Effective use of data is essential for a business to reach its growth potential. Oftentimes companies are stuck on how they can improve their growth strategy. Our guidance starts with quantifying how they’re currently performing so we have an accurate basis for comparison.
The question that inevitably comes next: “What should I quantify?” The answer… everything.
Managing growth means making good decisions. Decisions based on objective measurements and, of course, in line with the organization’s strategic direction. Having an accurate overview of the health of the company is fundamental towards growing the company to a new level.
Far too many businesses fail to plan for growth and aren’t methodical about executing that plan. Their goals are mere wishes and it’s no surprise that these businesses’ growth intentions aren’t realized.
See Cause and Effect
Leaders who are understandably focused on running the business are often chasing empty promises of a hundred different tactics – trying everything at once and hoping for the best. Other leaders who are immersed in a specific aspect of the business, have difficulty in seeing the big picture. In both scenarios, quantifying results is critical to understanding how decisions and activities affect business outcomes.
Quantifying results provides an objective perspective of the health of the company or the success of an approach or strategy. After all, without a quantitative scoring method, it’s very difficult to determine whether an approach was successful. You are left to a leader’s subjectivity. For example, maybe an investment in product development improved the product. But how well did it work toward the strategic growth objective? Did it increase sales? Was profitability improved? Were any new customers signed? How did the results of that investment compare to what could have been accomplished by investing in another area? To answer these questions you need to quantify.
Once you have a sufficient system for quantifying your results you can use that data for insights, eventually leading to better, smarter decision making. Tracking outcomes in a data-oriented way gives you a clear vision of the company. You are now able to decide: Where is the BEST place to spend money if I want to achieve well-structured growth (or any other business goals you have).
Share Information Across All Levels
Quantifying business results allows everyone in the company, and most importantly the leaders, to have an understanding of how the key drivers of the business interact with one another and lead to business growth.
One of the main disciplines in The 4 Disciplines of Execution, by Chris McChesney, is “keeping a compelling scoreboard.” Having your results quantified in data allows you to visually show that data and track your progress toward completing your goal. As stated in the book, “People disengage when they don’t know the score. When they see at a glance whether or not they are winning, they become profoundly engaged.”
It’s important to quantify and keep track of the progress being made so that team members stay engaged. One of the most important predictors of job satisfaction is how much one’s work is contributing towards reaching the company or team goals. Keeping a scoreboard allows everyone to see the contributions of their work.
Start with the Basics, Grow to More Advanced
When developing a quantification strategy it is important not to get bogged down or discouraged by the seemingly infinite number of possible metrics. To be efficient and successful, start with the basics. There are a small number of metrics that are critical for every business. Revenue, profit, and cash flow are a couple of metrics to start with. Almost any action or contribution within the company can be traced down to its effect on these core metrics.
It is important, however, not to treat changes in revenue or profit as the sole measure of success/ failure from a business initiative. There are always multiple factors at play, using different metrics to see outcomes from a different perspective can be very valuable. Nonetheless, having a solid grasp of these basic metrics will give you an indication of the viability of the business.
Once you have a foundation based on the more simple metrics above you can start to expand to more advanced metrics that may be more tailored to your specific company. Metrics like Customer Acquisition Costs (CAC) and Sales Cycle provide an HD view of the effectiveness of their respective processes. CACs are the expenses related to acquiring a new client or customer. Sales Cycle is the amount of time, start to finish, for a sale to take place. With knowledge of the average cost and time it takes to make a sale you can combine this information with the average revenue per customer and plan for future revenues. You are also able to tweak the parts of your business that are holding back growth.
Visualize Your Data
When you accumulate data over a period of time it begins to get very important to look at trends. Trends show you how your metrics vary across time, this allows you to notice patterns. If your revenue dips at a certain time of year, every year, now you can investigate why that is happening and make a correction to smooth out the revenue stream.
Not only is it important to monitor and track how your data varies across time, but it’s also important to analyze how it changes across multiple dimensions. Looking at growth not only over time but also growth per employee, per customer, per location or region, per product or offering, etc… can deliver very interesting insights.
Lead vs. Lag Measures
One key pitfall that often stifles a company’s growth strategy is to focus too much on things that can no longer be influenced. A lag measure captures a result whereas a lead measure reflects the things that are believed to influence the end result.
For example, in a weight loss scenario, the weight that is measured on a scale is a lag measure. This measurement is reactionary, when you step on the scale it’s telling you how much weight you’ve already lost, not how much weight you’re losing. The activities that affect this measure – such as calories consumed and exercise – are within a person’s control. When you track how many calories you are burning and consuming you have actionable, influenceable metrics. These are the lead measures that, if tracked, can lead to much more accurate predictions on the ultimate desired outcome – a lower measurement on the scale.
Although tracking lead measures is a little harder, the insights gained by doing so are much more likely to lead towards achieving your growth goals. When developing lead measures for the results you want to impact there are two pieces of criteria to follow:
- Lead measures must be predictive, meaning that changes in them cause changes in the goal.
- And they must also be actionable, meaning that a team can directly impact them.
In our weight loss example, the metrics “calories consumed” and “calories burned” fit both criteria. All else being equal, a decrease in calories consumed or increase in calories burned leads to a decrease in weight.
Summary
Creating the kind of growth that transforms organizations, and leads to desired outcomes for business leaders isn’t easy. But there are foundational practices that comprise a scalable growth strategy. Quantification of the right metrics is one of the first steps.
Tracking these data points can involve additional steps/additional labor, it’s worth it. This discipline has to become part of the culture. For growth to be managed, it needs to be measured. Employees throughout the company need to be able to see the improvements (or lack thereof).
Organizations that commit to measuring their growth, making decisions with the help of available data, and objectively monitoring the results of their initiatives will be taking significant steps towards achieving their growth goals.
