Doomsurfing. When the COVID-19 pandemic began spreading across the world, I was consumed by news of the inexorable downward trajectory in our health and economic wellbeing. However, being morbid is an unhealthy state of mind. Consequently, as an act of self-preservation, I now solely focus on reviewing these metrics – daily new cases, community spread, reproduction rates and contact tracing – which I consider as sufficient to meet my goals of being informed.
This led me to reflect upon the performance metrics for a business. Metrics are more critical now than ever before. With the dramatic changes to the business landscape, a common query is what metrics should a business focus on? The answer is dependent upon the nature of the business. For example, a travel business would be unlikely to focus on blitz scaling growth metrics at present. However, the same metrics would be useful for a cybersecurity software firm.
Moreover, creating and tracking metrics is similar to starting a rabbit breeding program. It can become a prolific, self-perpetuating monster if you don’t have adequate parameters in place. With metrics, the risk is you end up suffering from analysis paralysis due to metric overload.
I recall working for a large MNC where we were required to report on over 50 performance metrics every week. This was for every single business unit across the globe. Seemingly random metrics were dissected with local management receiving the short end of the stick for “underperforming” numbers. A demoralising exercise. Productivity was badly hampered as the metrics eclipsed the importance of focusing on meaningful strategies causing wild goose chases among management.
In determining what is a critical metric, it is key to have these two criteria in mind. Firstly, ensure a metric embodies a strategic objective. A metric is designed to help the business monitor whether it is on track to achieve its goals. Secondly, establish accountability. Every performance metric needs an owner who is held accountable for the outcome. Without accountability, metrics become meaningless.
These two criteria, amongst others, are also important to avoid another trap; surrogation. This is where the metric replaces the strategy it is meant to represent. Surrogation can become pervasive, where the objective is vaguely conceptual but the metric is concrete and rewarding. An infamous example in Australia was where a financial institution charged life insurance premiums to dead people. This was caused by a preoccupation with financial metrics to the detriment of other non-financial metrics as highlighted in the recent Royal Banking Commission.
To determine which metrics a business focuses its attention upon, there is a methodology used by Airbnb which can assist with streamlining metrics. Airbnb classifies metrics into three buckets, namely:
- Quantity: top line product metrics that measure value and hence revenue to the business.
- Quality: metrics which measure the level of service received by a customer when using your service or product.
- Efficiency: measures the ROI of executing a process.
Of these three metrics, one will be your North Star. The majority of the time it will be your quantity metric. For example, Airbnb focuses on the number of nights booked as its leading metric (quantity). The other two types of metrics act as a support for the North Star, i.e. they act as thresholds for sustaining the prime metric. Examples would be customer retention rates for quality and the magic number for efficiency. However, the positioning of these metrics isn’t set in stone. Being flexible and agile with choosing which type of metric should be the lead is a necessary prerequisite within this methodology. If a quality metric shows a trending decline, then it would be prudent to mark such as the lead metric until there is a turnaround.
The sum of all performance metrics in a business tells the story of the organisation’s strategy. Note that a performance metric does have a shelf life. When first introduced, the performance metric energises the workforce and performance improves. Over time, the metric loses its impact and must be reinvented or revitalised. In the end, you can’t control folks, so you have to continually re-educate them about the importance of the processes that the metrics are measuring or you have to change the processes.
