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The business metrics that matter

What are the most critical things to measure for a business?

My first lesson about the importance of the right metrics was when I was graded in the 13Ds for cricket in high school. My long-term goal had been to play cricket for Australia, and based on the results I was achieving, the dream was a long way off. I had to turn things around, and fast. But how? What outcomes or milestones would help me get on the right track? How would I measure progress?

Knowing specifically what you want to achieve is critical as there is tremendous power in clarity. But it is one thing to know what you want, quite another to understand how you can get there and the ‘lead’ metrics to track over time. This is as true for individuals as it is for businesses.

So, let’s say you are clear on what you are trying to achieve as a business. How clear are you on the critical success measures that will drive achievement in the right areas? Some businesses get it right, but unfortunately many don’t. Either their strategy is unclear, or they just aren’t measuring enough of the things that matter.

From Net Promoter Score, Employee Engagement and Injury frequency rates, to DIFOT and Net Sales there are literally thousands of potential measures available to businesses. Some measures are easy to track, but may not elicit the right team behaviours to drive performance.

Others are more difficult to gauge but can provide critical insights.So which measures are the most important ones to track? Which ones promote the right conversations at the right time to improve performance in the short-term, while giving you the best chance of achieving your long-term ambitions?

As we examine the metrics that are critical for business success, there are some principles to keep in mind:

  1. Financial measures are important, but other measures of success cannot be overlooked.

    There is a good reason why Kaplan and Norton’s 1996 work on the Balanced Scorecard has stood the test of time. Quite simply, it works. We need to understand important financial metrics including revenue, costs, cashflow, and so on.

    Similarly, for our business to be ‘healthy’ we need to have a balanced view by measuring success in a range of areas including operations, sales, marketing, safety, teams and customer satisfaction.

  2. What gets measured gets managed (Peter Drucker)

    By monitoring progress across a small number of measures, leaders have the opportunity to better manage the business. Without that feedback loop, a leader is like a pilot without a GPS – moving forward, but perhaps not in the right direction. A simple scorecard that tracks a small number of meaningful measures, provides the focus leaders need.

    But importantly, this is only the start. A good scorecard doesn’t add much value unless leaders are having quality conversations around performance that lead to course corrective actions (as needed).

  3. Both lead and lag measures should be tracked

    Successful businesses track a combination of lead and lag measures. Lead measures tend to be great predictors of whether you will reach your desired outcomes. They tend to be captured at the level of individual processes, are harder to measure, but easy to influence. Lag indicators are so named because once you learn the result, the performance that drove it has already passed.

    They are a result of changes in a number of lead indicators, are easier to measure but tend to be more difficult to influence and improve. Jumping on the scales to check your weight is a useful lag measure if you goal is weight loss. However, it is tracking and improving the lead indicators that usually yields the greatest results over time. This may include tracking and increasing the number of steps completed each day, measuring the number of times you go to the gym or simply eating less.

In closing, was I able to achieve my Australian cricketing dreams? This article would be much more inspiring if the answer was yes, but unfortunately a badly broken wrist meant it was not meant to be. However, prior to my operation, through a bit of hard work and measuring the right things, I was able to progress through the grades into the premiership winning 1st XI at high school plus combined GPS and CAS rep honours – not bad, after being a serial underperformer in the 13Ds. I was lucky to have learned the importance of measuring the right things along the way and now have the privilege to help businesses do the same.

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