Key Metrics should track and report on current, imminent,
and future results, AND give you the time to change an outcome they predict.
Example Headscratcher: What
type of metrics can give you more reaction time?
Momentum is the law that states that a body
stays in motion unless a force redirects it, and the force required is
related to the object’s mass. It’s why
it takes so long for an aircraft carrier to change direction. The opposite is also true. It takes a big push to get an aircraft
Companies have momentum too. Whether your company
can change direction like a PT boat or an aircraft carrier, it has momentum. Examples include: A company with a 3 month sales cycle can’t
easily alter the revenue forecast two weeks out. Employee morale develops over a period of
time and you generally can’t change it overnight. A project schedule that is only 6 weeks
long still can’t easily recover if a delay is communicated the day it is due.
just as important as what you measure is when you measure it. Key Metrics need to be thought of as an
early warning system, not just a report card.
The “Measure”, and the “Change
in the Measure”. A
“Measure” is visible, such as the
Revenue, Margin, Product Development Schedule, etc. A “Change in the Measure”, such as a
Change in Revenue, might be driven by the sales opportunity funnel, and
closure rate. Wall Street tracks “Measures” and the “Change in the Measures”. Most companies track these two “levels” of
there is a third and extremely important level.
Acceleration. Remember the Aircraft Carrier, or PT boat. Its current location is the “Measure”. The “Change in the Measure”, its location,
is governed by its speed. Obtaining a
new speed is related to the power of the engines and the acceleration they
provide. This is the change in the
change. For those mathematically
inclined, it’s the second derivative of the Measure.
Back to Revenue. Understanding business
drivers behind acceleration can produce fantastically useful Metrics. In the example, the change in revenue is
related to the sales funnel and the closure rate. To accelerate revenue beyond the current
trend, you need to change the funnel and/or the closure rate. Examples
of factors that will do this are; number
of sales people, training, pricing, morale, competitiveness, etc.
Acceleration as an early
warning sign. If
Revenue is increasing qtr over qtr by 5%, then the change in revenue is steady. A
qtr over qtr increase of 5%, then 6%, then 7%, etc., means not only is your
revenue increasing, but it has a positive acceleration. If
however, the acceleration is negative,
then your qtr over qtr growth might look like +5%, +4%, +3%. For awhile, revenue still looks good
because it is increasing. But if
nothing is done, the revenue change will go negative, i.e. -1%, -2%, -3%,
etc. A negative acceleration, is a Red Flag.
An Acceleration Metric can
guide your reaction. When
reviewing visible measures, a temptation might be to act immediately if
results are poor. First take a look at
the acceleration. It might be
positive, meaning that the cause of a problem was already understood, action
was taken, and while the top line results have not shown it yet, they
will. Conversely, you might sit back
if the results are good, however the acceleration
might be negative, so while things may look good for now, an action is
warranted to reverse a bad looking future.
The Takeaway: Take a look at your metrics. What
do they tell you and how much time in advance of what they predict will you
have to change the outcome. Distinguish
between metrics that belong on a report card, verses those that predict a
future outcome. Create an
“Acceleration Metric” for each of the visible (Measured) metrics, and
understand the drivers behind them.
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