Why do we measure performance?

Say you have launched a new business area and even planned ahead what you needed to get done across the business, who your new customers would be, where you were going to get revenues from, how you were going to acquire customers, how you would market yourself, how you would produce the goods needed. One day you wake up and something is not quite right. You still have not paid off the initial investment and it feels like this new business area is eating into your (slim) core business profitability. You thought you were investing for growth where it seems like you are getting yourself in a hole. But it is not a deep hole, and you can't quite figure out what is going on. You sit at your desk and ask, what is wrong, what did I miss. If you had no goals on paper, nothing to guide you, how do you know if you are executing to plan, how do you know if the plan is even working. Nothing tells you that your business idea is wrong, but potentially, you may just be going about it the wrong way. Are you appealing to the wrong customers? Was the product not exactly as intended? Why are people not staying?

You need metrics to constantly check your direction and ensure you are on track to whatever your goals are. According to Stacy Barr (Performance Measure Specialist), "measuring performance is the best way to achieve success” (or failure in my example above). So how do you implement a performance measurement system that makes sense for your business, has buy in and is not too cumbersome to put together? Oh, and that is based on real data? I started a training on performance measurement today, so thought I would share a few thoughts on building a performance measurement system.

Getting Buy In

Not everyone feels the same about metrics. Some people are afraid, some people don’t think they mean anything, and others (most often) think they already know and therefore why bother.

How do you get people to buy in to it then? Well, metrics need to be seen as giving you an opportunity to improve the business, not as mechanism to assess failure, blaming or shaming. Metrics need to allow you to understand root causes or at least identify early symptoms of potential deviation from target.

Another good way to get people's buy in is to measure things that will matter to people, or that people will relate to. It is especially important to appeal to those who make decisions, as metrics can really shape those decisions at critical times for the business. If people start seeing the value and the help that performance measurement can bring, they may even be the ones establishing them.

Finally, in a larger organization, performance measurement always has an added bonus - or literally a bonus. Performance metrics are key to document and support career paths for individuals who invested in a new business area and the effort paid off, or just individuals that are running their business extremely well and can attest  to it with a set of independent metrics.

As in everything, you will need to find what motivates the people that work with you in order to get the buy in for metrics. Those motivators will lead them to use metrics with different goals, but the end result is likely to be the same - better business management.

Finding the right balance

To start with, think through what you need to know and why you are measuring performance. There are always different constituent and stake holders in a performance metrics system, and whilst avoiding duplication of work is important, the truth is different levels of metrics will matter for regulators, board members or business owners. So one size fits all will not work. What you can do is to have a set of balanced performance metrics, and then select your performance dashboards according to the audience, frequency and goals of each stakeholder. What do I mean by balance?

First, it is not all numbers. If you wanted to only look at financials you would grab your latest P&L and be done with it. You have to have a decent balance of non financial metrics, such as client related metrics, milestones of completion, employee performance. This may mean that some indicators will be quantitative and others qualitative or more subjective. But that is ok, as long as try and be consistent about how we collect them over time and foster honesty in the reporting behaviours.

The second part is - you can't trust yourself alone. You absolutely need to have good internal data that no-one else has, but you also need to know what the market is telling you. Internal data sources need to be complemented with external ones – most often known as league tables or rankings, client feedback, customer surveys, market analysis.

The trickiest part (I find) is the balance between yesterday and tomorrow. I think these metrics are often overlooked as they do not always bear a direct immediate connection to the business. What do I mean by that? You need present/ past metrics, indicating how the company did in the past but, just as important, you need to find metrics that will tell you in advance if you are going in the wrong direction. How? Well think about what could show you that business if de-accelerating. If you have a lead client business, can be about how many clients you have in the pipeline, if you have a product business can be the number of inquiries or orders or even the number of new clients you can have each month vs. the ones you lose. How much repeat business do you have, how much churn. What are customers telling you, are you getting good ratings? These are metrics that will allow you to act before it actually hits you where it hurts – the bottom line.

Just do it. Get a Dashboard. With lights on it

Why do you care then? Performance measurement is the least emotional way to judge your business. Whether you are the CEO or a business head, performance measure is how you figure out if you are going in the right direction, and if yes, how fast (or slow). It is the way you can measure your employees and yourself. It is how you can make adjustments to initiatives that you are making but not really leading to any tangible results. It is how you understand the impact of previous initiatives or new launches. If you don’t do any sort of performance attribution and measure towards it, it is hard to know what works so you can do more of it.

So how to go about it? Imagine you have a dashboard that you can look at a regular basis and is super simple. Depending on the business you may want to look at daily metrics, weekly metrics, monthly metrics, quarterly metrics or even a combination of it all. Recently, I implemented bi-weekly metrics across all businesses, focusing on the ones that are less static but also not over-doing on what needs to get updated as some things really don’t change over the course of 2 weeks. In addition, we have quarterly KPIs we also look at and provide a more holistic view of the behaviour of the business vs. the long term goals and strategy. What is my one thing to have there at all times? A traffic light system. Numbers can be daunting (and many) when you start looking through metrics. So establish goals for each KPI and ensure there is a clear % vs. target analysis and a RAG status to that. Red. Amber. Green. No, not everything needs to be green. In fact it is scary if that is the case. But everything needs to have a goal. Or else a metric will mean nothing. Goal setting will have to be for another "episode"

Anyone close to me can attest how I feel about metrics. I am borderline obsessed about them. In fact, my previous post was all about data and that is but a part of the metrics story. But why do I care about metrics so much? The same way as I care about data, I find metrics tell you a story. In a way, metrics help you check your story and find out whether you are missing something.