Metrics, the numbers and measurements that help you run your business are among the most crucial tools business leaders have at their disposal. They show you where you’ve been, and they help you set goals for where you want to go. They point a finger at what’s going right, and what’s not. They help you make decisions about hiring, purchasing, and other uses of resources. But like any tool, metrics can be misused, and they often are.
I know of a company which was nearly bankrupt, and a CEO had been brought in to help the owners to turn the ship around; the goal was to improve to the point where the company could go public. The leaders of this company had tons of metrics at their disposal. Managers could produce report after lengthy report pertaining to almost every aspect of the business. But when the CEO asked how managers used this information, it was all blank stares and head-scratching. He realized that the metrics these managers had amounted to little more than files of worthless data. While the sheer amount created the illusion of knowledge and control on the part of management, in reality the data was overwhelming in volume and unhelpful in its lack of focus.
I know of another company where they got the metrics right. This company had a goal to expand sales and market penetration in the upcoming year--and to achieve that goal, managers decided to increase the size of the sales force. They saw a resultant increase in sales, but the data was confusing: There wasn’t a predictable correlation between the number of new reps and total sales in a period.
Rather than getting frustrated with the unpredictability of sales, leaders in this company began to scrutinize the metrics in detail. They knew they needed to be able to control recruiting while growing sales predictably. So they used a double graph to plot two separate lines over the previous year: one line represented new recruits to the sales team, and the other represented sales.
By looking at the data in this way, they could see that the lines shared the same shape—but the second line was simply shifted forward six months. So those additional re-power was having a positive effect; it was simply delayed. Armed with this new metric, the company could determine how many reps to recruit if it wanted to meet its ambitious growth goals, and it could continually monitor the data to make sure the trend held as reps increased even further. Every decision about budgets, goals, and hiring could be checked against this useful data.
The two examples show us that metrics aren’t a crystal ball, but if you want to have the best predictive capabilities possible, pick out the metrics that are most critical to your goals, then spend a little time digging below the surface. When you’ve developed metrics that help forecast your company or team’s performance, you’ll feel a sense of control and have less stress.
PROCESS
Most likely your business, too, is currently using metrics to measure operational and process performance. The big question is - are they the right metrics? Do your process metrics support the strategic measures as well as operational ones? Are the metrics providing your company’s with the information and insight to make the right business decisions?
In today’s super-competitive marketplace, businesses are devoting more and more time and resources (financial and human) to measure their performance to achieve strategic goals. Performance Metrics when combined with an effective process improvement methodology, can help your company identify very quickly and accurately - what “pieces” of the business performance puzzle are improving and what aren’t.
Process is as i mportant in terms of metrics effectiveness as the data itself. Don’t discount the administration of business metrics collection & delivery. The development and collection of metrics is a process. In order for the information to be timely and useful to the organization, the systems, processes and people must work in unison to capture, monitor, analyze and communicate results.
PROCESS DEVELOPMENT
There are 3 steps leading to a successful i mplementation of developing any system of metrics.
(1) The first step is to involve the people who are responsible for the work to be measured because they are the most knowledgeable about the work. Once these people are identified and involved, it is necessary to:
1. Identify critical work processes and customer requirements.
2. Identify critical results desired and align them to customer requirements.
3. Develop measurements for the critical work processes or critical results.
4. Establish performance goals, standards, or benchmarks.
(2) The establishment of goals can best be specified when they are defined within three primary levels: (a) Objectives: Broad, general areas of review. These generally reflect the end goals based on the mission of a function: (b) Criteria: Specific areas of accomplishment that satisfy major divisions of responsibility within a function: (c) Measures: Metrics designed t o drive i mprovement and characterize progress made under each criteria. These are specific quantifiable goals based on individual expected work outputs.
(3) The SMART test is frequently used to provide a quick reference to determine the quality of a particular metric: Specific: clear and focused to avoid misinterpretation. Measurable: can be quantified and compared to other data. It should allow for meaningful statistical analysis. Avoid “yes/no” measures except in limited cases, such as startup or systems-in-place situations: Attainable: achievable, reasonable, and credible under conditions expected: Realistic: fits into the organization’s constraints and is cost-effective: Timely: doable within the time frame given.
WHAT METRICS ARE YOU USING?
Customer Metrics - measuring what products and/or services are important to the customerPerformance Metrics -a comprehensive view of the performance of a business. Focusing on both Business Metrics financial results AND human issues that drive performance.Process Metrics - measuring process performance to identify successful and/or problem processes.Activity / Responsibility Metrics - activity and individual performance measures of employees Vendor (supplier) metrics - measuring supplier quality and service performanceDashboard Metrics & Measures - key business indicators. Visual/ pictorial depiction of business activities to identify business exceptions and conditions.
Organizational Metrics Relationships - linking strategic, management, operational and individual metrics to help identify associations and business impact between organizations.Metrics Reporting and Analysis - processes developed to report, maintain and analyze business metrics
FOCUS
Organizational heads love metrics because it makes setting targets easier, and discourages people from questioning the goal behind the target. This leads leaders into a false sense of organizational efficiency. Strong incentives tied to strong metrics force people to concentrate on just one part of the work, neglecting other contributing factors that might make a goal more successful. Organizations must be wary of this actively destructive focus that leads people to neglect other important factors.
Deploying a comprehensive metric system within a business is time consuming and complex. It requires top-level support and commitment to act on the results. With many organizations now spending significant sums on metrics systems, businesses should think carefully about the metrics they use. With metrics focusing on the performance of the business there needs to be a counter balance which looks at the performance produced to the end user – who after all without which the business would not exist.
