Doing Business Metrics Right!
The right of business metrics has two dimensions …
- First, defining metrics right. They should measure what really matters to the success of the business, not what is convenient to measure.
- Secondly, implementing and using metrics right.
- Gathering and using invalid and / or inaccurate data will result in an unrealistic view of the business and subsequent poor decision making.
- Metrics that are not appropriate or understood by all stakeholders will simply be ignored and default to a paper exercise that presents what the presenter thinks the audience want to see. Again a false picture of reality is the result.
The right of business metrics refers to both business key performance indicators (KPIs) and the operational process input and output measures.
It has been known for many years, if not centuries, that what gets measured gets done. Many leaders know these principles yet continue to use them haphazardly.
The right of business metrics used by companies does seem to follow the latest fad. This year it is EVA the next is RVA etc. Naturally, this type of switching creates negative disruption by moving the goalposts, often to another playing field, whether appropriate or not.
It does seem evident that businesses with clearly defined long-term objectives are more consistent in their use of metrics. It is also these companies that seem to have a higher percentage lead indicator metrics than others. It is interesting to note that most average-performing companies’ metrics are retrospective in design.
There also appears to be a tendency amongst business managers to take comfort from the fact that they have metrics, irrespective of whether they are appropriate or not (always-been-measured-this-way syndrome).
Business leaders and managers need to take time to re-examine the metrics they are using. They must ask questions about the appropriateness given their current set of circumstances and business objectives.
Smart metrics will measure the right indicators but also be flexible enough to alert leaders that a change is required—even a change of metric. Metrics should be used consistently over a period of time long enough to ensure the intended objective was reached.
Many metrics measure a company’s overall performance and are contained in dashboards. The make-up of these should be business and shareholder value objective-driven.
Balance you business metrics
The right of business metrics needs to be balanced. Meaning:
- Firstly, a health balance between lead and lag indicators are required.
- Secondly, the metrics should be balanced across key resource utilization—human, financial, brand, processes, customer etc.
Metrics should permeate the organization and not reside only at the highest levels. In some cases, higher metrics would be composed of alternate metrics used at the operational levels within an organization. Bottom line is that all metrics from the bottom to the top must be aligned to achieve the company’s objectives.
A key factor often neglected in developing a metric system is the data used as input to generate the metric. Garbage in, garbage out is a favorite It term that applies to metrics.
It is of no value to having the right metrics tracking a company’s performance but the information used is not credible, valid, reliable, or repeatable. It is therefore essential that the methods used to calculate the metrics and the data used as input is clearly defined.
Lastly, even though the back-end of the metric may be complex, it should always be simple to interpret and to enter data into.
Through its programs, Profitable Processes assists with designing the right of the business metric system for your company, deploying it, and implementing processes to ensure valid data is used as input.