In the first article of our 10-part series on Thinking Tools for Boards, Jeff Cooper, Founding Partner at Step Change, talks about identifying the mix of business metrics that help move the needle and are predictive of business success.
In a data-led world, businesses are now able to track more than ever before. But we find that they are falling in the trap of tracking too much. Members of the Board have forgotten that reports rarely advances their strategic position in the market, makes a customer happy, or generates profit.
Insight: In a world where we can measure so much, sometimes we miss what matters.
Data: 60% of Customer Experience professionals report that their companies are placing a great deal of emphasis on metrics describing what happened in the past, rather than looking at predictive measures. (Walker Info)
What’s the step change: Measure only what matters with the right mix of lead and lag measures. Download the Step Change tool to get started.
Humans perform best with focus (that creates perceived certainty). Trying to watch everything is overwhelming, so we want to create a world for each team member where they can focus on the best job they can do, within their control, in a way that helps them know if they are winning each day/period whilst contributing to the overall effectiveness of the organisation.
So it’s helpful to have a board-level scoreboard, an executive-level scoreboard, a manager-level scoreboard, and even a team member scoreboard depending on the size of the organisation.
Knowing that humans work best with focus, the first step is to decide how many layers of reporting you need.
Be Clear on Your Lead Indicators
Board members and executive leaders are often focused on the results (lag metrics) without clearly defining the behaviours (lead metrics) that would ultimately lead to the result. As members of a team, we can control our behaviours, but not always the results.
In fact, most of the reporting that businesses are getting out of traditional finance departments are lag metrics (i.e. sales figures, revenue, expenses, profit, market share, customer satisfaction, etc.). So you’ve probably got the lag metrics sorted.
However, any scoreboard should have at least 50% (a rough guide)of its measures being lead metrics, not lag. These are the predictors of success. To know if your lead metrics are quality, just remember PRIM — predictive, repeatable, influenceable, and measurable (adopted from Franklin Covey’s 4 Disciplines of Execution).
- They are Predictive. We know that if we do them, they will create the lag metrics.
- They are Repeatable. This can be done repeatedly.
- They are Influenceable. It’s something we can influence.
- They are Measureable: We can count and account them consistently.
At the end of this article, there’s a one-pager you can download of many the crucial metrics that are driving businesses.
Know Your Customer Acquisition Cost and Customer Lifetime Value
Before you get into the detail, start with your customer acquisition cost (CAC) and customer lifetime value (CLV).
Customer Acquisition Cost: the cost to acquire an actual paying customer.
CAC = $ spent of marketing and sales / # of customers acquired
Customer Lifetime Value: The net profit attributed to the entire customer relationship.
CLV = (Profit per customer X Average lifetime of customer) – Customer Acquisition Cost
Here are some key questions that you need to answer:
- How are your CAC and CLV being tracked?
- Does your organisation have a consistent definition of these factors so everyone is looking at the same thing?
- How are they trending together?
- Are they improving month on month?
Once you’ve gained insights into your CAC and CLV, only then would you look at the rest of the metrics found on the downloadable one-pager.
Think Like Judoka
Peter Drucker is famously credited with this quote: “It is a simple fact, what gets measured gets improved — it can enable good business development behaviour, turn sales figures from good to great, and turn the whiners to shiners.”
A judoka is a judo martial art practitioner. It’s based on the philosophy of exercising maximum effectiveness through minimal effort. In the context of business measures, this means you have to know where your scoreboard is. You have to make your scoreboard visible.
The goal of keeping track of scores is to let the team know whether they are winning or losing. Human behaviour would tell us that winners love to keep scores. It tells them that they are playing the real game. It streamlines your strategy and drives effort.
As The Great Game of Business would say, keeping a departmental scoreboard shifts the focus from “our superiors are measuring us” to “we are measuring ourselves”.