What Gets Measured Gets Improved
For the last 10 years, I have been an advisor in the technology industry helping companies implement technology that helps improve their business metrics. Many of my clients can repeat my most common question: What business metric are you seeking to improve?
Simple question right? Not always.
The subject of business metrics came to me this morning while reading the USA Today. An article I found in the Money section stated that the number of airplanes stuck on airport tarmacs for more than 3 hours fell to their second lowest level since the Federal Aviation Agency began tracking the metric in October 2008.
During the month of May 2009, a total of 34 airplanes were stuck on tarmacs for 3 hours or more in the US. One year later during the same period, that number dropped dramatically to 5 representing a reduction by over 85%. Experts credit 2 major reasons for the dramatic decrease:
1) The FAA monitoring the metric and bringing awareness to the issue
2) The FAA fining airlines $27,500 for each passenger held for 3 hours on the tarmac
Reading this article reminded me of the rule that “What Gets Measured Gets Improved.” Had the FAA not started measuring this metric, we would expect the number of airplanes stuck on tarmacs to remain the same or increase. By simply bringing awareness to the issue helped airlines avoid contributing to the stat. Add to this the fact that the FAA began punishing the behavior forced airlines to avoid this phenomenon and invest time and resources to helping employees avoid it.
So let’s look at how this can apply to your business and help you answer the question “What business metric are you seeking to improve?” Often, managers would say they wish to “increase sales and lower costs.” Who doesn’t want that? While sales and costs are business metrics, these metrics are a result of other metrics and those metrics are the ones we should focus on first.
To help my clients better understand the metrics we should look at first, I ask the following question: “If your company were a factory, what would you consider your raw material or inputs that go into production and what would be the final product or your factory’s output?”
This question helps a manager breakdown his/her business into the components that make up costs and the products which contribute to sales. For example, if the company were a printing firm, the inputs would be sales reps, technicians, graphic designers, office space, card stock, paper, ink, toner and of course printers. The output would be printed material including business cards, letterhead, envelopes, brochures, books, posters and more.
Inputs are a great metric to begin to measure because they directly affect costs. Outputs are a great metric to track because they directly affect sales.
A common area I specialized in was sales. Before a customer ever makes a purchase, they must first be a prospect. Before becoming a prospect, the prospect must be qualified. We call unqualified prospects a lead. How many leads does it take to generate a prospect? How many sales calls does it take to make a prospect a customer? If the business doesn’t know, then these are good areas to begin tracking and measuring. For example, we could implement a Customer Relationship Management (CRM) system that will help the company to begin measuring and tracking these metrics. If we can begin to measure and track it, we can improve it. It is that simple.
If reducing cost is the company’ focus, a metric we could immediately measure and track is inventory. How long is paper held in inventory before sold? If we could reduce that time, does that lower costs? If yes, we could modify their accounting procedures to track and measure inventory and we can then focus on improving that metric. Again, it is that simple.
So the next time you are on the tarmac, start to count the minutes and think about the lesson we learn from the FAA when they began to track the number of flights stuck on the tarmac. There is little chance you will receive your share of the $27,500 fine but you can at least think about the metrics your company can begin to track, measure and improve.