You Can’t Manage What You Don’t Measure

You Can’t Manage What You Don’t Measure

Operations | Posted by - November 14, 2012 at 1:57 pm

When the most fundamental truths about operating a successful company are repeated and repeated, they are seen as trite and can be ignored. The one I'm thinking about today is, "You Can't Manage What You Don't Measure."

A mantra oft recited. Yet somehow, regularly missed in the operation of small and mid-market companies. Companies that underperform are usually doing so in large part because they don't know why they are underperforming. They simply don't track their key performance indicators.

Sometimes that's because they don't bother, but sometimes that's because they don't know what those key performance indicators are. Or to use the metaphor of the "dashboard" for the list of key performance indicators, sometimes the driver ignores the gauges, but sometimes they don't have any gauges at all.

The solution to the former lies in improved discipline. The solution to the latter lies in tracing those aspects of operations that can firstly be measured, and secondly have the highest relationship to the success of the business. In different industries, those can be very different things – SaaS companies will be keenly interested in Customer Acquisition Costs, manufacturing companies in throughput. But consistently, key performance indicators exist and by paying attention to them, Management can get a sense of where their company is underperforming and to what degree.

It is surprising how many companies operate without a temperature gauge, or choose to ignore it, then don't know why their radiator cap blows and steam spews from the hood.

Tags: operations, process, kirchner, business, entrepreneurs, manage, measure, dashboard

Zulubear ~ Annette Young
November 15, 2012 at 11:13 am
I would like to know how to define 'key performance indicators'.
Kirchner Group
November 15, 2012 at 5:04 pm

Thanks for the question Annette,

Key performance indicators are used to evaluate overall success or the success of a particular activity within a business.  They are set based on expectations and past experiences and give a business a quick sense of how it is performing in key areas.

Imagine the dashboard of your car. The gauges would be Key Performance Indicators for how the car is running. From looking at them regularly, you can tell how your car (or company) is running and spot any issues (overheating, running out of fuel) in time to react and take action. Note though that there are a limited number of gauges on a dashboard, despite there being thousands of aspects to the car’s performance that one could be assuring. Only the critical, and predictive, aspects of performance should be measured and monitored closely.

Zulubear ~ Annette Young
November 15, 2012 at 7:45 pm
Thank you very much. Living most of the time in an RV with all kinds of gauges, I am understanding it in your perfect metaphor. As I am revamping and updating my business plan, now must be the perfect time to sort for which ones are critical. Maybe business plan is one of them?
Kirchner Group
November 15, 2012 at 8:19 pm

Generally a business plan would (in addition to many other things) set out what key performance indicators are to be tracked and what the targets would be for them in the coming year(s).

Sean Walberg
November 15, 2012 at 10:56 pm

Reading "The Lean Startup" might help you understand what these KPIs are. Every time you do something, you should be able to look at one KPI to see if your "thing" was successful.

"Revenue" -- bad KPI. It's great to watch how much money you made, but if your revenue goes up is it because you added a feature or did some marketing? Better things are "%age of signups that convert to paid customers for a given cohort" because you can measure your sales funnel and make direct changes. If your change didn't improve the %age of signups in the next cohort then it should be undone.

Also, spend less time tweaking your business plan and more time validating that people want your product / what kind of product you need to build. A plan is just a guess. It's better to say "I showed my first prototype to 5 people and 2 pulled out their wallets" than it is to say "I project to make a bajillion dollars". But that's just my opinion :)

Zulubear ~ Annette Young
November 15, 2012 at 11:49 pm
Well geez thank you for that inspiration and for taking the time. You guys make it easy to ask for help and I really do appreciate it.
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