Metrics and Measurement

Building Predictive Metrics

20 May 2020  

I recently addressed a community of technology CFOs and CEOs on one of my favorite subjects — metrics, how they work, and how they sometimes don’t. They had some great comments and questions. I thought some of you may be facing similar challenges, so I’ll summarize here.

Metrics are essential

Metrics are the foundation of modern evidence-based management. Metrics work in defining goals and motivating people. They form the basis for organizational sense-making, action-taking, and, ultimately, ROI. It’s important to get metrics right — a key responsibility of leadership.

Just because you can…

It’s true, you can measure anything. But just because you can doesn’t necessarily mean you should. One common mistake I’ve seen organizations make is that they try to measure everything — and end up losing sight of what really matters. Metrics, once put in place, rarely go away. Like the ancient cities of Troy, they just pile one on top of another. One client of mine had a monthly “executive dashboard” that consisted of 30 Excel pages, each containing hundreds of numbers. When I queried them as to which metrics management really cared most about, their somewhat embarrassed answer was that they no longer distributed the report.

The downside of over-measurement is not usually the out-of-pocket cost of metrics. It’s the time and attention of senior leadership in focusing on relatively meaningless metrics — time and attention that could be directed elsewhere more productively.

What happened?

Many financial metrics tell us “What happened?” The financial results of a company are typically reported weeks or months after the underlying events occur. They are, in other words, lagging indicators of financial conditions. There is a lag or “latency” between the event and its being reported.

Leading Lagging Indicators

This is like knowing that “It rained yesterday” — interesting perhaps, but not relevant to action. More relevant is the information that “It will rain” this afternoon, or tomorrow. Such predictive information is useful to the extent that it enables us to take an umbrella or to modify our outdoor recreation plans.

Discover value-driving leading indicators

At any time — and especially in times of rapid change, as during the pandemic-driven global economic downturn we are experiencing now — we need to find and focus on leading indicators that precede, or even drive, our results. How do we do this?

By way of analogy, how do we know what the weather will be later today or tomorrow? Of course, we catch a forecast on an app or on TV. But how do they know? Put simply, weather forecasters understand weather drivers — the fact that there is rain today in Pittsburgh, and the winds are blowing eastward at some rate, tell them (more or less) when NYC will experience similar conditions. Forecasting the weather is not magic, and it’s not “predicting the future.” It’s using the scientific experience base to determine and model the drivers of NYC weather.

Build predictive metrics

Can you build predictive metrics for your organization’s operating results? You can, using a discovery process called Metrics Value Assessment™ (MVA). It’s a four-step process, consisting of:

  1. An inventory of current metrics
  2. A model of enterprise value drivers — those factors that produce, for example, revenues
  3. A map of ecosystem value vectors — those factors outside the enterprise that affect revenues, for example, financial results for key customers
  4. The development and implementation of a Metrics Alignment Plan™ (MAP) that aligns key metrics with current and future enterprise goals and strategies

You can do this for yourself — though of course we’d be glad to help you.

The result?

Once the MAP is implemented, the organization can expect to receive several benefits from this process:

  • Structural advanced awareness of critical events
  • Ability to anticipate, rather than just react
  • Greater overall awareness of trends and patterns
  • A cultural “future-outward” focus in strategy and tactics

A time of disruptive change presents an opportunity to rethink all aspects of your value model — including the things you measure most closely.

Metrics represent the foundation of the sense-making and decision-making apparatus of the enterprise. If metrics are well-aligned with strategies, the enterprise achieves “intelligence” — meaning that it can quickly perceive and react to new developments in its dynamic business ecosystem. In this way, effective metrics are enablers of enterprise resilience and agility in times of change. Thanks, Julie Govaert, for your insightful comments.

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