Very few businesses find the right metrics to manage it. Often, companies measure a lot of parameters. It makes it difficult to draw meaningful inferences from a myriad of numbers. That's the reason businesses struggle to take timely actions.
But what do we measure?
They are two divergent views when it comes to deciding what is enough to measure. Some advocate a single metric for the entire business. Others suggest a constellation of parameters.
Based on my experience, I recommend a middle path. We need to monitor three parameters. One focused on quantity, the other on quality, and the final one on efficiency. The quantity parameter is a straight forward measure related to the primary output of a business. For example, the rooms sold is the quantity parameter for the hotel industry. The units sold is the quantity variable for a manufacturing company. This variable is the principal driver of revenue for the company. The quality parameter is to make sure that the quantity variable does not override customer satisfaction. It is prudent to tone down the quantity if the quality parameter is slipping.
The efficiency parameter depends on the nature of the business. For a manufacturing plant, it is the return on capital employed. For the service industry, it is the return on people employed. Ultimately, it's a measure of the return on the primary resource deployed by the company.
The efficiency parameter should not be the driving parameter for the business. The quantity parameter should drive the company while ensuring that the quality is above a certain threshold. The revenue is a byproduct of these two parameters.
Once you set the dashboard of these parameters, it is essential to track them. If we are objective, the data highlights the area to focus. But we must act on the inferences. For example, if the quantity variable is increasing, but the number of customer complaints is on the rise, we need to shift attention to the quality variable. There are various ways of doing it. In the short term deploying more resources to address customer concerns is the recommended action. In the long run, fixing the product issues is the solution.
Metrics:
Identify the three variables for your business.
Collect data for at least a quarter.
Draw your inferences and plan course correction.
Use your dashboard as a springboard to launch your business into a new orbit.
Metrics are not mere numbers. They are a reflection of our vision. No metrics are perfect. Be fearless and experiment to find the best fit for your business.
Subodh
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