May 17, 2011

We know that what gets measured, gets done and that if you can’t measure it, you can’t manage it. So why don’t entrepreneurs use metrics better? Two reasons:

1.  It takes work

Not that entrepreneurs are lazy, but measuring things takes us away from the work we love. Work that solves problems or produces results right now. And it doesn’t look like metrics pay off. We’ve all seen reports and charts that don’t change a thing about what people do. This feeds into reason No. 2.

2.  People game the system

In fact, entrepreneurs are pretty good at finding the loopholes and exploiting opportunities that no one else notices, so we figure any metrics we set up are not giving an accurate picture of what’s really going on. So why bother? Especially since it will take us away from the work we love to do.

Are you satisfied with your company today?

If you want your company to grow, you can’t do things the way you’ve always done them. That’s obvious. But to do the right things differently you have to know what works and what doesn’t. This means you need to measure so you can manage better.

Here’s how to measure better:

Don’t measure anything you don’t plan to act on

 Every measurement must serve a purpose. So design your metric with some action in mind. You need an acceptable range and some sort of action associated with each measurement that falls outside of that range. If you don’t have these, don’t waste time on the measurement.

Everything you measure must have a purpose associated with it

 The reports you run for your accountant at the end of the year serve one purpose: figuring out how much you owe in taxes. They are not designed to help you make better decisions. For those, you need managerial reports. Tax reports say what you spent money on (travel, for example) but managerial reports say why you spent the money. If you spent travel money to fix a problem, you’d probably like to spend less. But if it takes travel to close a sale, you’d probably like to spend more. See the difference?

Have competing metrics

 Since the map is not the territory, anything you measure will not be an exact replica of reality. Worse, there’s the danger that whatever you measure will increase but with unintended consequences. The prime example is the person running a customer service call center who figured out if employees spent less time on the phone the costs would go down. So he measured that and gave incentives for the most calls per hours (least minutes per call).

It’s pretty easy to end a call quickly if no one measures whether customers are actually being helped or just getting mad. So you better measure quality as well. Of course good quality can make your calls longer–so what you really want is two metrics. One to measure cost and one to measure quality. And then reward the proper balance. That way you spend enough to make customers happy but not too much.

To prevent gaming the system, the best measurements are some combination of competing metrics. Finding the right things to measure so that in combination they produce the results your company needs is more of an art than a science. The actual metrics will depend on your specific situation but here are some ideas:

• Quality vs. efficiency: This is the classic call center idea we just talked about.

• Sales vs. profit: It’s nice when sales go up but not when you have to give so many discounts to get the sale that you don’t make any money.

• Price vs. value: Being the cheapest (or buying the cheapest) is not always the best value, but you don’t want to overpay. So measure both.

There is no single “right thing to measure” for everyone. It depends on what changes you want to see. But if you spend time designing metrics properly and only measure things you’re going to act on, you’ll go a long way toward making better decisions.

OPEN Cardmember John Seiffer is the owner of Better CEO, a consultancy that helps companies with under 75 employees grow using better organizational structure.

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• Managing

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Join the conversation ( 2 )

• Nick Bettes 8 months ago

  

  What gets measured gets done - but measurement if linked to reward often has unexpected and unwanted consequences.Nick Betteshttp://www.nickbettes.co.uk

• community manager 1 year 0 months and 13 days ago

  

  Congratulations on your first post as a Cardmember contributor. It's a good reminder that although we can measure most anything, metrics are only valuable when you take a holistic approach and look at them in context with other variables.