Measuring What Matters

We are nearing the end of 2004, and although it is early December, I am already beginning to see reviews of the past year’s events. Ever the contrarian, my request this month is that you begin to look at next year. One of the best New Year’s resolutions a business can make is to revisit the tenets of its vision and values. As I have written earlier in the year, vision and values must have teeth to have meaning. To do that, vision, values and strategy must be reflected in your company’s most basic measurements of success.

Anyone who has even the most rudimentary business experience has heard some form of the adage “What gets measured gets managed.” For many companies, what gets measured was never defined in a rigorous fashion. When I begin working with a new client company, one of the key things we look at is the key measurements in place at the highest levels. This is an important step to discovering those measurements that are not in place — ones that would have profitable leverage on the organization’s performance if they existed. So, here is an exercise that you can go through, whether you are the CEO or a front-line manager, to help you understand the impact of what you measure — and what you do not.

Imagine for the moment that you are going to spend next year on a desert island. You are still responsible for business results back home. Your island paradise has no phone, no e-mail and no other way to be in touch with your office. Once a month a ship arrives with supplies, and you get a five-minute phone call to an administrative person at your office. The task now before you is to define the measurements which that admin will gather in advance of your call and report to you, in quantifiable numbers. Remember, you are not talking to executives or managers, simply someone who can report the “vital signs” that you define before you leave.

List the numbers that you want reported to you. Like the vital signs your doctor’s office measures no matter what the purpose of your visit, these should be the key measures that tell you about the overall health of your business and will distill what instructions you need to have the administrator pass back. Remember, you only have five minutes. There is time for a report and simple instructions, not a conversation or discussion.

When you have the list made, prioritize the measurements in a forced rank. Take a look at the measures that you have defined as most critical. What do those key metrics tell you about your business and about your own leadership focus? Here are some questions to help you understand the implications of your choices:

  • What patterns do you see? Are your measures past focused (last month’s sales, customer defections, compliance violations) or are they future focused (open positions, value of pipeline, new alliances under discussion)? Are your measures balanced or do they favor one area of management such as finance or sales?
  • Do you measure primarily snapshots in time or do you look at changes in value from one period to the next? Net revenue is a static value. Change in net revenue from a previous period is dynamic and indicates changes in market conditions or efforts of staff.
  • How many of your desert island metrics do you measure today? What actions do you take when there is variance? Are your adjustments reactive or proactive?

Lastly, take out your company vision, values and strategy documents. Can you draw a clear connection between each item that you say is important and what you measure in your business?

If not, perhaps it is time to make some resolutions about what you will measure in 2005.

Originally published in Arkansas Business, Barry Goldberg On Leadership, December 13, 2004.