Avoid these common mistakes using business metrics.
Driven by the need to make profit, the use of metrics within every organization appears to make sense.
How else are you going to ensure maximum productivity, return on investments, quality and performance is maintained?
The ambitious manager uses the increasing power of technology to measure as much as possible.
I understand the reasons for this, an addiction to Excel, meetings and PowerPoint through common business culture encourages a business by numbers “game”.
Even the C suite encourage it. A leading executive will want to make judgements, policy decisions and change the course of the business though hard metrics.
The realization that this trend is to continue makes it ever more important for a business and it’s managers to understand which metrics are best prioritized. Here I highlight for you some of the common mistakes I see with metrics and their management.
Our number one candidate for mistakes with metrics is the prevalent use of vanity metrics. These are the metrics, used and showered around the organization that sound and look great but mean little. One clear example within JAMSO is the number of followers we have on Twitter, we prefer instead to measure the amount of engagement with our followers.
- Example: A marketing department may show and declare 20,000 likes on their sales campaign for a given Facebook page, but unless this turns into actual sales enquiries then there is little point in declaring it a success.
Other examples of vanity or feel good metrics can be where a leader has a significant bias towards a principle. For instance with the “Say NO to drugs” campaign run in the USA which included billboards, TV and awareness sessions at educational institutions, the end result showed no data supporting in a significant reduction for drug use.
Most people will agree that the principle is positive and “a good thing to do”, however when compared to more direct action, the money spent on the campaign was less impactful.
Messy metrics within the culture.
A business seeking to maximize it’s profit and effectiveness should avoid an unorganized collection of metrics. These are a wide pool of metrics not linked to strategic goals or objectives.
The culture is often developed and observed through any of the following scenarios:
- The leadership has a broad or vague vision, mission for the company, i.e. “We will be the best at ……”
- Performance reviews are rushed events.
- The management structure is encouraged to operate tactically and not strategically, this is often reinforced through lack of autonomy for roles.
- Rewards are provided for “hitting the number”.
op Tip: Consider the use of gamification within metric design to help provide an overall strategy, story and improvement across the business.
Finding the absolute number
Setting targets and agreeing to targets can become the key to a persons career and status within a business. This often defines their measure of failure or success.
The high emphasis on attaining an absolute number can create a culture of corruption, deceit, jealousy, anxiety and stress if the metrics number has been created incorrectly.
To reinforce this dilemma, more staff are today encouraged to create their own performance numbers and targets. These numbers are gladly accepted by their leaders with little thought to the level of quality information, consequences and purpose of these metrics.
Managing a team based on metric performance can be limiting and counter productive to the overall business objective and goals. For instance a sales team may have their expenses budget radically reduced to support a cash-flow metric for a specific quarter but their ability to hit sales in the coming quarter will be impacted.
A solution for this situation is to measure the trajectory and speed of progress rather than an actual specific number. Being strategic and goal orientated should be a higher priority than an actual number for a specific metric.
Lagging indicators bias
A business or department that has a skewed bias recording of lagging metric indicators will always be in a reactionary position. These are the metrics that look backwards in time over performance levels as opposed to direct current/future behaviors that can affect such outcomes.
Using only benchmarked metrics
Industry benchmarks are a convenient and perceived as a lower cost method to create standards and expectations within a business. Your own organizations reality is often more complex than comparisons to a standard industry model. Read more here.
Top Tip: Never forget the lessons learned from Kodak. They led many industry benchmarks for film and imaging processing however their business model was rendered unsustainable due to the surge and popularity of digital image technology against their unwillingness to engage with it.
Not understanding basic statistics
When using a mathematical method to represent information, it requires at least basic levels of statistical skills to ensure it is represented and understood in the correct context.
An example is a manager showing the average number of widgets packed in the warehouse per day as opposed to the range and variance of widgets packed. This could then provide deeper insights to the required man power levels required, sales process feeding the orders to the warehouse and identify any peak/low demand trends.
Not asking questions but following the numbers
I have attended too many meetings where metrics are reported and the numbers remain the sole purpose and point of decision making. The use of traffic light systems (red – take urgent action, yellow – review and manage, green – all is well) or reporting by exception also have their weaknesses. These approaches to management through metrics address the numbers only, they do not question the trends and other contributing factors that could bring business objectives and strategic goals faster and better.
Further Reading: Critical thinking
Frequency/scale of measurement
Example: Within procurement/purchasing departments we notice many companies bundling their price negotiations at the end of the year, so they have “savings” implemented from the start of the following month and calendar year. This often highlights a weakness in the overall strategic thinking.
With negotiations spread across the full calendar year it strengthens the skill base of the negotiators, offers more time to negotiate the best deals and improves time management planning of tasks.
So, by selecting appropriate frequency and scales of measurement in metrics, alternative outcomes can be achieved.
Check List to avoid common metric mistakes:
We have highlighted some of the most common mistakes using metrics. Use this short check list to review your current metrics so see if your own business metrics fall into these error classification identified.
- How are your metrics linked directly to the goals, objectives, vision and mission of your business?
- How do you identify and track trends of performance and measures within your existing metrics?
- What is the frequency intervals of measurement and what benefits can be made from adjusting them or their scale of measurement?
- What impact will the metric have on the business this week, month, quarter, year, 36 month period?
How to move forward
The lessons from these common mistakes with metrics will help improve business performance. There are very few companies that do not fall into these mistake traps to some degree or another. The challenge for managers and leaders is to identify to what degree these mistakes are being made.
A business organization needs metrics to gain insight, understanding so decisions can be made aligned to strategic goals.
There is a time and place for many small minor metric measurements but their influence and impact on the business should be understood in full context.
The need for critical thinking to replace accepted numbers reporting is important to retain a competitive edge for any business.
There are many cases of incorrect metric measurement reasons. I see examples of metric choice due to correlation and not causation of critical elements. The use of critical thinking helps clarify the validity of such decisions.
The insights gained by companies through tracking trends and selecting appropriate scales and frequencies is a better and more effective use of the organizations talents and resources.
Once specific metrics have been managed and robust systems introduced to produce the correct results, a forward thinking business should reflect on the future value of continual measurement of this specific parameter. If the risk of impact is low enough, consider moving to another metric area to address improvement and help speed the business to the future it seeks.
Take action every day to improve your metrics. The results will not just improve by themselves (unless random chance occurs), so take control of your business and put your metrics to hard work and positive use.
How many of these mistakes do you see at your business?
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