Yesterday’s post talked about the role of truth in an entrepreneurial context. Today I’d like to share a few thoughts on the importance of getting to the truth in a more mature business.
As Dick Costolo wrote in his excellent blog:
Successful businesses measure and count things. I think that’s a safe assumption on top of which we can drop the following hypothesis: unsuccessful business either measure nothing, the wrong things, too many things, or finally, they measure the right things but they don’t communicate the measurements efficiently.
Everyone acknowledges this, yet so few business really spend the time and energy to avoid one or more of the pitfalls at the back of that quote. This is unfortunate, and due in part to the fact that many executive managers see metrics as some kind of administrative exercise to be delegated to the accountants.
Weekly metrics are so much more than that. There’s been a lot of good work in this area, and I’m not sure I could add much value to the nuts and bolts of why a good and comprehensive set of weekly numbers is even more than an essential tool of financial management. I will say this, though – one of the most common symptoms of poorly defined operational metrics is a dysfunctional executive group, along with the inter-departmental friction and infighting that fragmented management teams invariably encourage.
There are of course other reasons for executive mis-alignment – poor CEO leadership, overly political cultures, even individual execs who are, in the words of Harvard Business Review contributor Bob Sutton, “Assholes.” But I truly believe that more often than not good metrics will solve alignment problems faster more constructively than the other obvious remedy, which is to remove otherwise good people who can’t get with the program.
Why, you say?
Because if you give smart people with aligned incentives the same set of facts, 9 times out of 10 they will come to the same conclusions about what needs to be done. And then they will do it.
Good business metrics define an objective truth for a group of people trying to get to the same place from very different points of view. This is absolutely essential as a business becomes too large and complex for the people in one part to understand what’s happening day-to-day in all the other parts.
And yes that’s “an” objective truth, rather than “the” objective truth. It’s not clear that the latter exists in business except in retrospect. Rather than be paralyzed by this, executives can use it to their advantage by choosing specific metrics that focus people on the right things. For example, think about the many ways to measure what is most often the easiest thing to measure: revenue. A company interested in driving behaviors that maximize revenue growth in a highly transactional business might want to make sure that week-over-week percentage sales growth is the big number in bold at the top of the reporting package. That same business, if it was more interested in maximizing gross profit (revenue minus direct expenses) might be more interested in measuring the gap between forecast and actual sales in a given week, or even in projecting a quarterly variance number that reflects the gap between the budget and the new forecast.
Once you get these numbers right you begin to understand the levers behind each, the drivers and even leading indicators that provide real insight to the state of the business. The numbers evolve, into percents and ratios first, then into bar charts and pies and scatterplots. With a little creativity and genuine commitment it’s not long before the weekly reporting package takes shape as pithy and well-formated document people really depend on to make decisions… and when that happens, more and more of those decisions tend to be aligned with one another.
We are building a culture of disciplined, metrics-based management at matchmine, in every aspect of our business, and at every level. We are doing so not because we value numbers over judgement, or action, or creativity; but because we understand the importance of seeing the truth.