Metrics for a Better Business
Take Your Business to the Next Level
If you want to take your business operations to the next level, metrics (AKA analytics and other names) should be leveraged to uncover opportunities and measure the results of your business.
Unfortunately, many people are using the word “metrics” but not following the process that it describes. What is a business metric? It is a quantifiable measure that is utilized to track and assess the status of a specific business process.
The key word is MEASURE.
Yes, metrics are critical for a business’ success, BUT it is vital that business leaders do the hard work and concentrate on identifying the things, unique to them, that will make their businesses more profitable and more sustainable.
Metrics/analytics have become a trendy term. Many sports teams have scrambled to follow the example of the Oakland Athletics, thinking that they can focus on the same areas to measure, like getting on base.
In real life, as depicted in the book and movie “Moneyball,” the Athletics had an outstanding analyst who carefully selected the area – and the statistics – that he believed would allow that specific “small market” team to build a winning baseball team using limited finances.
It’s Simple but NOT Easy
While many baseball teams just decided to copy what the Athletics did, they didn’t do the work to determine what their circumstances were and based their effort on reviewing those metrics.
The results for those teams were not good. The “one size fits all” application failed, and many sports teams have been hampered or suffered even lower success than before they started “doing analytics.”
They turned their teams upside down, got rid of “expensive” but experience and successful player and then had season after season of terrible performances.
The Water Treatment Plant that Didn’t Work
Another example of the right idea, the wrong application is the sad case of Tampa Florida’s expensive failure in setting up a desalination plant – one that converts saltwater to water that can be used for drinking or washing.
Saltwater contamination of drinking water is a growing problem in Florida, particularly in the area on the Gulf Coast. A committee of local government personnel did some research and discovered that there was a very successful desalination plant in the Mediterranean area. The plant ran well without few problems, and the cost of operation was very acceptable.
After an extended junket and multiple tours of the plant, they ordered one “just like this one.” The problem was that there is a vast difference between conditions in the Mediterranean Sea and the Gulf of Mexico. The plant was a disaster and could not be retrofitted to work.
The incoming mayor used the plant’s failure in his campaign and compared the episode to “thinking you can run gasoline in a diesel engine – it just explodes.”
First, Find the Right Things to Measure
Similarly, in any business area, there is a wide range of things that can be measured. Example: A critical measure for analyzing a business can be considered the Quick Ratio (also known as the acid test ratio) measures a company’s short-term liquidity
While it’s a serious metric, it’s not THE only element to consider– others, like sales data, operating productivity, cash flow, customer loyalty, and retention, have become essential. But many business leaders, although they do talk about metrics and focus on measurements, use intuition – “what I know in my gut”-- to determine what elements of their operation they will “use metrics on.”
Many companies misuse the idea of KPI’s – Key Performance Indicators – and focus on things that DON’T create value. The important aspect of KPI’s is to focus and collect on relevant business activities that will demonstrate efficiency in your operations and evaluate performance in meeting strategic and operational goals.
So, What to Measure?
RCS believes that you have to determine which statistics are useful by considering two fundamental questions:
- What is your objective?
In sports, it is to win games. In business, we believe that key objective is to increase shareholder value.
- What factors will help you achieve that objective?
You have to determine which specific activities are important.
We help clients develop quantifiable statistics to measure business activities and evaluate strategic and operational performance.
Our work is to ensure that clients have the right metrics, can easily navigate them and that they are accessible to all, even outside “partners.” The metrics should be transparent, quantifiable, easy to communicate, and easy to collect.
The key is to have the discipline to generate metrics that accurately reflect performance so that it can be managed.