Why do businesses need to constantly measure progress? What are three vital metrics that leaders need to measure?
Horst Schulze contends that leaders need to continually measure their progress toward success and adjust their strategies accordingly. Since the market is fierce and extremely competitive, measuring progress helps businesses know when to speed up or slow down.
Continue reading to learn how to measure progress as a business leader.
Measure Your Progress Toward Success
Rigorous, ongoing measurement helps leaders identify areas in which they think the business is performing well but it isn’t. These blind spots can easily arise if leaders assess their business using anecdotal evidence or gut feelings alone. Instead, if they consistently measure the right evidence, identify issues, and adjust their processes in response, companies can continually elevate the quality of their products or services.
(Shortform note: In The Lean Startup, Eric Ries warns that some types of rigorous measurement can create blind spots: They might conceal how your business is really performing. Vanity metrics are ones that sound nice when you track them but don’t accurately reflect your business’s health. Focusing too much on vanity metrics may prevent you from identifying issues and adjusting your processes accordingly, causing deadly flaws to stay hidden until it’s too late. For example, a social media company might track its total number of users, even if many of those accounts are inactive or rarely used. This could obscure the fact that user engagement and retention are declining.)
Schulze recommends three vital metrics that will help you learn how to measure progress effectively:
Metric #1: Customer Satisfaction and Loyalty
First, Schulze recommends measuring customer satisfaction and loyalty. After serving customers, survey them to discover whether they’d want to buy from you again and whether they’d recommend your product or service to someone else. This provides clear data on whether customers are truly having a positive experience that will lead to more business.
(Shortform note: Some experts argue that customer satisfaction is an overrated metric for businesses trying to maximize loyalty. One study of 75,000 customers found that people who were immensely satisfied with a customer service experience were only slightly more loyal than if the company had just met their basic needs. Instead of aiming to maximize customer satisfaction, consider reducing the effort customers must exert to resolve issues they have with your product or service. For instance, give customer service reps the authority to fix problems rather than forcing them to transfer customers to another department.)
Metric #2: Employee Satisfaction
Second, measure your employees’ job satisfaction. According to Schulze, every dip in employee satisfaction signals a greater likelihood of employee turnover—which loses you valuable expertise and forces you to spend on replacements. Staying up-to-date on how engaged and motivated your employees feel will show you when you must take action to keep them satisfied.
(Shortform note: What can you do to increase your employees’ job satisfaction and minimize the risk of turnover? In When They Win, You Win, Russ Laraway contends that employees are happier and more engaged with managers actively coaching them. Although coaching does involve correcting workers’ mistakes, Laraway notes that the majority of feedback should be encouragement and praise for what employees are doing well. This frequent recognition helps employees feel valued, helping them better enjoy their jobs.)
Metric #3: Lead Measures
Third, measure lead measures: metrics that accurately predict your business’s future performance. Schulze contends that studying these metrics allows the company to be proactive rather than reactive to worrisome patterns before they become larger problems that impact the core business. For example, if you run a barbershop, one of your lead measures might be the number of fully booked-in-advance days on your calendar. If you notice that you have far fewer reservations than usual, you could respond by increasing your social media presence before taking a major financial hit.
(Shortform note: In The 4 Disciplines of Execution, Chris McChesney, Jim Huling, and Sean Covey explain that the opposite of lead measures are lag measures: metrics that indicate your success but don’t directly influence your future performance. Although lag measures indicate whether you ultimately succeed or fail, you can’t influence them directly—you can only increase them by working to increase your lead measures. For instance, the revenue your website generates on a given day is a lag measure. To increase this lag measure, you can focus on lead measures like the percentage of users who click on your advertisements or your ranking in search engine results.)
