You are what you measure?
This is the first in a series called My Favorite Metrics. In companies today, metrics have become misunderstood. Scads of business books, motivational speakers, and blog writers tell companies of all sizes, “You are what you measure”. In most part I agree with this idea, but I’m concerned about two things; How is the company deciding what to measure? and What is the company doing with the measurement?
The business writers urge you to select your Key Performance Indicators (KPIs). They often then go on and suggest several popular ones. The busy executive or manager who skims these books and articles endeavoring to keep up with the latest business trends may zip back to their offices and ask their accounting and finance team to give them Revenue per Employee, Return on Capital Employed, Earnings per Share, Inventory Turnover, Days Sales Outstanding, etc. for the past 5 years (The books and articles usually tell you to trend at least 5 years of data). The team scurries around, publishes pretty graphs and the management team loves them. Six months later, the team is still producing daily, weekly, monthly, quarterly metric graphs with very little idea how or if that data is being used. Do the managers getting these daily, weekly, monthly, quarterly graphs know what to look for, what to do with the data, and how to use the data for performance improvement? I’m sorry to say, but in most cases, probably not.
Now the scary part. Business gurus tell us to use these metrics to drive corporate performance. HR consultants tell us to use performance metrics to reward your employees. If the metrics are not selected thoughtfully, and managers are not sure how to use the data, a company could be using the metrics to drive off of a cliff and/or to drive employees out the door.
Performance metrics are powerful, both for good and for bad. Here are some To Do’s to keep your metrics away from the dark side!
Do
- Select metrics that match your operations, not necessarily the most popular ones in the press
- Focus on the trend of the metric, not the individual number it produces
- Be very slow to use a metric for compensation, remember the rule of unintended consequences.
- Fully analyze the metric over multiple periods and be able to state specific reasons why it went up, down or stayed the same before you change a policy or begin a strategy based on the metric trend.
- Benchmark only against other companies in your same industry. Many metrics vary greatly by industry. Comparing your performance to the wrong company can make you overly confident or overly pessimistic.
- When benchmarking, be sure to consider where your company is in your business life cycle. Metrics can vary greatly from Start-up through Growth, to Maturity.
- Try to find some multipurpose metrics that can help measure your financial performance, operational performance, quality performance, and employee performance. Your dashboards will be more manageable that way.
- Try them out! Your accounting and finance team has plenty of numbers geeks. Let them do their thing and calculate all the metrics that might be useful. Review them for a few cycles while you take the time to analyze and tweak the list. Then, make your choice and TURN OFF THE SPIGOT for a while. Metric overkill has been the death knell of many performance improvement initiatives.
Future Blog Posts will focus on a few of my favorite business metrics and how to make them work for your company.
Related articles
- The Myth of Performance Metrics – HBR (bjconquest.com)
- Performance Metric Friday – Ideal Pipeline Volume (customerthink.com)
THE PRACTICAL MANAGER 
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