How Establishing Specific Metrics Strengthens Your Business
Every business has metrics. We track our financial investments to see how they grow. Runners continually push themselves to shave seconds of the time it takes them to run a mile. And some people monitor their vehicle’s gas mileage to help determine when they need an oil change. The point is that we establish metrics to track performance over time.
In the same manner, virtually all businesses and organizations establish metrics to help monitor the health of the enterprise and to follow progress towards a given goal. These metrics are typically tracked in formats such as dashboards or scorecards, which can clearly show trends and quickly identify areas where we are falling short. As managers and executives, we use these charts and graphs to identify weaknesses in our business. Further, we want predictability and consistency within our organizations.
Metrics are tremendously useful in understanding the state of the business. For example, we want our return on investment (ROI) to improve, maximizing the value of how we spend our money. We want our bottom line to grow, as well as our discrete profit values. And we want our employee satisfaction scores to show we have a happy organization.
These are common examples of data which can show us how effective our management of the firm actually is. And every year, the measures stay the same but the targets values are marginally increased to encourage continuous improvement of the business.
Metrics for Metrics Sake
Things like ROI are what we may call Tier 1 metrics – metrics that are critical to the business success. However, there are many metrics out there, many of which are likely unique to a given business. These could be called Tier 2 metrics – metrics that help mangers understand what’s happening within their business, but are not linked to the survival of the company. Examples of Tier 2 metrics might include things like number of first time customers we obtain in a given month, new patents we apply for, or the amount of solid waste we generate.
Unfortunately, some managers and businesses get the Tiers confused and lose sight of the real value of metrics. Instead of using metrics to understand performance in trouble areas, metrics are stashed and pressure is applied to ensure everything is in good standing. We want to execute masterfully to a plan. In other words, the metrics simply paint a rosy picture. The problem is, if the metrics show all is well year after year, why spend all that energy tracking and reporting them?
The truth is metrics should drive behavior. With ROI, we want to ensure we are seeing a benefit to justify the investment. Therefore, we use the ROI to encourage the behavior of making sound financial decisions.
Metrics should push people and businesses to grow and expand – to be more successful. As a colleague of mine once said “your metrics should help you drive improvement.” To do this, they need to be established to focus on problem areas or areas where the business has concern. They should not be created to center around areas of strength or consistency.
A simple example of this was at a firm I worked with a long time ago. The company was concerned that 50% of their engineering and technology staff was within 10 years of retirement, creating significant risk to the firm. The company set goals to hire fresh university graduates over the next several years to ensure continuity and succession planning.
By creating goals and metrics around problem areas, we can systematically strengthen our businesses. Such metrics will indicate how well we are improving in areas of interest, which in turn, will help us create a more effective organization. As the management adage goes, ‘if you can’t measure it, you can’t manage it.’
What behavior are you looking to drive?