How to choose measures that work

WEIGHING THE PIG

Once upon a time, a group of simple villagers were facing rising meat prices. They decided to buy a piglet, fatten it up and share out the meat between them. They went off to a farmer to buy a piglet. “Here’s a great little pig,” said the farmer. “You weigh him regularly and you’ll see how fast he grows.”

So the villagers took the pig home, and just as the farmer said, they weighed the pig daily. Unfortunately, the pig did not get heavier, it got lighter. Worried, the villagers started weighing the pig twice a day, then three times a day. Despite weighing the pig more, the poor pig was simply fading away. They decided to take the pig back to the farmer. The farmer was horrified at the state of the pig, which was by now skin and bone. “We weighed the pig like you said but it isn’t getting fatter,” the villagers told him. “How much have you been feeding it?” He asked them. They looked at each other blankly. “Err, we haven’t been paying much attention to that….”

This is the fable that is sometimes referred to in business as “weighing the pig”, and too often it has more than a ring of truth. Much time can be spent gathering, analysing and worrying about data without any tangible outcome. If you don’t spend time defining measures that are useful, you risk falling into this trap:

Someone says “We need to track performance”
So we pick what can be measured, not what needs to be measured
We measure obsessively
Pay scant attention to the results anyway
And continue to worry about future performance

Some functions such as sales do have a number of useful measures, for example number of qualified leads, number of appointments, demonstrations and contracts issued. Past performance ratios can be used to calculate back from the number of signed contracts required in order to achieve targets, to the number of leads needed to “feed” the sales pipeline. Despite this obvious and very useful connection to sales revenue, the Marketing team responsible for lead generation is often not even represented at board level.

Other functions fare even worse, partly because it is more difficult to measure some activities, and partly because outcomes are not as obviously connected to the input – employee engagement to productivity for example.

One of my favourite quotes in this area has been incorrectly attributed to Einstein but William Bruce Cameron got there first in 1963:

“…not everything that can be counted counts, and not everything that counts can be counted.”

Measuring past performance can be helpful but can be misleading, or at worst the information is available too late to keep you out of trouble. You can steer a ship in a straight line by watching the wake stretch out behind you, but if you don’t keep an eye on other indicators like depth of water you could end up on a sandbank. It is just the same in business which is why we need to understand the relationship between Lag and Lead Measures.

LAG MEASURES

Lag measures are a record of past events. Essential for the finance function of course, and can be useful for future planning – “that was a bad result, we won’t do that again.” For example, a lag measure for car ownership would be the number of times it breaks down. If it breaks down often, we might decide not to rely on it for important journeys, or not to purchase that model again.

LEAD MEASURES

Lead measures are chosen because they are predictive. A variation from the expected result indicates that action must be taken to prevent an undesirable outcome. Failure to service your car according to the maintenance schedule means it is more likely to break down. Monitoring vehicle service schedules is therefore an indicator of likely reliability – in other words the car is less likely to break down. Insufficient sales leads from Marketing implies that sales targets will not be met (assuming the pipeline conversion ratios remain constant). A more debatable measure could be staff retention – if staff turnover increases that is one indication of poor staff engagement. Future productivity (linked to efficiency and profit) may decline.

WHAT AND HOW TO MEASURE

The logical approach is to start where you want to end. What are the measureable outcomes? Think strategic goals supported by a series of shorter term business and team objectives. These in turn will be supported by activities. A SMART Objective (Specific, Measureable, Achievable, Realistic and Timely) will by definition be measurable. The activities that lead up to the achievement of an objective therefore also need to be measurable. That is not always so easy.

When we implement MyObjectives, which links and measures achievement of business objectives with activity at team level to ensure successful outcomes, we encourage teams to define their own measures. In fact they do their own measuring too. This is far more effective than imposing measures because it is more likely to be a valid and realistic measure, and it is also more likely to be monitored because it is “owned” by the people doing the task. I well remember in my early career having to spend a day a month pulling together statistics for some senior-level report when I knew they were meaningless and nothing would be done with them – yet other numbers were crying out for attention. How demotivating! Yet that still happens.

MEASURE WHAT MAKES A DIFFERENCE

Robert Kaplan and David Norton popularised the Balanced Scorecard in the 1990s and although that seems a long time ago, the concepts are as valid today as they ever were. Put very simply, The Balanced Scorecard has measures to monitor carefully selected data items from financial and non-financial sources which affect the achievement of the strategic goals of a business. The key here is financial and non-financial. Combining multi-functional measures and lead measures with activities linked to objectives and strategic goals is an extremely effective way of achieving results predictably and with a lot less stress.

KEY TAKE-AWAYS

Here are my recommendations for measures that help you achieve results.

Link strategic goals for the organisation to team objectives and activities
Have a measure for every key activity so you can track progress towards the achievement of goals
Have measures for important financial and non-financial activity
Identify Lead Measures and monitor then rigorously
Take action when Lead Measures indicate a potential problem ahead
Create a culture of engagement, where teams monitor their own performance knowing that what they do is linked to the strategic goals

Any organisation can implement these recommendations and gain significant advantages. However, if you want to find out how this approach can be sustained through a procedural framework and a simple system (which is a lot more fun to use than it sounds) I strongly recommend having a look at MyObjectives.

Neville Merritt