Measuring What Matters

By Guy Higgins

I recently read an article, I’m Sorry But Those Are Vanity Metrics. I thought that the premise of the article was a very good one – will your metrics help you run your company or organization better, or are they a way to compare your company to your competition?

That question is important because the future of your company is more closely related to how well your company is being run than it is to how well you’re doing with respect to your competition. Certainly, how well you’re competing is important, but if your company is merely the best buggy-whip maker, your future doesn’t extend very far past lunchtime.

I’ve posted about metrics before – emphasizing the importance of defining metrics as that measurable “stuff” that is directly related to understanding how well (or poorly) your company is achieving its strategic goals. Assuming that you’ve set your strategic goals well and that you have identified the barriers to achieving those goals and resourced the effort needed to surmount the barriers, measuring your progress should be extremely important in gaining a future competitive position in your target markets.

Identifying those strategic metrics, then, is both crucial and hard. What measurable “stuff” is directly associated with your strategic goals? This is the concept that underpins Robert Kaplan’s balanced-scorecard approach and there are numerous books, websites and even courses to help companies implement such an approach and identify appropriate metrics.

What about more traditional metrics – metrics that help companies understand where they are right now? Certainly those can be useful – but only if they provide input to improving company performance, and this can be tricky. A story…

I recall a memo from the head of IT discussing metrics that his department had collected. It seems that information stored on company servers was being accessed, on average, very infrequently – “new” information being accessed far more often than “old” information. The head of IT asked company users to review all their stored files and identify old information to be archived or simply deleted, thereby avoiding the need to purchase additional storage. Seems like a good idea and a valid use of a metric (frequency of data access) – except that that one measure, by itself, was an inadequate metric. It did not include consideration of other factors, such as total cost. In 1980, IBM introduced the first 1 Gigabyte hard drive (it weighed 550 pounds and was roughly the size of a refrigerator). It cost $40,000.   Today, you can find 1 Gig of storage for under $400 – that is a 99% decrease in cost. I upgraded the drive in my MacBook Pro from 250 Gigabytes to 1 Terabyte. The 1-terabyte drive cost less than $300 – a thousand times the storage and 0.75% of the cost. Meanwhile, engineering labor hours had increased from $12.50/hr. to $47.71/hr. These are Bureau of Labor Statistics numbers for 1985 and 2015 (it was easier to find that information). So, for the price of six hours of non-value-added labor, the company could have bought an additional terabyte of storage. The right metric would have included the purchase cost of new storage capacity and the cost to winnow out the less useful information to free up additional memory in existing storage (plus, potentially, other factors such as maintenance costs for the older devices, energy usage for the older devices, etc.). The key is to identify the metrics that will support company improvement.

What about those “Vanity Metrics” in the title of the article that started me thinking about this? Those are the metrics that allow you to compare your company to your competition, or to achieve some external recognition, but that do not contribute to improving company performance or the achievement of strategic goals. The author of the article highlighted total company revenue as an example. Interesting, but it does little, by itself, to help improve company performance.

I think that an excellent example of “Vanity Metrics” comes from the world of academia (also mentioned by the author of the article). The Ivy League schools’ (to pick on one potential “victim” here) acceptance rates hover around ten percent. “Highly selective” is the phrase that gets frequently used to describe these universities, and they certainly are, but what does that metric have to do with improving the education provided by any of those institutions? What does it actually mean? It could mean that these schools pick the top applicants from among the very best high school seniors in the country, or it could mean that there are lots of high school seniors who apply to those schools just on the chance that they will be accepted, thus padding the acceptance statistics. For the record, I suspect that while there are some applicants who are just hoping, most applicants to the Ivies are pretty good students, but the metrics don’t tell me that.

As leaders, it is imperative that we demand meaningful, and not vanity, metrics. We need metrics that allow us to understand how well we’re achieving our strategic goals (long- and short-term goals), and not succumb to metrics that just look good. The purpose of business is to stay in business and vanity metrics won’t contribute to that goal.

Thoughts?

 

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