Metrics in Business – User Beware

“I used to believe that if it doesn’t get measured, it doesn’t get done. Now I say if it doesn’t get measured it doesn’t get approved… you need to manage by facts, not gut feel.”

General Jon Michael Loh, USAF

Measurement and metrics are more popular than ever. We have long had operational and financial metrics. But, now sales and marketing (especially with social media) and even human resources are jumping on the metrics bandwagon.

But, user beware!! The use and over-use of metrics can be detrimental to our businesses.

Five suggestions to improve our use of metrics:

  1. Whenever possible, we need to measure based on activities, not results.

The results, be it sales performance or financial results, are the product of the individual or team’s activities and behaviors (and luck). They are not the cause.

2. But, we must ensure that the activities measured are root causes of business success.

Many measures – the number of training programs attended, the number of blog postings read, the number of cold calls made, the number of LinkedIn contacts – may be correlated to business success. But, they are not the cause of success.

3. We need to think through all the possible unintended consequences of any measure.

As Zappos and other successful customer-focused companies have learned, measuring the number of calls that our customer service employees answer does not improve customer service. Instead, it incents customer service operators to be quick with the customer and only deal with the easy issues. Likewise, companies that focus on such metrics as marginal contribution or return on sales will often turn away lower margin, but still highly profitable, business. And the business may begin to shrink. As business strategist Michael Hammer has said:

Be careful what you measure, you may get it – and it may kill you. Complete focus on a metric is likely to improve the metric, but not necessarily the business.

4. We need to reduce the number of metrics used to what can be practically managed to and followed up on.

In short, we cannot and should not measure everything. A metric is useless if we and our management team do not have the time to continue to evaluate and follow up on the performance to the metric. As my entrepreneurial colleague, Martin Zwilling, says simply:

Measure only what truly matters.

5. We need to realize the limits of metrics

Think of leadership. How do we really measure leadership performance? Is it the success of the business? Is it the numerical results of a 360 degree evaluation? Supreme Court Justice Potter Stewart hit upon this topic of defining and measuring something vague and amorphous with his famous quote about pornography:

I cannot define pornography. But, I know it when I see it.

For leadership and many other areas of business, we cannot define and measure what true success is, but we know it when we see it. In these areas, metrics just don’t work. Instead, regular follow up, discussion, and formal and informal qualitative evaluations are needed to help improve performance. In short, many key aspects of business performance cannot be numerically measured and evaluated, they must be managed.

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About David Shedd

David has been a President - CEO - COO of an up to $350M group of manufacturing, distribution, specialty retail and services companies, having led 22 different businesses from turnarounds to start-ups to fast growth companies.
This entry was posted in Leadership, Perform / Execution and tagged , , , , . Bookmark the permalink.

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