To identify useful data, statistics and measurements, you must have a solid grasp of cause and effect. It may seem obvious, but it is surprising how often people assign the wrong cause to an outcome. This failure results from not being able to find the cause and effect in every situation – to create a narrative that explains how events are linked, even when they are not. The problem is that the performance of a company usually depends on both skills and luck, meaning your strategy will only succeed part of the time.
Luck vs. Strategy
The lesson is clear: When luck plays a part in determining the consequences of your actions, you do not want to study success to find a good strategy. Instead, you should study strategy to see whether it consistently leads to success. Successful companies know that the only way to improve a process is to start measuring it. More importantly, they know how to act on the measurements they have set up.
What & Why
An important part of learning and setting up metrics is to ask questions. If a monthly budget or forecast is missed, ask the why and what questions: Why did it happened? What can be done to get back on track?
When sales are down 5%, a good management team will explain why. Here is an example:
“Sales went down last quarter due to lost sales in our midrange customer group. The salesforce for this customers segment had 25% less leads to work with. However, the leads that the salespeople received were successful at converting them to closed deals at the expected closing rate. The problem is not the quality of the salespeople.”
A poor management team will provide fewer insights. Here is an example:
“The market was tough. We hoped to close some good deals but we somehow missed those from the middle of the quarter. We missed the sales target budget by 5%.”
Because of the poor results, the management team hired another sales representative. They were puzzled when the next quarter’s results were even worse. This is because the marketing department did not generate enough leads. Bringing in an unexperienced sales representative lead to a decrease in the sales closing rate. Since they did not analyse the right data or find the correct insight, sales went down and costs went up.
To drive successful behaviour, good metrics should be actionable and attainable. Start with the goal and then work backwards. Cause, then effect.
To learn how to implement data-driven metrics in your business, download our free guide, Achieve actionable insights with data.