“In God we trust; all others bring data” — W. Edwards Deming
Years of experience in the corporate world has proven Deming correct! Perhaps, we would change one word and say; “in God we trust; all others bring metrics”. In today’s world, there is a great deal of “data” but data on its own does not necessarily provide the intelligence a business needs. Intelligence is achieved when we connect data points to determine actionable metrics which measure cause and effect. For example, the knowledge a car has an eighteen gallon gas tank is important, but when that knowledge is connected with other data points, to determine that the car uses a gallon of gas for every 25 miles traveled, we get a different level of understanding on the performance of that car.
Why Metrics? Metrics are an objective, numeric, and unbiased depiction of performance that changes over a period of time. Metrics are NOT opinions; they reflect repeatable and reproducible data. They allow us to measure, analyze, improve, monitor and evaluate performance. Most importantly, they broadcast performance and through the transparency provided, challenge us to improve. In many ways, metrics are the GPS for the organization that tell us where we are, help us determine where we are going, how to get there and let us know when we have reached our destination.
The case is not being made here that metrics on their own are the solution. Over the course of the last two decades, major league baseball executives have increasingly become fans of Sabermetrics which collects and summarize data from in-game activity to measure and evaluate the performance of the players. Having said that, those metrics alone can not provide a complete evaluation of a player. The data does not measure the player’s heart, grit, leadership and other intangibles that will ultimately play a part in defining the performance of that player. Metrics are only a component, albeit a vital one, of the overall business intelligence to make informed decisions.
Before designing a metrics program, it’s important that there is a clear understanding of the firm’s strategic goals. Metrics should help align the organization’s processes to these goals and provide accountability for the different components of the strategy. As strategy changes so should the metrics. These metrics should be actionable and help the business make decisions and adjust as you move into different phases of strategy execution.
We recommend the creation of an integrated metrics model that follows the Business Architecture of the firm; one that measures performance across the business from end to end. The metrics should holistically measure the financial, client, operational and organizational performance of the firm. Additionally, effective metrics give an organization’s management the ability to “test” hypotheses such as whether an increase in advertising costs drive an overall decrease in client acquisition costs.
In our experience, in addition to the various processes in a business architecture, the metrics should address three key categories: client satisfaction, efficiency and risk. A brief explanation of each is as follows:
Client Satisfaction (Net Promoter Score) — how well a client perceives we are performing in delivering a high quality product and or service to them.
Efficiency — what are the units costs of our product(s) and how do we continuously improve the unit costs given the same volume.
Risk — how much inherent and residual risk do we have in our environment. And is the organization managing the “right risk”. It is not possible to have zero risk however, we can continuously reduce risk in the environment while holding efficiency and/or client satisfaction static or we can achieve the “trifecta” and improve all three categories!
We started with the wise words of Deming and we will conclude with the warning from Drucker:
“If you can’t measure it, you can’t improve it!”