Discoveries: August 2011

Volume 9, #5 - August, 2011

Best Metrics Medicine

Substitute Alignment for Standardization for More Relevant Measurement

By Wayne Mackey and Sheila Mello

Thinking about establishing business metrics often elicits the same emotional response you might have had to your mother “suggesting” that you take an unpleasant medicine.

Many professionals see metrics as a necessary evil—something put in place because someone says they should be put in place—rather than what they ought to be, which is an integrated tool for improving business performance. One reason for this is the all-too-common view that the best metrics are standardized metrics. If we measure everyone consistently, the thinking goes, then we will have consistent, predictable outcomes.

This is just wrong, and in the next few paragraphs, we’ll show you why.

Reverse your approach

The usual approach to measurement and metrics is exactly backwards. Most measurement activities are tacked on as an afterthought, following the development of a product or the launch of a program. Metrics often are based on nothing more than the feeling that a particular measurement seems relevant.

Now flip that approach on its head. Start with the outcome you’re trying to achieve rather than with the actual measurement. Are you trying to be the number-one provider of cell service, by market share, in the Northeastern United States? Are you trying to become the sole supplier of high-end chocolates to boutiques in large cities? Are you aiming to produce the most reliable fan motors for the automotive industry? These questions must be asked and answered at the top-most level of a company.

The answer to the “What are you trying to do?” question is your goal. Easy enough. What’s not so obvious is that the goal of the company is not the same as the goal of the R&D department, or of the marketing director, or the customer service rep. This doesn’t mean the goals conflict with one another. In fact, herein lies the key: the goals must be aligned while not necessarily being the same.

Align the goals, align the metric with the goal

It follows logically that if the goals of each part of the company and even each level within each part of the company are different, then you can’t measure everyone by the same yardstick. This is why standardization of metrics doesn’t work. If you were measuring the general well-being of a tree, you wouldn’t measure the health of the roots by the same criteria as the health of the leaves. Yet both contribute to the same overall outcome of sustaining a healthy tree.

Let’s look at an example of a metric that’s ubiquitous in subscription businesses ranging from magazines to online movie rentals: the churn rate, defined as the percentage of subscribers who unsubscribe during a particular time period. If you’re the VP of marketing, churn rate may be a relevant metric, since your goal includes acquiring and retaining subscribers. But what about the marketing communications director who reports to you? Changes in subscription turnover don’t directly relate to what he does every day. When people are forced to measure and report on things that don’t matter to their jobs, measurement becomes nothing more than a burden. When measurement becomes a burden, it falls by the wayside.

Align the goals from top to bottom—the Alignment Tree

There’s one more piece to the puzzle, and that is how you get from the goal to the measurement. Typically, companies implement metrics that directly measure a goal; for example, if you want to become the number-one cell provider in an area, you might measure market share in that area. Unfortunately, that metric does nothing to help improve your achievement of the goal. It tells you only whether or not what you did in the past contributed to that goal. More useful metrics are those that help you predict what will happen and allow you to change course if you are not going in the right direction. These kinds of metrics arise not from measuring your goal directly but from measuring the causal actions that lead you to achieve your goal. So the top-level managers at the cell phone provider might measure something like marketplace differentiators that have a strong customer interest.

Since the goals of the people working for the executives will be slightly different than those of their bosses, they will need relevant metrics, too. To align their goals with those of the company overall, they can adopt as their goals the causal actions for the top-level goals, and so on down to the level of support staff or individual contributor. This results in what we call an Alignment Tree that essentially captures, in one elegant and economical visual representation, the company’s goals along with the organization’s blueprint for achieving them and measuring progress toward them.

Shifting your metrics approach from standardization to alignment makes measurement easier, ensures you’re measuring the right things, and actually gets staff to use metrics because they’re measuring things that are relevant to their work.

Where to go for more

- PDC newsletter articles: Three Common Metrics Missteps, Metrics Madness
- PDC books: Chapter 7 of Customer-Centric Product Definition
- PDC events: F&S Conference (September); MRT Workshop (November)

Are your measurement systems working? E-mail us to let us know.

Sidebar: Example of an Alignment Tree

A successful metrics implementation focuses only 10 percent of its energy on metrics. The other 90 percent focuses on goals, causal actions, and alignment. What do we mean by alignment? Let’s go back to the subscription company and its churn rate. Looking at several levels of the company in two different departments, you can easily see that a single metric doesn’t capture what’s most important to each constituent: