Are you looking at the right numbers?
Gather data to inform decision making, but be conscious that some of the numbers will be more influential in leading your company effectively.
Be wary of ‘vanity metrics’
With the increased availability of technology and automation, modern companies can amass an unwieldy library of numbers to assess progress. Knowing your key performance indicators (KPIs) is vital, if you are to make sense of this information. As part of my coaching, I discourage leaders from obsessing over ‘vanity metrics’ that may make for good reading, but do not facilitate more strategic thinking.
In many cases, I would categorise lag metrics within this group, that document output data such as turnover, number of customers, or profit. This information is still important, as it marks tangible results and whether targets have been met. However, I would warn against fixating on this lag data, because it can only inform once an activity has taken place, rather than providing the ability to affect the outcome in advance.
You may find that your financial department only communicates through lag metrics. Historically focused profit and loss statements and monthly balance sheets, have their place of course, but you require more urgent information to keep your leadership dynamic. The opportunities and challenges your company may face are unpredictable; therefore, it is worth staying ahead of the game, so you can adjust your strategy accordingly.
Choose the most informative data
Find the best balance for your business between lag and lead metrics. Lead data represents a more predictive approach, to identify how your goals are progressing, before the deadline, or the target is met. Examples of lead metrics might include, website visits, subscribers to a mailing list, or visitors through the door at your shop. By focusing on these pieces of data, you can build a more detailed picture to contextualise each situation, determining which factors are affecting the final results. Lead metrics can influence changes throughout a project, whereas lag data only reports what has already happened.
Businesses have tended to favour lag metrics, because they require less continuous attention and are more easily calculated. Alternately, lead metrics should be reviewed regularly, so strategy can be assessed and areas of financial exposure are identified quickly. To achieve this, integrate dashboards within your organisation, where they would be most effective. Having the relevant data accessible will mean that people across your company are heading in a unified direction, informed by the facts and figures. These internal dashboards should present only the necessary numbers (KPIs), and consequently, make decision making less subjective and erratic.
Measuring performance
In alignment with the recommended implementation of dashboards, I would advocate using performance data to measure individual and team productivity across your business. This could be ultimately utilised to introduce an element of performance-based pay. It seems odd to me that certain jobs, such as in sales, are rewarded with commission on their orders, but other employees might exceed their monthly target and receive no recognition. Once you have the dashboards set up, why not utilise them for a diversity of purposes?
You may well find that having the numbers readily available, will produce greater engagement from your employees. This might happen for two reasons: (one) they will feel personally motivated to beat their numbers of the previous period, (two) performance can be viewed more objectively by managers. Introducing a blended pay structure, to reflect attainment will demonstrate that your business recognises diligence, making it a more attractive prospect to your various stakeholders.
Keep an eye on the numbers
Consulting the numbers can sometimes feel like a chore that interrupts what seems like more urgent operational activities; however, it is vital that you, as leader, set aside specific time to analyse them. This doesn’t have to be arduous. Identify the key data, that most requires your attention. Instil this into your routine and you will have increased clarity on the direction your company is headed, so your results are better informed.
Just ask yourself: ‘Are these the right numbers?’
If you would like to discuss any of the topics covered in this article, please book a FREE, no-commitment discovery call with me.