What good are metrics if they don’t help you make decisions?
I’m currently working with two clients on developing strategy maps to help translate their strategies into tangible plans. Identifying metrics or KPIs (key performance indicators) is an important part of the strategy mapping process.
Like many aspects of strategic planning, coming up with a list of metrics that looks good on paper is easy, but developing a management framework that actually helps you make hard decisions takes deep understanding, research, and careful consideration.
Most financial metrics are by nature “lagging” indicators — meaning that they tell you what has already happened. Ultimately, most businesses are looking for profitable revenue growth so it is natural to track revenue, margins, and the underlying key drivers (e.g. volume, price, expenses) over time. Similarly, most companies will track key lagging indicators like customer satisfaction and churn to indicate whether or not your business is creating value for customers. These lagging KPIs can give you a good sense for how healthy your business is today, and trends in these metrics are a good indication of what the future might hold.
But what you really need are “leading” indicators — ones that predict in advance of what is coming. Even better are indicators that can help you make specific decisions to improve future customer and owner value creation.
How does that work?
Read the full article to learn how.