Defining Clear, Actionable Measures of Success to Optimize Investments

So many companies set great objectives and fail to define how they know they succeeded. Here's a practical way to think about metrics and measures to optimize your transformation dollars.

Defining and rolling out a comprehensive strategy to help expand the business provides an amazing foundation for success for any company that invests the effort to define a comprehensive new strategy.? As I mentioned in my blog last week, the strategy defines how the company intends to expand customers, products, or geographies, all in an effort to bring more money to the top line.? In addition, the strategy outlines the tradeoffs the company intends to make to help fund the strategic investments, without sacrificing the brand’s core.? Once the organization and it’s leaders define the strategy though, they must define and cascade the measures of success that help hold the organization and its leaders to the matriculation of the strategy,? Without metrics, the organization has no way to know if the strategy has the desired / intended impact, if people buy into the strategy, if customers like the strategy, and other key indicators that demonstrate success for large enterprises. ??Without metrics, investments often go wasted and the top and bottom-line objectives they conceptually hoped to achieve never get realized, frustrating board members, investors, and employees, as they must take drastic measures to recoup the lost investments that didn’t see the return they expected.?

So why is it so important to set clear and actionable metrics of success?? Let’s look at two examples…first looking at a company that didn’t set clear, cascading measures of success for their strategic changes and one that did.

What Happens when you don’t measure?

Let’s first look at a premium packaging organization that provides a large array of packaging items for shipping, food preservation, and many other niche purposes.? They grew up by meeting their customers where they needed packaging, often times agreeing to terms that overly customized the packaging options, thereby making standardization of manufacturing processes difficult and creating cost overruns that they rarely accounted for in the sales process.? While the company grew exponentially and margins remained high for their premium packing solutions, the company recognized an opportunity to standardize manufacturing processes to streamline costs and simplify production movement made a ton of sense, since so many customers asked for the same types of solutions.

The company brought in a large strategy firm to help them redefine their strategy.? The work was brilliant and focused on traditional strategy elements, like new customers segments (mid-market simple offerings), new geographies (the company had a heavy North American and European presence, with major opportunities in Latin America and Asia), and new products (with a heavy focus on a standardized product catalog that required significant price increases for customized solutions, outside of things like logos on packaging).? The potential market value of the strategy possessed multiples in the 4x range, which made investors very excited about the potential for this organization.

Unfortunately, the leadership team proposing the growth strategy never took the time to set metrics for the strategic enablement work and the strategy struggled to deliver on macro metrics they company defined in the initial strategy presentation.? As they execution teams received the strategy and their marching orders, they saw no change in their measures of success, compensation, or anything that impacted them directly, so they continued to perform their day jobs, without spending much time on strategy execution.? Since they had no skin in the strategic game (other than the value of the stock they received as part of their compensation package), they never really saw the urgency in the activities their executive team asked them to execute.? As they company performance softened, the verbal accountability and work expectations increased mightily, with requirements around in-office attendance, 1:1 meetings, and other non-productive requirements put in place.? Those decisions took an innovative culture to a static culture, employee engagement dropped rapidly, and many people elected to leave.? In the end, the senior leaders that helped author the company’s growth strategy lost their jobs and the company has since floundered and failed to execute on the strategy, in large part, because they never cascaded measures of success to help functional leaders and execution teams understand how the strategy changed the way the company evaluated their efforts.

What Happens when you do measure?

Let’s now look at a good example of cascading metrics that helps drive alignment and a general feeling of success for the employees executing the strategy.?

Coming out of COVID, a large hotel chain, recognized a huge need to redefine the company’s strategy in an effort to encourage people to travel again.? As a predominantly franchised model, the company didn’t necessarily need to invest heavily in a revamped strategy, let alone metrics to make sure the strategy succeeded and helped property owners book more rooms in their hotels.? From the corporate perspective, they sold the hotel franchises and while they earned a percentage of the top line revenue for marketing, technology, and operational support functions, they didn’t necessarily need to help at the level the ended up helping throughout their strategic transformation.

The guts of the strategy proved very simple: provide more marketing about the safety, security, and comfort of their hotels; wow customers with contactless methods and simple booking processes; enable property owners to communicate digitally with customers; and provide group buying solutions for franchisees to purchase the cleaning supplies required to provide a safe and comfortable environment for hotel visitors.? The effort of the breakdown of the strategy into pillars and ultimately actionable metrics proved much more difficult, but the organization took the time and invested the dollars / lost productivity to make sure they put the guts in pace to truly help their franchise owners succeed in this new world.

Their metrics efforts started at a very foundational level, asking the question, “what demonstrates success in this domain?”?

