- Metrics vs. targets. The primary goal of metrics or quantification is clarification. We are trying to learn and therefore want to quantify something. If we use a metric for anything other than information, it begins a life of its own. Goodhart’s law states that once a metric becomes a target, it ceases to be a very good informative metric. People love games and are good at gaming systems in their own interest. Hoping to manage a company by just a set of KPI’s, targets or its compensation system does not work unless you are trying to manage it into the ground. Think of the voter turnout records of North Korea and employee satisfaction surveys where a certain score is “hoped for” by a silent consensus.
- Objectives before metrics. Seneca said more than two thousand years ago that if one does not know to which port one is sailing, no wind is favorable. Pick a destination before measuring wind speed. ODIM is a useful acronym that stands for Objectives, Decisions, Information and Metrics. Before coming up with metrics one should begin with understanding what are the objectives to be reached, what decisions we are trying to make to reach those objectives and what information we require for it. After that its time to choose the right metrics for the situation.
- Leading vs. lagging indicators. Looking at revenue alone (a lagging metric) will not help you understand how to improve the performance of your sales team. For that you need to look at the activities (leading metrics) they are doing in order to reach that goal. E.g. number of meetings and calls made, proposals submitted, proposals accepted etc. Lagging indicators are often easy to measure, but understanding whether they are actually useful requires consideration. Don’t go for the easy metrics just because they are cheap and easy to find. If you want to lose weight, looking at the scale every morning is easy, but it will not help in reaching your goal. Learning about nutrition and exercise and measuring the right indicators will help you move the needle much faster.
- Balance. Imagine an airline pilot, who announces that during today’s flight he will only be concentrating on the speed indicator. An equally absurd situation can happen in companies that announce the omnipotence of a single metric. E.g. revenue, NPS or profitability. A corollary is looking at too many figures without understanding what really matters. For systemic improvement a balanced set of metrics is key. Coming up with what is vital for you today is art and science. Copy-pasting someone else’s will help you make limited progress. Best practice is always past practice.
- Value. The value of a metric lies in the value of the decision it is trying to inform. I have met companies that despite “measuring everything” are having limited success. My car’s dashboard doesn’t display the individual compression of each cylinder because the maker thinks the driver will not gain any value from it. When Toyota Prius was introduced, it featured a novel dashboard that displayed the current charging of its batteries and made it interesting for drivers to optimize their driving and to reduce overall fuel consumption. Sometimes it makes sense to invest time and effort in establishing even manual measurements or having someone compile a specially designed dashboard to inform key decisions.
- Discard when done. Once a metric has served its purpose, its time to discard it and to move on to something more useful. Some teams try to quantify the amount of time spent on internal bureaucracy or other non-value adding work. This can be done with flip charts, post-it notes, crayons, emails or with any other simple instruments you prefer. Once the issue has been quantified, escalated and remedied, it adds no value to keep monitoring it.
Posted on September 1, 2015 - Consulting