In a previous post, I talked about tire kickers and tire checkers in relation to the 4 key parts of a business. This post examines Tire # 4 : how USEFUL are the metrics you collect for making decisions, monitoring progress, providing early warning signals and measuring success?
Where Are You On The Information Scale?
Metrics are the data you collect and analytics are what you do with that data to extract insight. Insight about a situation allows you to make decisions with greater certainty. In my experience, companies collect a lot of data but do little with it.
The information scale in the diagram shows how different levels of data use can give you different levels of insight into your business. The arrow represents a 1-5 scale that runs from the baseline at left to predictive analysis at right.
Baseline information could be the result of doing a situation analysis. This tells you where you are now and helps in goal setting.
Descriptive information is used for progress tracking, also known as score keeping. It’s often presented on a dashboard as a static form of reporting.
Diagnostic information is where you drill down to find out what’s happening below the surface by looking at comparisons. This could be segmentation analysis for comparison of different employee or customer groups.
Linked information looks for connections between different metrics to identify what influences what. Linked metrics tell a fuller story as you move from data points to data patterns. Understanding the connections helps to identify which levers to pull to move the needle.
Predictive information is how Amazon and Netflix use their choice data to predict future behaviors. This is useful in other applications when there are large data sets that allow for learnings and feedback loops to refine the insights.
Interestingly, many companies stall at Score Keeping – the #2 point on the information scale. This means they are not tapping into the information they could be using to make better decisions.
Why is this important?
As markets become more crowded and challenging, there is an increasing need to be able to out-think the competition. This is fuelled by information that provides relevant insight.
Did you know that high performing companies are 4.6 times more likely than under-performers to say they have moved beyond using data to keep score and onto using data to drive business decisions? They are not just reporting data by looking backwards, they are using their data to look forward and manage forward. (This statistic is contained in the 2015 State of Analytics study by Salesforce Research, where 2000 business leaders from Canada, USA, UK, Australia, France, Germany, Brazil and Japan participated in the study.)
Not surprisingly another finding from this study is that high performers are 8.2 times more likely to say analytics are absolutely critical to driving the company’s overall business strategy and improving operational outcomes. That was in 2015. Those numbers are likely higher now as more companies recognize the power of the data they collect. Better information means more confidence in the decisions made to compete in a crowded marketplace.
The goal is to move beyond drowning in data, to data-driven decisions for greater traction in your market – to out-think the competition with a well-designed and integrated set of metrics.
Which companies is this important for?
In a word – ALL companies. No company is too small or too big to care about out-thinking their competition. This includes those starting up, scaling up, checking up or tuning up.
Start-up companies have the unique opportunity to build an effective metric system from the ground up – to get it right from the ‘get-go’.
Scale-up companies who want to grow their operations need to be able to manage effectively at a higher level of operations. What additional information do they need to track progress and problems as the scale of operations increases? This could mean digging deeper on existing data or collecting new data to reflect scale changes.
Check-ups are companies where things are going well and they want to ensure their assumptions are still relevant to sustain their success. A comment from GE captures this concern, “when the rate of external change exceeds the rate of internal change, the end is near”. In the external environment, the rate of external technological change has been significant. The uncertainty of the new US political administration will bring new external changes to manage.
Tune-ups are companies where past success is slipping. They are looking for ways to regain traction with more insight from their current data or new data to provide the information needed to make decisions on remedial action.
How Can You Build an Integrated Metric System For Your Company?
Defining Your Metrics
The learning track shows that the process starts with your objectives. Measure what matters- the critical success factors, the targets for these and the key indicators of performance. This groundwork includes both internally captured data on employees, customers and processes, as well as external input from customers and clients for validation. Putting a customer lens on the metrics is critical, as this is what gives your metrics the competitive edge.
An audit of current metrics, compared to the objective-driven and customer –weighted metrics you have defined, will identify whether you are currently collecting the right metrics.
Learning Through Analytics
This is the process of collecting, compiling and analyzing data to raise the bar on learning and insights. This can start simply and progress as the company and culture become convinced of the power of using information for decision-making. The goal is to embed metrics into workflows so that employees and management are focused on the same outcomes. Learning assistance includes metrics training for employees to enhance their ability to understand and use metrics. Tapping employee insights can be a valuable input to developing a set of interventions when the data calls attention to the need for action.
Managing With Data-driven Decisions
A dashboard is developed to track the integrated set of metrics. This can range from a static dashboard of selected metrics to a dynamic dashboard that changes anywhere from quarterly, monthly, weekly , daily to real time. Again, the dashboard can be enhanced as needed. The purpose is to be a springboard for action. To provide early warning signals, to identify which pre-determined interventions or pivots are needed for which set of customers or for individual customers. This tracks problems as well as progress, and ultimately provides proof of success or failure in reaching goals with a specific strategy. The strategy can then be deconstructed to guide future strategy development.
What are the deliverables of an integrated metrics system?
- creates a shared language and focus within the organization
- releases information trapped in silos
- increases collaboration across the organization to overcome fragmented efforts
- uses the fewest, best metrics for managing critical success factors
- creates a clear line-of-sight between what your personnel do in their jobs and the outcomes your company wants to achieve
- generates clarity on actions required and accountability
- drives reliability and consistency when metrics are linked back to specific operational functions
- enables the identification of priorities for investment of time and resources
- creates both a progress tracking system and an early warning system
- signals what intervention is needed for which customers
- help to prevent problems by identifying opportunities for:
- proactive client/customer education (to eliminate client-side errors or omissions)
- improved operations and training (to eliminate employee/company-side errors or omissions)
- marketing to build awareness (to manage client expectations)
Is your data helping your organization build traction in your market place? Does it tell you where you are gripping and slipping?