The Oakland Athletics are a baseball team that revolutionised their sport by understanding management indicators. See, until they blew up the market, teams were guided to rate (and financially value) players by metrics such as the number of their hits. In addition to these metrics, they trusted the scouts, who evaluated the players based on their ability to run, throw, and all that other good stuff. What’s funny is, the Oakland Athletics showed that these metrics have little to do with the actual performance of the players.
After an in-depth statistical analysis, they discovered that there was a much more predictive metric of a player’s performance: the ability to get to the next base. Based on this discovery, the Oakland Athletics were able to create a low-cost team (players who score high in this metric were not overly priced) with which they were able to revolutionise their sport and overall good results.
Although this example has been analysed in the classic business book (and film), Moneyball, companies have not yet internalised it and keep choosing their management indicators poorly.
For example, a fast-food chain determined that customer satisfaction was key to profitability.
Similarly, they determined that customer satisfaction was linked to employee turnover. The lower the turnover, the higher the satisfaction. “We simply know that it is the key factor…” explained one company executive. The company was therefore busy reducing turnover, but as the data came in, they discovered that some shops with high turnover were very profitable and others with low turnover were not. Hmm.
After delving further, they discovered that the metric that related to high customer satisfaction (and therefore profitability) was manager turnover, not overall staff turnover. With that said, there are four major errors that typically occur when determining management indicators. The way in which indicators are determined is key and, almost always when it fails, it is for one of these 4 reasons:
- The indicators of another company are adopted.
- The “expert” judgement of the internal teams is trusted.
- Focus groups are set up to define them.
- Surveys are conducted to define them.
To avoid making these mistakes, you have to follow a different process. Start with this question instead: What are the most important management indicators? Most companies say they are customer-centric. However, most companies have KPIs focused only internally on their own company:
If you really want to be focused on your customer, you can keep sales KPIs focused on your business, but you also need metrics focused on what your customers want.
Here’s a quick example, imagine an insurance company. The KPI in focus is requests for quotations – so they invest tonnes of money in advertising and the quotations are piled up at the door. However, when a user makes a request, they receive a message that their case will be studied and an agent will soon contact them.
On the other hand, a company focused on what its customers want, rather than spending money on advertising, does so by automating the response to these requests. Customers know instantly how much the insurance would cost them. That is what interests the client in this case.
Which company do you think will get better results?
When a manager from the first company wants to contact a prospect to talk about their case, many times they will find that the user has already advanced in the process with the second company, which has been quick to respond. This makes your customer-based management indicators so important, for obvious reasons.
So where should you start?
First question, what is the goal of your customers?
Second, what factors will help you to achieve that goal?
The best way to find these indicators is through contextual research.
In the end, management indicators are a matter of data. The key to finding good indicators is, as always, a combination of asking the right questions and answering them properly. To answer them, you need the right data.
The best way we know of to collect, store and manage data is through a CRM. Efficy has got everything you need.
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