Just a few weeks ago I sat in a CEO’s office helping him consider a measurement conundrum. His biggest challenge was simply time – he needed to know early if the change was working, and if not, where he could find the source of the problem. However, his divisional leaders, not unreasonably, just wanted to be left alone to run their own businesses. They suggested the use of lagging indicators, principally profit, to measure success. Yet if the CEO relied on only profitability then the changes could be off track and it might be months before he knew. So just how was he to solve this conundrum?
The answer lay in convincing the leadership team (which he did) that profit was a lagging indicator, and as such was not enough for the tight management of the needed changes. Indeed, there are really 4 levels of measurement that all leaders need to master if they are to understand whether a change of direction, or even a trimming of the sails, is actually working.
4 levels of measurements all leaders need to master:
- implementation measures
- behavioural indicators
- process metrics
- mission measures.
Let’s start with the assumption that you want to make an improvement in your business. It could be anything, but for the sake of argument, let’s assume you want to improve customer service and input quality on customer orders. You are planning to do this by building and implementing a web-based ordering capability. Nothing will happen until a digital solution is implemented and the option is communicated to customers. So your first set of leading measures have to do with the progress of the project to deploy the changes, for example milestone completion rates. This is the first layer of leading indicators.
Let’s say you have deployed the technology. Now, you need to measure whether your customers are using it. This is a measurement of behaviour, and it can be as simple as the ratio of orders placed online against other methods (such as fax, phone, or mail). If the ratio is low then you have a reason to investigate. You might find, for example, that the slow take-up is related to the nature of the solution or the means of communication. Regardless of the cause, the measure has given you an invaluable early warning.
Assuming your customers are using the system, you now need to know whether it is having a positive impact on your processes.
There are 3 types of behaviour measurements:
- effectiveness
- efficiency
- sustainability metrics.
Effectiveness is best measured by quality metrics (reduced error rate, or shorter time to delivery) and customer satisfaction metrics (net promoter scores).
Efficiency is best measured by ratios of cost to output such as cost per order.
Sustainability measures ensure you are improving the process rather than just pushing your current systems and people to breaking point. Staff-engagement or voluntary-turnover measures will give you these insights.
If all has gone well we can now turn to the mission measures. These are metrics which relate to the purpose of the organisation. So if you are a commercial enterprise you can expect a focus on profit growth and/or return on investment.
However, these are not the only metrics for mission. For example, you might have a purpose to help people into their homes via a mortgage, so you could measure the number of successfully settled home loans. Non-commercial enterprises such as charities or government agencies might measure other outcomes, such as safety regulators measuring the number of injuries at work.
Regardless of the nature of your mission, all leaders need to drive improvements in some way or other. If you are like most of the CEOs I deal with, you will have a timeframe you prefer, or one that circumstance has foisted upon you. If this is the case, you need to know as early as possible whether a change is on track. This means that most of today’s leaders need to be masters of measurement.
