Are your performance metrics doing harm? Time to take a step back

As I wrote in my previous blog post, not everything is always as it appears in the world of data. Sometimes it pays to take a step back and consider if your key performance metrics are actually a help or hindrance.

Here are a few things to keep in mind when analysing your data.

Management information vs. data analysis

First of all, it's important that you separate management information (or MI) and data analysis.

MI is a record of fixed data sets, allowing managers to see and track changes over time (for example, a weekly stats report). Whereas data analysis is about digging deeper into the figures, looking for patterns and anomalies to predict future change. Essentially, MI says 'This is where we are', and data analysis says,' This is where we could be'.

Think of MI as looking directly through the windshield of your car at what's in front of you, and data analysis as looking at various possible routes on your satnav app.

There is an important place for them both. However, automating MI will free up your analysts to start modeling ways your company can innovate for the future. (There are many automation services you can use, including Power BI, Oracle and Tableau.)

The danger of stand-alone metrics

Are there certain stats and figures in your company that are consistently highlighted, either for marketing purposes or as benchmarks?

If so, it's worth regularly putting them under the microscope. You need to make sure they are accurate and are sending your company in the right direction.

Take the following example: In five years time, we will have 500,000 customers. Chasing this metric at the cost of all others could have potentially damaging consequences.

Have you considered other relevant metrics? What is the average transaction value? What are your retention rates? Customer satisfaction levels? And that's not even mentioning wider considerations like the company's contribution to society and the environment.

Again, an automated MI program can help here: they can provide an engaging and easy to understand data dashboard for all employees to use. Be sure to include a range of relevant data points that your colleagues can refer to. This can stop your company from focusing on just the traditional metrics.

Embrace the inconsistent

There can be a certain comfort in the weekly stats report. Like clockwork, everyone gets the same report confirming that all is well with that sacred number (for example, total sales, page views, etc.) and things are progressing as predicted.

But should this be the case in a business that dares to innovate and search for new ways to gain a competitive advantage?

There's always the temptation to say 'we've had a great week' and leave it there. But being shackled to particular metrics, with the assumption that they'll grow in a predictable fashion, is potentially dangerous.

However, if you take the time to really analyze the data, you may find a few surprises. It may show that there's a new audience of customers you can market to, or that a bottleneck is hampering capacity. When you take time to dig deeper, you may find whole new areas of opportunity. We've had a great week could quite easily turn into 'we've had a great month.'

Whenever you make new discoveries about your industry, my recommendation is to document and share this information around the team. This may form part of a toolkit of ways to boost performance at times when you really need it.

Traditional metrics: a ticking time bomb?

Without innovation, the continued growth of the sacred metric may not be guaranteed.

In fact, if you're solely focused on sales metrics, for example, this may have a detrimental effect on your business and lower your return on investment.

As a business makes more sales, it might start to find that its current processes and "infrastructure" struggle to handle the demands of a growing customer base. Therefore, technically the cost of securing each sale grows as your company creaks under the pressure. This is commonly known as the "law of diminishing returns", the economics equivalent of "too many cooks spoil the broth."

The graph below shows how this might negatively affect a restaurant business.



If the restaurant keeps hiring more staff to serve more tables, over time this tactic can become increasingly inefficient. They may need a bigger restaurant space, or a bigger kitchen, or more serving stations.

Traditional metrics, like total sales figures (or tables served, as in the example above) can let the company down, hiding the real challenges that the business faces.

By taking a step back and assessing the bigger picture, you can focus on finding innovative solutions to the happy problems of increased demand.

Knowledge is power

Taking a step back myself, the key takeaways from this blog are the following:

• Don't work for your metrics, make your metrics work for you.
• Make sure that the metrics ingrained in your company culture are suitable, sensible and wide-ranging.
• Innovation is essential. So never be afraid to change those metrics: if you've made new discoveries in your data, they could take your company in a successful new direction!
• In fact, sticking dogmatically to a narrow range of metrics could be dangerous for your company in the long run, as you miss opportunities and succumb to the law of diminishing returns.

With comprehensive MI and rigorous analysis of data, your team may well discover exciting new horizons for your company to explore.

James' recommended resources

Public resources

Using Data and Analytics Wisely in an Age of Fake News (Blog)

Premium resources

Jain and Sharma's BADIR Framework (Article)

Data and Information Management (Article)

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