• For marketing, the organization wanted to create seamless booking and seamless integration of the experience to the hotel level, so it measured marketing attribution by channel, click throughs at the digital marketing level, and data quality at the franchise level.? While there were certainly integration issues at the hotel level, the organization measured the integration complaints and created a tiger team to fix issues as quickly as possible
• For direct communications from property owners to customers, the company measured customer satisfaction with global communications, customer satisfaction with local communications, and back-end simplicity of the process to chat with the customers
• For group buying, the organization measured franchisee simplicity of the ordering process, savings generated for the franchise owners, and total spend around specific items that they viewed as “seasonal” meaning items they knew would decrease once customers no longer feared the cleanliness of the hotels, relative to the customers’ fears around COVID.

With clear metrics against which the organization planned to measure the success, corporate, franchise, and field employees realized, everyone knew how to adjust their priorities to match the “corporate” objectives.? As a result, the collective organization realized tremendous growth that outpaced their hotel competitors and the measured individuals were rewarded for their success.? That alignment of metrics led to clear functional / location strategies, and ultimately led to better outcomes for everyone in their system.

So, how do you create clear metrics for your teams to measure the success of their functional strategies and demonstrate progression of the strategy organizational leaders set?

1.?????? Establish strategic metrics for the value of the strategy.? In the case of the hotel chain, they agreed that customer sentiment was a leading indicator of revenue for the franchisees and ultimately franchise fees back to the corporate team.? The time they took to show franchisees the expectations they set to drive top line revenue created sustainable behavior change.? Even though the corporate team had no way to hold the franchisees accountable for the metrics, the simple articulation of leading metrics communicated the seriousness with which the corporate team took the strategic changes.

2.?????? Measure the current performance to understand your baseline.? No organization can optimize their investment dollars and redirect spend to higher performing initiatives without truly understanding where they perform at the beginning.? Most companies fail to measure success regularly and consistently, even in our modern data era, but taking the time to run some preliminary data collection efforts ensures you can see growth (or declines) allowing the leadership team to make informed decisions about ongoing investments to strategic initiatives.? In the case of the hotel chain, they actually collected and reported on a significant amount of data, but baselines pre-change drive ongoing decisions.

3.?????? Define key sub-metrics that enable preliminary understanding of performance amongst the strategic initiatives.? If done correctly, the organization measures leading measures to understand likely performance in key performance metrics like financial performance that typically lag and use pulse methods to understand ongoing buy-in from customers and employees before they collect lagging metrics like NPS and engagement scores.? In the case of the hotel chain, they send us all surveys during our stay and after our stay to make sure we value our experience, enabling them make real-time adjustments.? And the secret to their success also centers on the on the fact that they use those same measures to perform long-term lagging outcomes and make real-time adjustments.

4.?????? Install the right tooling to measure ongoing performance.? In many cases, organizations don’t have the right methods in place to collect data and measure performance, so they need to invest in those methods.? On the customer front, most customer-facing organizations have survey products that enable them to do some immediate sensing with customers and employees and use the sensing data to adjust in real-time.? For financial and other lagging metrics, the company can study revenue trends, quarterly costing, and other key financial metrics periodically to understand incremental performance improvements.? More mature data companies not only have tooling to collect the data, they also have advanced analytics and visualization tools that enable real-time discussions and reviews in executive roundtables where ongoing investment decisions are made.? In the case of the hotel, they have advanced collection tools, but haven’t invested in advanced analytics tools, so their BI team uses Excel to produce product visualizations in a tool like Power BI.

Defining clear, achievable, and actionable measures of success helps organizations ensure that they make the most of their transformation dollars and redirect funding when then realize certain aspects of the strategy return lower ROI (or even negative ROI) relative to the other strategic components.? Organizations that define the outcomes they want to drive, set achievable metrics, and define key action items to achieve their objectives demonstrate better accountability and therefore better discipline.? All data – driven organizations must baseline current performance, relative to the value the expect to deliver from the new or revamped strategy, to determine ultimate value of the strategies that make up their transformation. ?Organizations that succeed in transformation create leading metrics that help them measure near-time progress, allowing them to adapt to the changing conditions, long before they have to report annual performance outcomes to the street and their investors, but plenty of successful organizations wait until they must measure to deliver annual filings.? And last but not least, organizations that creatively leverage advanced analytical and visualization tools seem to demonstrate the highest level of maturity around data-driven decision making.? In the end, defining and measuring key metrics and measures must be done to demonstrate the value in the strategy and assure investors that you made the right decisions with key changes.? And organizations that use advanced concepts see even more value, helping them to extract even more value from the strategies they implemented.

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