Weighing the Pig
Once upon a time, a group of simple villagers were facing rising meat prices. They decided to buy a piglet, fatten it up and share out the meat between them. They went off to a farmer to buy a piglet. “Here’s a great little pig,” said the farmer. “You weigh him regularly and you’ll see how fast he grows.”
So the villagers took the pig home, and just as the farmer said, they weighed the pig daily. Unfortunately, the pig did not get heavier, it got lighter. Worried, the villagers started weighing the pig twice a day, then three times a day. Despite weighing the pig more, the poor pig was simply fading away. They decided to take the pig back to the farmer. The farmer was horrified at the state of the pig, which was by now skin and bone. “We weighed the pig like you said but it isn’t getting fatter,” the villagers told him. “How much have you been feeding it?” He asked them. They looked at each other blankly. “Err, we haven’t been paying much attention to that….”
This is the fable that is sometimes referred to in business as “weighing the pig”, and too often it has more than a ring of truth. Much time can be spent gathering, analysing and worrying about data without doing anything constructive with it, and creating a tangible outcome. If you don’t spend time defining measures that are useful, you risk falling into this trap:
- Someone says “We need to track performance”
- So we pick what can be measured, not what needs to be measured
- We measure obsessively
- Pay scant attention to the results anyway
- And continue to worry about future performance
Some functions such as sales do have a number of useful measures, for example number of qualified leads, number of appointments, demonstrations and contracts issued. Past performance ratios can be used to calculate what percentage of enquiries become leads, how many leads become opportunities, the success rate at each sales stage and the win rate at final proposal stage. If you know each of these ratios, you can work out how many enquiries you need to generate to meet revenue targets. Despite this obvious sequential connection, many organisations still focus only on the final stages of the sales cycle and are constantly struggling to meet revenue targets from a sales pipeline that is too small.
Measuring Marketing performance is more challenging, and there is a tendency to collate “vanity statistics” which look impressive but are meaningless, for example “Likes” on social media and views of a video. If is very easy to create a popular video that has mass appeal (think kittens and baby pandas) but the clicks and shares will be meaningless because it is highly unlikely these will turn into enquiries for specialist technology solutions. There are more meaningful statistics that indicate pipeline engagement, but these usually require more complex technology to collect and more insights into the typical buyer journey. For example, it is possible to measure how long a viewer watches a promotional video. If the volume of views is low (compared to kittens) but the engagement is high – for example watching over 70% of a 3 minute specialist video, this indicates a marketing campaign that is creating high engagement with a target audience that is interested in the message.
Other business functions fare even worse, partly because it is more difficult to measure some activities, and partly because outcomes are not as obviously connected to the input – employee engagement to productivity for example.
One of my favourite quotes in this area has been incorrectly attributed to Einstein but William Bruce Cameron got there first in 1963:
“…not everything that can be counted counts, and not everything that counts can be counted.”
Measuring past performance can be helpful but can be misleading, or at worst the information is available too late to keep you out of trouble. You can steer a ship in a straight line by watching the wake stretch out behind you, but if you don’t keep an eye on other indicators like depth of water you could end up on a sandbank. It is just the same in business which is why we need to understand the relationship between Lag and Lead Measures.
Lag measures are a record of past events. Essential for the finance function of course, and can be useful for future planning – “that was a bad result, we won’t do that again.” For example, a lag measure for sales revenue is measuring the number of orders received. The number of sales made on the previous month does not guarantee a similar number in the following month. Trends can be identified over a number of months but this could be too late. The sales director at a typewriter manufacturer in the early 1980s could have watched past sales performance closely and seen a relatively stable sales performance. However the introduction of the word-processor was just around the corner which would destroy the market for typewriters quickly and completely – watching sales trends alone would not have given sufficient warning.
