ACTIVITY Metrics are THE Key to Strategy Implementation
Consistency and Reality are the core deliverables of Competitive Advantage. If you tell a customer (client) that they should buy from your organization (or use your organization, if nonprofit) because you do X, Y, and Z that make your offering a TRUE COMPETITIVE ADVANTAGE, then you must deliver on the promise! Every time an employee does not deliver on the promises made, the customer discounts the message being delivered and considers alternatives.
Metrics used to craft rewards for employee behavior must be tied to the activities you are seeking from employees. Stock price is one of the most disconnected (and truly useless) rewards available as it is impacted by more forces outside an organization than inside the organization.
Virtually everyone in every organization is very familiar with the many organizational-outcome measures used to evaluate success:
sales
expense ratio
net income
profit margin
productivity
net promoter score (simply one of the most poorly designed and statistically flawed outcome measures ever created)
same-store sales
inventory turnover
returns
Some of these types of metrics are quite valuable, but they provide information only on the outcomes of various organizational activities - They tell you nothing about how they happened. How did these outcomes change from one period to the next? What if they did not change the way that leadership was hoping for? What levers should the leadership team pull to move them forward? What is preventing the organization from achieving its goals?
Leadership is about crafting an informed hypothesis about success and ensuring that the activities of employees are directed to move that hypothesis forward.
All organizations operate under management hypotheses! That is, a leadership team believes that if employees do X, Y, and Z AND we invest in A, B and C, then the organization will see increased sales, profits, etc. It is not a “known” (if it were, then every leadership team would do exactly what would yield them the results they are looking for); it is a hypothesis that considers all of the elements of the business, the competition, and the environment in which it operates. Once this is established, the next step is to determine what activities we believe our employees should do and whether employees are actually doing what we believe will lead the outcomes we seek. Are they focusing their efforts on the organization’s competitive advantages? Therefore, in strategy implementation, these quantifiable metrics must be about the activities that we want employees to do.
Activity Metrics are KEY to Strategy Implementation
Strategy is a journey over a period of time. For strategy to mean anything beyond the words on a page, it has to be measured, and adjustments must be made in those measures to direct employees to do what needs to be done. This is not micro-management it is guidance that matters. As stated earlier, the metrics used must examine the activities, not just the results, that we believe will move us closer to knowing that our strategy is actually being implemented.
I have spoken with many CEOs who are frustrated that their well-designed strategy has not led to the organization growth they had envisioned. With a bit of investigation, we find that we can’t evaluate the success or failure of the strategy because it was never really implemented. Management teams below senior management paid lip service to the new direction but didn’t change any of their actions.
Organizations need a completely new set of metrics to know that the strategy is actually being implemented. Those activity metrics need to be tied directly to the unique strategy (competitive advantages) of the business.
We want to say the following to our employees - “As the Numerator goes up (or down in some instances), we believe we are better off”
Let me share a couple of overarching examples of activity metrics for various potential competitive advantages:
Competitive Advantage - Most Convenient
We want to free up curbside parking and making it more appealing to customers with a valet service: Number of minutes from vehicle arrival at curbside to return of attendant to curbside (evaluated daily or hourly).
We think that greeting the customer quickly is a key approach (makes the customer feel that they are being taken care of): Number of seconds from customer arrival to initial greeting (evaluated daily).
We believe that the more our employees know about our latest customer service initiatives the better our consistency of delivery to customers: Number of in-store employees attending refresher trainings divided by total number of employees.
Competitive Advantage - Best available selection
We believe that selection is key to attracting the customer. Number of unique SKU’s available for purchase divided by the number of unique SKU’s available for purchase from our competitors.
We are focused on resolve an issue about a customer not finding what they are looking for (gives customers confidence): Number of daily resolved customer complaints on being unable to find products divided by total daily complaints on being unable to find products.
We believe that having everything that the customer needs to complete a particular project will draw them in: Number of items on-hand to complete a total project divided by number of total project collections available.
We want to be a go-to source for customers after hours: Number of items available to customers after midnight divided by number of items available to customers before midnight.
Competitive Advantage - Highest expertise
We believe that customers want answers without employees having to seek advice at the time: Number of times an employee refers to an outside source when answering a customer inquiry divided by number of inquiries received from customers.
We want to manage as experts: Number of employees who have completed industry certifications divided by total number of employees.
We believe that a reputation as experts will draw in customers (shows off current expertise and provides visibility as an organization known as an expert): Number of published articles or industry presentations per year divided by total number of employees.
Competitive Advantage - Personal connection
We know our employees encounter customers in their daily lives. We believe that an employees ability to recall it provides a connection with customers: Number of customers about whom employees can recall at least five important personal elements divided by number of customers assigned to that employee.
We think that follow-up contacts with customers that are not aimed at making another sale will attract customers. # of follow-up customer calls made strictly to confirm that orders were delivered correctly / total # of follow-up calls.
ACTIVITY METRICS
Not only are these activity metrics, but they are also all aimed toward the actions of employees that will impact the perceptions or responses of paying customers. If designed effectively, the change that the strategy envisions will result because of the change in employee actions. All of the metrics can be used at an organization, divisional, or department level as well as the individual employee level.
We worked with a nonprofit organization that (among other competitive advantages) had a competitive advantage that consisted of going out to the client instead of having the client come to them for services. It passed as a true competitive advantage relative to the other nonprofit organizations in their community. They crafted a metric: Number of visits outside office divided by total visits with clients.
When we measured this against performance, we found that the mean was roughly 91 percent across all of the counselors. This made sense since some clients simply preferred to come to the office. However, when we dug deeper into this number, we found three counselors in the organization with percentages below 50 percent. Each was approached and questioned about why this number was so out of line. Each expressed a reluctance to meet clients outside the office (uncomfortable, inconvenient, ego, etc.). The reality was that they were not delivering on that element of the organization’s strategy promise.
In order for strategy implementation to be effective, it must be consistently delivered.
