We see it all the time in the news: whether it is the Dow Jones Industrial Average, the unemployment rate, new jobs created, year-over-year same store sales, or quarterly profits. We are expected to make judgments and react based on one number or another. While creating drama regarding one metric might make good headlines, it is not a good way to monitor and manage a business.
Metrics are an excellent way to manage businesses of any level of complexity, but there is a danger in over-simplifying the elements that drive the business down to one number. For example, focusing only on the annual sales figure could be likened to trying to arrive at a destination at a particular time by only monitoring your average speed. You may arrive on time, but in doing so you might have broken traffic laws, run out of gas, or damaged the vehicle’s engine.
Just like a car’s speed, the major metrics in a business are always supported by other metrics. The annual sales figure is supported by order volume, client growth, production efficiency, and many other elements. “Driving” a business based on one number can lead to unexpected, and often undesirable outcomes. For instance, focusing solely on a sales goal at the expense of service could cause you to lose a major existing client, which causes you to start the next year behind.
A healthier way to use these concentrated metrics are as “canaries” that help provide indicators that something about your operation is not right or optimal. If the annual sales goal is your “one number,” then you can work within your organization to identify the other metrics that have an impact on it. If you are a manufacturing operation, you may have RFP requests, RFP win rate, average order size, operational efficiency, on-time orders, and customer satisfaction as relevant underlying measurements.
With these additional metrics identified, you should build an understanding of the amount of impact each of them has on your “one number,” and the historical trends for each. Then, when the major metric is not in the expected range, you can start examining the numbers, beginning with the ones with the most direct impact, and work your way down until you have a reasonable confidence in the probable issue(s).
If digging into the numbers sounds daunting or something you don’t have the time for, give Triple Helix a call. We specialize in helping companies organize data more effectively, access it more easily, analyze it more thoroughly to help improve business decision-making. Read our case briefs and learn about our work or contact us for a risk-free consultation.