In politics and in life, statistics can be used to make a case for every conceivable argument, but when it comes to business, you need data you can trust for success.
So how do you pick the metrics that will give you a true picture of your company performance — and not a rosy or gloomy view that distorts the truth?
It’s a question we see when clients are preparing to shift from looking at familiar metrics (such as sales revenue, units ordered or sold, or hours worked) to more complex measures that shine a light on activity across divisions or provide deeper insights.
When looking at what you should measure, and how you should measure it, here are five things you do not want to get wrong.
Mistake one: Acting only on what you see
A typical dashboard for any business will display a similar set of metrics: revenue, profit, income growth, sales totals, total customers, marketing spend and perhaps revenue per employee.
These metrics provide a constant view of your performance but do not necessarily deliver a comprehensive picture of what’s going on within an organisation.
How profitable is each customer over their lifetime? How happy are they with your service? How much time and effort would it take to find a new customer if an unhappy one departs?
Such insights require the business to combine multiple metrics to get a more detailed picture of what is taking place on the ground.
Equally, a measure that can look positive on the surface — less time spent on client acquisition, for example — can sometimes obscure more serious issues, such as a drop-off in business development activity.
Executives need to think about what they want to understand, and then find the metrics that will inform that story.
Mistake two: Relying too much on monthly variables
Even in a mature business, performance can vary across the year.
When you add in the uncertainty of supply chain disruption, rising inflation, or even a bout of COVID-19 that takes out the office team, looking month to month can distract from the bigger picture.
A sharp change in monthly revenue could signal the need for action but it is also important that executives do not overreact to short-term trends.
View short-term fluctuations through the lens of an overarching strategy, and review regularly to see if a change is being borne out by trends.
Mistake three: Only considering measures in isolation
Many metrics across an organisation are inextricably linked.
Sales revenue for online retailers tends to correlate closely with the number of visitors to the online store, for example, which can align with clicks on a marketing email.
Looking only at sales revenue without understanding its dependency on other metrics can lead to the wrong tactics being employed.
It’s one of the reasons why having a multifaceted dashboard approach that goes beyond silos can lead to better strategic outcomes.
Mistake four: Ignoring bad or troubling data
For all the advice around the importance of not overreacting to outliers or isolated results, bad news should still be treated seriously.
It’s all too easy to discount or try to explain away negative results but this risks your leadership team becoming complacent.
If the negative result is really bad, then it should be addressed by action. If the negative result is an issue of poorly collected data or a misinformed metric, though, it should be adjusted so it doesn’t become a distraction.
This means looking at the data hygiene behind your dashboards and ensuring they are regularly maintained as well as reviewing, discussing — and acting on — the results.
Mistake five: Not testing numbers against actions
A final challenge we see comes down to testing the data against what’s actually going on. In most cases, the metrics you measure should provide a data-driven picture of real-world performance … but that’s not always the case.
If information capture is faulty, you might be responding to a partial or incomplete picture about what is taking place in your business.
A good example is in any business where people are tasked with tracking their own activity, either through time and attendance data capture or in their sales and business development actions in a CRM.
Accuracy needs to be incentivised, or you can quickly end up with a fictional data set built on ideal rather than actual behaviour.
Without testing and validating the data periodically, the insights you are using to guide your business can be as useless as a broken compass.
So what approach should you take when designing your dashboards?
It takes a clear strategy, careful design and the right system for collecting, analysing and verifying data if you are to get the insights you need to give your business a competitive edge.
This article was first published by SmartCompany on 20 December 2022. Licensed by the Copyright Agency. You must not copy this work without permission.
