“You can’t manage what you can’t measure” is an old management adage often quoted by Peter Drucker. While the saying can’t apply to everything, i.e., not everything in a business can be measured, measurement should be one of the core processes to an organisation.
In a recent blog article, we listed the top four metrics every organisation must track. The metrics listed in the article are core to a business’ measurement of success. But we don’t want you to measure your business performance just because we tell you to do it. We’d like you to truly understand why measurement is so important to an organisation.
This blog will discuss the underlying premise of measurement, and the main reasons why you should focus on measurement.
So why measure?
To illustrate my point better, let’s take a look at what would happen if you don’t measure. You have your head down doing your job, you’re running from meeting to meeting, you’re reading emails, generally getting things done. And you’re busy. Correction, you’re very busy. But are you productive? Do you know if everything you did that day contributed to improving your business in any way?
The answer is plain and simple: no.
Without measurement, you don’t know anything. You don’t know if you’ve been truly productive, and if you came any closer to achieving your business goals. At the end of the day, if you don’t measure, you will not know if your business is going up or simply going on.
If this isn’t compelling enough, we have come up with three key reasons why your business must measure:
1. Outcome-focused
Having metrics that you track and regularly report on will give you and everyone else in the business a goal to work towards. Everyone in the organisation will have a sense of purpose and this will translate positively to productivity.
Most importantly, the greater focus on outcomes will make your workforce think more critically about their tasks and company processes. They will no longer just do things for the sake of doing it, they will no longer cite the reason "because that’s the way we've always done it" when they’re questioned about a process. Instead, they will evaluate it in advance to ensure it can contribute to achieving the business’ goals.
2. Pinpoint positives and negatives
The top driver for measurement is to understand business performance, but more specifically, it’s to understand exactly what has been going well and generating results, as well as what hasn’t been working well or delivering as expected.
After all, reports of your business performance will not help you improve your business. It is only when you analyse these reports for the elements that have contributed to positive and negative results that you have real insight you can work with.
3. Insight-based action
This is where the value of measurement truly comes to life. The introductory quote was actually a paraphrasing of this quote by physicist William Thompson, which originally was, “If you cannot measure it, you cannot improve it”.
Once you have identified exactly the elements that contributed to the positive and negative performance of your business, you can take action. You can have more confidence in making these decisions, as your decisions will be based on real insight rather than gut-feel. You can put in place the process to improve or fix the element that hasn’t been working well and do more of what has worked well to truly maximise your results.
What should you measure?
The key to effective measurement is selecting the right metrics or key performance indicators (KPIs) to track. As a start, we recommend that every business measure these four core metrics:
- Sales revenue
- Monthly profit or loss
- Customer attrition
- Customer retention
For further insight, you will require additional metrics such as inventory numbers, conversion rates and monthly revenue per customer and so on.
How can you measure these metrics?
There are a number of measurement tools out in the market, from Customer Relationship Management (CRM) to Enterprise Resource Planning (ERP) to Business Intelligence (BI). The trend is to combine all of these tools into one with a business planning and analytics platform to provide a real-time, holistic view of your organisation’s data and performance.