Lead indicators are chosen because they are predictive. A variation from the expected result indicates that action must be taken to prevent an undesirable outcome. Failure to service your car according to the maintenance schedule means it is more likely to break down. Monitoring vehicle service schedules is therefore an indicator of likely reliability – in other words the car is less likely to break down if it is serviced regularly. Insufficient sales leads from Marketing implies that sales targets will not be met (assuming the pipeline conversion ratios remain constant). In the typewriter example, market research and monitoring enquiries would have given a clear indication of the disruption that was about to occur in the market.
Lead indicators tend to be less accurate which is why they are often referred to as indicators rather than measures. There will often be some debate on the relevance of the link between the lead indicator and the result. For example if staff turnover increases that is one indication of poor staff engagement, although there are other reasons for this and equally, there may be poor levels of engagement with a low turnover of staff. In these cases, multiple lead indicators can help pinpoint a trend, such as measuring absenteeism, employee heath, time-keeping and involvement in company activities.
What and How to Measure
The logical approach is to start where you want to end. What are the measureable outcomes? Think strategic goals supported by a series of shorter term business and team objectives. These in turn will be supported by activities. A SMART Objective (Specific, Measureable, Achievable, Realistic and Timely) will by definition be measurable. The activities that lead up to the achievement of an objective therefore also need to be measurable. That is not always so easy.
When you want to link and measure achievement of business objectives to activity at team level, it is often better to ask teams to define their own measures. In fact they can assess their own performance too. This is far more effective than imposing measures because a team is more likely to come up with a valid and realistic measure, and it is also more likely to be monitored because it is “owned” by the people doing the task. The caveat here is that there must be a supportive organisational culture. If the organisation runs in a climate of fear and punishment, KPIs will be fudged to avoid retribution. In a supportive organisation, a red flag is an appeal for help rather than an admission of failure. This is far more likely to result in problems being resolved at an early stage and eventual outcomes will be more predictable.
Here is an example of the possible measurements that can be used to assess the effectiveness and return on investment of a marketing campaign. Starting with the objective, which is to generate 500 MQL (marketing qualified leads) by 30th September, a time-line of activity can be calculated so the marketing team know what activities have to be carried out, and based on expected duration, when they need to start. Every stage needs a start date and end date, with expected results or deliverables. Even the first activity, “Plan the campaign” has a start and end. This activity can and should be measured, so if the expected duration of the planning stage is two weeks and measurement points are weekly, the team can self-assess the progress and if after the first week the campaign is 50% planned, all is on track. Further milestones and deliverables can be defined and monitored to track the creation and execution of campaigns. A well-thought-out plan with realistic timescales, tangible deliverables and progress assessment between key milestones creates Lead Indicators that will demonstrate to the business that Marketing is in control of the revenue pipeline and is on track to deliver the required number of leads to the sales team.
Measure What Makes a Difference
Robert Kaplan and David Norton popularised the Balanced Scorecard in the 1990s and although that seems a long time ago, the concepts are as valid today as they ever were. Put very simply, The Balanced Scorecard has measures to monitor carefully selected data items from financial and non-financial sources which affect the achievement of the strategic goals of a business. The key here is financial and non-financial. Combining multi-functional measures and lead measures with activities linked to objectives and strategic goals is an extremely effective way of achieving results predictably and with a lot less stress.
Here are my recommendations for measures that help you achieve results.
• Link strategic goals for the organisation to team objectives and activities
• Have a measure for every key activity so you can track progress towards the achievement of goals
• Have measures for important financial and non-financial activity
• Identify Lead Measures and monitor then rigorously
• Take action when Lead Measures indicate a potential problem ahead
• Create a culture of engagement, where teams monitor their own performance knowing that what they do is linked to the strategic goals
Any organisation can implement these recommendations and gain significant advantages. Basic reporting mechanisms can be created with simple desktop applications, and for more advanced measures there are many KPI, Objectives and Key Results (OKR) and Balanced Scorecard solutions on the market. However, it is not how you measure and display progress that matters, it is what you measure and what you do about it that makes the difference to organisational performance.
Neville Merritt is director at Pure Potential Development Ltd and programme leader for on-line marketing and sales courses under the Ascent Learning brand. He has over 30 years’ experience in sales, marketing and operational management.