions to compete on price. One company might gain a temporary advantage but eventually others catch up.
Today’s Silicon Valley seems to be suffering from the Red Queen effect. Every venture capitalist seems to be funding variants of the same business plan. Every company seems to provide similar benefits like free lunches. Everyone is working crazy hours.
Is anyone really getting ahead?