5 Steps to Creating Metrics That Matter for Your Company
Times have changed since 1998 when ConsumerAffairs was founded at the start of the dot-com boom. When I acquired the company more than 10 years later in 2010 from serial entrepreneur Jim Hood, there was no dashboard or metrics in place. My management team and I had to build all of it from scratch, which is not unusual given that the hyper focus on measurements and the ability for all companies to dashboard is a recent trend. Although I attended Dartmouth, it was at the private equity firm where I worked in San Francisco prior to acquiring my first fixer-upper that I initially heard about dashboarding and metrics. It was 2013 when I finally integrated the now popular mechanism into my starter business.
The impetus was that the ConsumerAffairs sales team had convinced itself that they were steadily working. For some strange reason, the team’s self-proclaimed effort was not translating into revenue. When I peeled back layers of the onion, the Dunning-Kruger effect stared me in the face. When there is no performance review mechanism in place, the Dunning-Kruger effect tends to set in where an individual mistakenly believes their output or performance is much higher than it actually is. Staff members were essentially fooling themselves, thinking they were working hard when they actually weren’t.
The lesson I learned from the hidden trend is that a CEO really can not build a business based on faith. Essentially, dashboarding eliminates faith. You build a successful business based on facts and figures that lead to conclusions. As we focused more on being data driven, our growth trajectory continued to rise but first, we needed tools and metrics that evaluated productivity at the individual sales rep level and at the sales team level. Once key performance indicators (KPIs) were implemented, an increase in profitability from the sales department began to set in.
Overall, the most important aspect of evaluating performance in sales is determining a leading indicator from a lagging one. A common leading sales indicator that’s also used at ConsumerAffairs is the weighted pipeline, which displays sales transactions and where the transaction is in the process of closing according to their phase in the cycle. However, it can be more difficult to determine leading vs. lagging indicators in company divisions like human resources and engineering. The ConsumerAffairs employee net promoter score, which measures employee churn, is a leading indicator we’ve developed to evaluate human resources. The net promoter score reveals on a monthly basis whether employees love working at our company.
Armed with the employee net promoter score as a KPI, we can enhance employee retention much more effectively. In this case, improving the rate of employee churn required developing a plan that would enhance the net employee promoter score. To increase the score, we looked at comments, we asked our employees for more information on why they were unhappy and we paid attention to what they were asking for whether it was a vacation stipend, a nursing room for new moms to pump breast milk or implementing a 401K match.
Our philosophy is that employees are customers too and the company is a product.
In other words, if you’re not measuring performance, you can not improve it. Like dieting, losing weight is a lot more effective when you’re counting calories than when you’re not because if you don’t know how many calories are in a particular meal, you cannot calculate them to determine the outcome of pounds. What’s different today is the evolution of business intelligence and data visualization platforms that help to aggregate data.
Typically, a company’s sales department stores data in its own system, the financial division’s data is in its own system and the human resource team’s data is in its own system. Previously, it has been a challenge to centralize this data and glean business intelligence from the various silos. But connections of data across functional groups is now possible because of business intelligence technology where in the past, business intelligence to this degree was available only to corporations that could afford global management consulting firms like McKinsey & Company. Better yet, learn from my experience compliments of ConsumerAffairs. Below are six keys that helped my company to get its groove back after the dot-com bust.
1. Get your data together.
Uncertainty is only increasing in the world. So having an understanding of how the plates shift underneath you is only getting more important tomorrow than it is today. Companies that are not data-drive will miss opportunities to improve and understanding the leading indicators that underlie the success of your departments is the key to being data driven.
2. Dedicate a team.
Organize a group of workers committed to enabling business intelligence. It cannot be something you think you’re buying off the shelf. Our team consists of six people that are all engineers. Even the product managers are engineers.
3. No off the shelf product will solve your problem.
We all know there's no such thing as a true plug and play BI resource. Business intelligence tools like DOMO allow us to connect all of our data into a singular repository then visualize and query from different data sources based on each team's unique needs. The data, which includes the employee net promoter score, sales data, financial data, product data and website data, is disseminated internally to everyone on staff so individuals can look at the metrics most important to their own roles.
4. Define what success means for each division.
From each defined marker of success, establish leading indicators to understand how each team is performing day to day, week to week and month to month. Measuring and building dashboards within an organization around the metrics that actually predict success in any functional group will help management keep their finger on the pulse of each department in order.
5. Make sense of it all.
Consultants can come in, figure it out for you and be helpful but more successful companies are just automatic about determining this themselves and making it part of their corporate culture.