It is Difficult to Drive Forward with Only a Rearview Mirror
Last week Bob Zapfel, founder of Zapfel Group posted an article titled “Survive and Thrive”, that provided a macro assessment of how Fortune 500 companies have performed historically and this past year. It was a great piece that illustrated how companies with strong financial statements struggle even in a strong economy. What is interesting is how Wall Street and corporations rely heavily on financial metrics to determine success. We need to look at these metrics as they are the outcomes of the company’s strategic initiatives. However, they can be misleading, especially when a company is in a state of decline. Warren Buffet sums this paradigm up nicely: “In the business world, the rearview mirror is always clearer than the windshield.”
Focusing on What Matters
“Measurement is the first thing that leads to control and eventually improvement. If you can’t measure something, you can’t understand it. If you can’t understand it, you can’t control it. If you can’t control it, you can’t improve it.”
H. James Harrington
Many companies have been experiencing declines in revenue, profits, order volume, foot traffic, etc. The rates of decline have likely been more dramatic these past few months. Some of these declines will soften as the economy opens back up, but won’t necessarily reflect growth in the near term, and some may never come back. Customer behavior metrics like frequency, average order size and retention help us understand how customers are interacting with our brand. There are also digital metrics, such as app downloads, site visits and site conversion rates which are increasingly evident as people have migrated to online channels. Consumer research and feedback measures like awareness, customer satisfaction, loyalty and NPS (Net Promoter Score) are often viewed in silos but are critical to monitor while you are working on stabilization, as they can be early indicators of trouble or turn around. As you can see, there are so many measures that it can become overwhelming, time consuming and disruptive if you don’t know what to look at to understand how different initiatives are performing and ultimately contributing to financial results.
Visual credited to: www.vizioninteractive.com
Measurement frameworks are helpful to organize and define which measures should be used to accurately assess company performance. They do not need to be complicated, in fact they will be more manageable and have wider adoption with a reasonable number of metrics. There are many different types of frameworks depending on the type and needs of the business. A balanced scorecard is a type of measurement framework that includes non-financial forward-looking measures (customers, operations, and people) designed to monitor and manage a company’s overall performance.
A balanced scorecard is a great tool, but it is only as useful as the metrics included in its reporting. Discerning measures that are important from those that are white noise is where Analytics comes in. Predictive models need to be built to ascertain which metrics are drivers of performance outcomes. These models will determine statistical significance as well as prioritization and weight of each measure’s impact on the outcomes. This is an important step as it takes the subjectivity out of the selection process which helps the organization agree on which measures to include in their balanced scorecard. These models have an added benefit as they may be calculated (scored) to predict future outcomes and will help with scenario planning as business priorities shift.
Different departments may choose to develop their own measurement frameworks to help manage and keep track of their individual objectives, goals, and outcomes. Below is an example of one that I have used to help organizations get started.
The key is to design a framework that is representative of your department initiatives and make sure it ladders up to your company’s strategic framework (if one exists) which will ensure acceptance and adoption. It is also critical to have established objectives and goals before determining which metrics or KPIs are used to measure outcomes. This may seem like a no-brainer but is often times forgotten in the process.
What does success look like? How should it be defined? Does success look different today than it did before the pandemic? Defining success is an important part of the measurement framework. Peter Druker has many wonderful quotes and one I have often used is: “You can’t manage what you can’t measure.” In order to move forward, you need to first define success and then measure and track it.
I’ve worked at companies that are determined to have growth goals even though they have been declining for years. It is human nature to want to go from a decline back to growing overnight, but that is not always realistic. In some cases, slowing the rate of decline and getting to flat may be a good near-term goal. Realistic goals need to be set, or you risk frustration and unnecessary defeat.
Visual credited to: https://www.pinterest.com.au/kristinahollis/smart-goals/
Zapfel Group has a methodology and a skillset to ensure that potential clients measure those inputs and outputs that will actually make an impact on their Survive and Thrive efforts. Once again, leveraging Analytics to take subjectivity out of the equation so that an organization can focus on moving forward with less friction and fewer distractions.