Monthly Metrics Review

Monthly Metrics Review

Before returning to New Zealand in 2020, I spent the preceding 7 years living in San Francisco building a software company. One of the main features of our product was KPI dashboards.  

In hindsight, I made things too complicated when onboarding new clients by building elaborate metrics hierarchies that cascaded out in a big branch diagram from the CEO at the top of the company, down to each functional team, and then down to each individual contributor.

The goal was to give leadership teams a holistic view of their entire business and how it was all linked together. It was good in theory, but in practice, most clients struggled to keep their metrics accurate and up to date. Instead of a robust KPI dashboard, I created a fragile system with too many dependencies.    

Using the Pareto Principle (the 80/20 rule), I’ve since learned that leadership teams can get 80% of the value with 20% of the effort simply by discussing the top 3 metrics for each function at a dedicated meeting called the Monthly Metrics Review.  

Functional managers are expected to monitor all their team’s metrics on a daily and weekly basis using the relevant software platforms for their function (CRM, ERP, Accounting software, etc). Modern software tools produce hundreds of metrics, but regardless of how much data you can visualize at the team level, as Jim Collins says, “If you have more than 3 priorities, you don’t have any priorities.” On this, I fully agree.

If your senior leadership team (or board of directors) held a Monthly Metrics Review, where all you did was discuss the visualized trends of the top 3 metrics from each function, you’d be far ahead of most companies in terms of having a firm handle on your key business drivers.

Here’s an overview of the process I currently use with clients:

Step 1. List Key Business Functions

This includes things like: marketing, sales, operations, customer service, product development, finance, human resources, overall company leadership and governance, etc.

Step 2. Single Point Accountability

Clarify the name of the manager accountable for the performance of each function. Also known as the “one throat to choke”. It’s a horrible term, but that’s what makes it memorable.

Step 3. Choose the #1 “Outcome Metric” for Each Function

What is the most important outcome (measurable result) you want the function to deliver each month?

The #1 outcome for Marketing might be the number of qualified leads. Sales might be gross margin dollars. Operations might be DIFOT. Finance might be cash conversion cycle. Company leadership might be net profit, etc (these are just examples for illustration).

Step 4. Choose the Top 2 “Controllable Input Metrics” for Each Function.

The outcome (result) is what we strive for, but you can’t manage results. What you can manage are the “Input Metrics” that drive the result.  

Controllable Input Metrics are the “activity” or “effectiveness” measures within the control of the function manager and their staff to influence.

Identify the 2 most important controllable inputs that (if achieved) will deliver the stated outcome for that function.

Step 5. Negotiate Performance Targets

Negotiate the red, yellow, and green thresholds for monthly performance with the function manager. Here are my battle-tested recommendations for how to set your thresholds:

Red scores are an unacceptable level of performance. Just like a car dashboard, when you see a red warning light, you need to fix it.

Yellow scores are the narrow threshold between the green and red scores. Is it an early sign of a problem? Let’s keep a close eye on things.

Green scores are the target level of performance. My battle-tested rule of thumb is, “An A-Player (not a slacker, a true A-Player) with the right tools, training, and support, putting in an honest week’s work, should be able to achieve the “green” target 90% of the time.”

How big should the gap be between the green and red thresholds? For outcome metrics, the red threshold might be 90% to 95% of the green threshold. For input metrics like activity and effectiveness targets, the red threshold might be 80% to 90% of the green threshold. But there is no hard and fast rule here. Negotiate with the functional manager their green performance target, as well as the red threshold at which point the score becomes “unacceptable”.

Step 6. Visualize the Data

In my experience, a line graph is far more powerful than a series of color-coded numbers in a table. Use both, but let the trend lines on the graph tell the story.

Don’t get too fancy either. I’ve seen clients prematurely engage their IT departments and waste time and money building elaborate dashboards, only to discard them 6 months later because they weren’t presenting the right information or the visualization was not intuitive.

To make it easy, I build my clients a spreadsheet MVP (Minimum Viable Product) dashboard and recommend they use this for the first 2 or 3 quarters, to figure out which metrics are worth keeping and how best to visualize the data. (see example metric below).

Outcome Metrics tend to stay relatively constant, but the Controllable Input Metrics may take a few quarters to truly determine which 2 metrics are the key drivers of that outcome.  

Later on, once the metrics are dialed in, if you want to incorporate integrations, automation, specialized dashboard software, XmR charts, etc, you can move forward with confidence.

Step 7. Appoint a “Data Champion”  

My SMB client companies have on average 10 functions, so we end up with about 30 metrics to discuss at the Monthly Metrics Review.

You might think everyone should update their own scores on a dashboard, but I’ve probably looked at thousands of company dashboards over the years, and you are deluding yourself if you think it will happen.

I came to the same conclusion as Jeff Bezos. At Amazon, one person in the finance team keeps all the metrics up to date. Yes, the function managers are accountable for performance, but the data champion is accountable for updating the dashboard each month.  

Ultimately, everything might be automated, but having someone from your accounts team manually input 30 numbers into a spreadsheet once per month is a small price to pay to ensure you don’t waste the leadership team’s valuable time chasing up missing or inaccurate data.

Step 8. Conduct the Monthly Metrics Review

It is a fast meeting. All we do is look at the graphs of the top 3 metrics from each functional area, one after another in sequence.

If the score is good, just quickly acknowledge that fact, “Good, nothing to see here,” and move on to the next graph.

But if we see a graph where the score is below target, or trending in the wrong direction, we say, “Hey, what’s happening here?” The function manager must arrive at the meeting prepared to explain the root cause of below-standard performance.

Then we ask, “OK, what 1 thing can we do this month to improve this?” Let the function manager recommend their solution first, but work together to agree on at least 1 tangible action that is within their control to implement in the coming month, and capture it as a task with a due date.

Finish up by asking, “What support do you need?” Make it clear that you are on their side and want to help them succeed.

Follow up at the next Monthly Metrics Review to ensure the task got done, and assess the impact on metric performance.

Start with a monthly cadence. Later on, if appropriate, you may choose to increase the frequency to a Weekly Metrics Review. But note that the purpose of the Metrics Review is to understand the trends in the data (the signal), not the day-to-day fluctuations (the noise). In my experience, a monthly cadence with monthly data points works best for most leadership teams and boards.

Step 9. Conduct a “Sniff Test” Every 90 Days

At the end of every quarter, review and confirm the top 3 metrics for each function. Keep what is useful. Discard what is not. Your metrics should reflect any changes in your market, business model, and strategic priorities.

Also, adjust the green and red performance thresholds to reflect seasonal factors or changes in your operating environment. Re-negotiate the targets up or down, but ensure they are achievable and relevant using my “rule of thumb” described above.

Nothing is more demoralizing to people than green performance targets that bear no resemblance to the current reality. Set relevant and achievable targets so your “good people” (your A-Players) can see they are doing a good job every month. You also want to make it obvious to B-Players that they are underperforming and need to lift their game.

By way of example, Jeff Bezos when he was CEO of Amazon, ran a weekly metrics review meeting with the managers of his functional teams, where all they did was quickly flip through the line graphs of the top metrics for each function.

At Amazon, if a function manager could not explain why a metric was below standard, or state the specific action they were taking to fix it, they would be chewed out by Jeff Bezos in front of everyone, and this was not something you wanted to make a habit of! I’m not saying you need to be this harsh, but Jeff got results.

There’s more to driving business performance with metrics dashboards than what I have covered in this article, but I hope this overview inspires you to “up your game”!

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Until next time…
Stephen