We all have heard it a hundred times over. It’s the mantra of every management consultant that goes back many years. If you want to improve your business, one needs to develop, measure and manage by the metrics. There are many pseudonyms for this concept, including key performance indicators (KPIs), critical success factors and key drivers, to name a few. You have your choice of how to view them as well — an executive dashboard, balance scorecard or maybe via a flash report or health check.
Managing a business using such metrics creates tremendous advantages. You are able to identify issues before they get too far out of control and make mid-course adjustments. You can obtain clearer insights into the direction your business is heading (good or bad) and the reasons behind it.
However, here’s the challenge. To truly run a business based on metrics, it is imperative that everyone trusts the numbers. The numbers must be accurate, timely and easy to generate, validate and understand. An organization must have tools that allow it to drill-down beneath the metric. This is one of the reasons that having the right business intelligence tool is now seen as instrumental to the success of any business. But poor data quality will always trump having a great analytical tool. Gartner Research argues that 80% of companies have data quality issues.
So how should you proceed? I suggest pondering the following:
1. Start with a reasonable number of metrics. Make sure they are truly key predictors of your ultimate measures of success – that is, volume, sales, profits, etc. Take time to master the collection as well as verification of the metric. If a metric is too hard to collect, unreliable or difficult to explain, move on to another.
2. Begin with simple dashboard reporting. Review and discussion of the dashboard should be a standing agenda item. And it shouldn’t be an “Executive Dashboard.” All employees involved need access and need to be heard on what is going right and what is underperforming. Metrics start the conversation, but people are needed to fill in the complete story.
3. If your process involves consolidating data from spreadsheets, STOP. Find a tool that allows everyone to input their information into one place and does much of the statistical calculation automatically. Yes, you need to configure the tool, but once complete, the tool will do all the heavy lifting.
4. Don’t just focus on your company’s revenues and expenses. Employee turnover is often a very key factor. So is consumer, retailer and distributor satisfaction. Also, consider showing how your KPIs match up with the category as a whole.
5. At year-end, review the effectiveness of your dashboard and metrics and make changes. The goal is to quickly assess how the business is going and determine if there is anything unexpected that you must focus on.
Ultimately, you need to choose metrics that not only point to success and failure, but point you in the right direction if a new course of action is needed. So remember this saying as it goes back to when the concept was first introduced: “If you can measure it, you can manage it.”