A fast-growing organisation is a challenging environment and an opportunity to learn. If you are willing to make the company grow, you should design effective strategies and be efficient in executing them. Having the right strategy is not a trivial matter but a toddler organisation usually struggles with the daily execution challenges. The magic ingredient to overcome those challenges is having a common language based on metrics to make the company adapt quickly to the context. Knowing how to set the right metrics according to the strategy is key to improve efficient execution.
Fighting against Cognitive Bias
The business context evolves in complex dynamics. Planning and executing taking only into account your previous subjective experience may be naive. Without hard data close at hand, our intuitive judgement is flimsy. Having the right metrics and measuring our daily execution is one of the best methods to adjust to and not to suffer from the delusion that we know what, really, we do not know.
The Root Question
Metrics should help you to answer a root question, to solve a problem and, at the end of the day, to learn how to transform strategy into execution.
Broadly speaking, there are two types of metrics: leading and lagging. Lagging metrics, usually known as vanity metrics, describe facts which happened in the past, in hindsight. They are those things that you cannot change. Leading, or action metrics, describe actions whose outputs have a chance to modify the future. Imagine you want to lose 20 pounds in two months. After one month, you have only lost 3 pounds. The result is only 3 pounds and you cannot do anything to change it afterward. Your weight is a lagging indicator. You may ask a simple root question: what should I do to lose weight?
If you start planning and taking notes on how many calories you consume or miles you walk in a week, you will see these action metrics are strongly correlated to weight lost and you can act upon them in advance. Calories consumed or miles walked are good examples of leading indicators of weight loss.
A Common Language
Choosing a set of leading and lagging metrics and setting goals for those metrics is the result of your understanding of the business model and processes you want to change or improve. When you communicate and engage with the crew to focus on those metrics and to pursue the goals, you are performing a huge company-wide alignment act. By sharing the terms and definitions to figure out the metrics and explaining why it is so important to reach those goals, you are establishing a common language to learn and improve. At the same time, you are empowering the front-line employees to take decisions on the spot, improving their judgment based on the impact their actions may have on the metrics. In the end, it means a more agile company.
Standards and Benchmarks
After two or three quarters, you will start seeing patterns of behavior/behaviour or correlations between metrics that you have not been aware of before/until that moment. You will start planning based on metrics, leaving overconfident projections or gut feelings with dubious business consequences behind. You will start setting a baseline on performance standards that will allow you to measure improvement and, at the same time, give the organization a way of self-adjusting. Besides, metrics will give you the possibility of comparing different group performance at a glance.
There is an important caveat if we focus too narrowly on a set of metrics. We may be efficient but not effective if you have asked the wrong question to set the metrics. Metrics help us to improve our practices, be more efficient to do what we already know how to do or, in other words, improve the single-loop learning process. Sometimes, the context changes and you face adaptive challenges, you should take a step back and ask why you are doing what you are doing. You should reframe your values or goals and define a new strategy, which usually implies double loop learning.
Metrics should be set and reviewed as part of the strategic planning process. Although metrics must be checked daily or weekly, we should review if we are using the right metrics every quarter. Planning periodic checkpoints in advance to review the strategy in order to define the right set of metrics will give us a business rhythm that fosters the learning loop.
Here at Intraway Corporation, we apply a strategic planning methodology based on the book Scaling Up by Verne Harnish.