I spent nine years running a US subsidiary of a Germany company. Their obsession (at least the group I worked for) with metrics gave me an appreciation for the power of measured indicators to elevate the performance of individuals and organizations.
The terms “metrics” and “performance indicators” are used synonymously. Most companies use some level of financial metrics for performance reporting to stakeholders. The focus of this article is on using metrics for performance improvement.
Hundreds of business and self-help books discuss the value of written goals. What is often missing or understated is the critical process of quantitatively tracking the progress towards achievement of the stated goals. Without the appropriate metrics, there is no accountability and little chance of goal achievement.
Accountability Creates Action
Metrics create an environment of accountability throughout the organization. An organization that closely tracks performance indicators or metrics creates a culture where goal achievement is the norm and where there is no room for mediocrity.
These performance indicators also provide a way to convey corporate goals to the organization in a tangible form and get buy-in at all levels. It also sets an example that the company management is holding itself accountable for success.
What Should You Measure?
How do you know what performance indicators you should be tracking in your business?
- Start with your strategic plan and the goals you have set for the organization. List the general topics that relate to the goals, i.e., customer service, asset utilization, financial performance, market share, employee retention, etc.
- List critical success factors for each topic that, if achieved, will directly contribute to attaining each goal.
- Define a specific metric for each critical success factor that will track progress towards its achievement.
Using the steps above, you can chunk down the attainment of goals into components that you can delegate in the form of individual objectives. Next, you can use the associated metrics to create accountability for groups or individuals and thus align effort within the organization.
Making the Unmeasurable Measurable and Actionable
What if your goals for your company are hard to measure, like “providing the best customer service?” How do you implement this? How do you measure the success of your efforts? How do you keep this crucial goal at the forefront of everyone’s focus?
That’s precisely what Granite Rock wanted to do, and how they went about enacting on and measuring this goal was bold.
Jim Collins, from the Harvard Business Review, shares how Granite Rock put in place what he deems a Catalytic Mechanism to reach their goal to “provide total customer satisfaction and achieve a reputation for service that met or exceeded that of Nordstrom.” They named this mechanism “short pay.” Short Pay allowed their customers to cross out items on their invoice if they weren’t satisfied and deduct those items from the total invoice. This technique provided Granite Rock with immediate feedback that managers couldn’t ignore. It also positioned Granite Rock with its customers as being a provider that sincerely cared about their customer service.
The result? Once Granite Rock enacted Short Pay, the company regularly grew in market share even though their direct competitors were far more substantial companies, and they were able to charge a 6% price premium.
Metrics are essential for reporting performance to stakeholders and for making fact-based decisions. The real power of these measured indicators comes from creating accountability that drives performance improvement. Consider adopting the “metrics obsession” like my friends in Germany. It will do wonders for your business.
“We promise according to our hopes and perform according to our fears.”
— Francois de La Rochefoucauld