Performance Metrics: Get the Numbers Right
BY John Treace
Is that mountain of data actually teaching you anything? Here's how to make sure you've got the right yardstick.
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 us where we’ve been, and they help us set goals for where we want to go. They point a finger at what’s going right, and what’s not.
They help us make decisions about hiring, purchasing, and other uses of resources. But like any tool, metrics can be misused, and they often are.
What Not to Do
Take one company I worked with. They were nearly bankrupt, and I’d been brought in to help them 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 we asked how managers used this information, it was all blank stares and head-scratching. We realized that the metrics these managers had amounted to little more than piles 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.
Develop 'Power Metrics'
If you really want to put metrics to work for you, you need what I call "power metrics." Power metrics do the opposite of those heaps of useless information. Power metrics are those that help you predict the future with a high degree of accuracy.
How do you develop power metrics? You have to start by paying close attention to the numbers before you, rather than scanning reports and thinking you’ve soaked up all the information on the first pass.
Power metrics also grow directly out of your goals. You only have time to analyze a limited amount of metrics pertaining to your business, so make sure they’re the important ones that predict an outcome and not just a snapshot of the past.
For instance: At one company, forecasting sales was a weakness. We developed two metrics as predictors:
The ratio of an individual representative's sales to that rep's length of service
The ratio of a rep's sales to the number of new accounts
Using both of these metrics, the company was able to get more accurate forecasts by looking at its reps' length of service and the addition of new accounts.
Getting It Right
Another company I worked with 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 at this company turned metrics into power metrics. They knew they needed to be able to control hiring while growing sales predictably. So they used a double graph to plot two separate lines over the previous year: one line represented new hires 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 reps were having an effect; it was simply delayed.
Armed with this power metric, the company could determine how many reps to hire 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.
Of course, 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 you forecast your company or team’s performance, you’ll feel a sense of control—and have a lot less stress.