Framework for Metrics that Works

In my last blog post I discussed how driving change in an organization requires much more than just good faith, and how if we wish people to really start choosing differently from yesterday, those choices must be supported by incentives and followed-up upon by a solid set of metrics.

Unsplash / Jeff Sheldon

This time, I would like to share with you the best metrics framework that I have found so far. It is simple, yet powerful.

In the picture above, is a framework for goal setting, divided into four different categories. I have (slightly) modified this from one created by David A. Brock (2016). Now let’s dig a little deeper into each category. [1]

Business Metrics – Looking in the rearview mirror

Business management metrics are those that we are most familiar with. Those are typically metrics that tell us how our business is doing in numbers such as revenue, gross margin, top line growth, market share or customer satisfaction. These are classic rearview mirror – metrics known also as trailing metrics.

The problem is that if you look at your business only through these kind of metrics is that you are always couple of steps behind and your chances of taking corrective action might come way too late. We need other kinds of metrics to support and complement business management metrics to gain an understanding where our business is headed.

Strategic Metrics – Are we doing the right things?

These metrics are the key when you are trying to shift course or transform your business. Your company strategy (hopefully) sets the direction where you need to invest to grow, it defines your target markets or key accounts and identifies product portfolios to focus on. Strategic metrics then tells the story how well your new product line is selling and how much you can demonstrate growth in these strategic areas.

For example, these metrics answer questions such as “To what extent are we winning new business in portfolio X?” or “How well are we succeeding in keeping our most profitable customers?” Strategic metrics tend to belong to rearview mirror group of metrics and as such are not enough if we are really looking to succeed.

Operational Metrics – Predicting the Future

Now this is where the magic happens. For this you need some historic data to rely on so you are able to craft KPI’s that become leading metrics, giving you real time view on your team’s performance. Manufacturing companies have mastered operational metrics decades ago since it is fairly simple to predict how many units per day/hour you need to produce to meet the output targets set for the unit.

Thinking operational metrics in service business or on an expert level is quite a different story, however. To be able to create great leading metrics we need to gather some information of our business over time. It is all about being able to predict in a logic of if – then analysis. Great operational metrics or activity metrics don’t just follow what you do but they give you also the knowledge of what you should do to reach your targets.

Let’s take an example from sales: You probably know what is your email marketing or social media campaign conversion rate? It is exactly the same logic with whatever you are trying to reach; if I want to win five customers each month and I know by harnessing data from our website, social media and marketing campaigns that I need 50 prospects to do that and in mid-month you only have ten prospects, you have couple of options to choose from. You could, for example, respond to the situation by increasing your advertising spending or make changes in your social media campaign to attract new prospects.

In this example, the number of new customers is a business metric. By the end of the month we know for a fact how many deals we won. The number of prospects, being an operational metric, helps us predict how many new deals we will get and gives us a chance to respond early if we are keeping track. This is exactly the reason why we need operational metrics. It is as close as you can get to being able to predict the future.

And the other option? Well, you could also just accept the fact that this month you are going to get only two new customers, which means that next month you would need eight new customers to close the gap. And if you miss yet another month.. are you starting to see the pattern?

Developmental Metrics – Staying One Step Ahead

Developmental metrics are by definition, the most forward looking or in other words, leading, you can get. They measure if your people have the right skills, experience and capabilities, all the tools necessary to achieve their goals. They answer the questions such as “How well are we building our new competencies in X?” or “How well are we sharing our knowledge in area X?” etc. [2] If we don’t have the right skills and competence within the team, we might need to rebuild it by new recruits and complementary training.

And how does all this relate to digital transformation? From my viewpoint, digital transformation has a lot more to do with business transformation, than technology. To achieve business goals we need to determine strategic goals which we are hopefully able to measure by operational metrics. Developmental metrics keeps an eye out for the future, as we need to ensure we have enough competence on our strategic growth areas.

All business targets should be possible to break down into strategic, operational and developmental goals. To make sure that your transformation will pay dividends, breaking each target into visible goals, actions and measures which are easy to follow helps the transformation stay on course.

[1] David A. Brock: Sales Manager Survival Guide (2016)

[2] Bernard Marr: The Intelligent Company (2010)