Quantifying the Value of Good Management
Topic question: How do you quantify the value of good management?
You can’t make staffing decisions without being able to answer this question. Six Center members took up this challenge:
- Susan Dineen
- Pete Vogel
- Kevin Hickman
- Bill Mitchell
- Steve Johanssen
- Derrick Van Mell
- When did a manager clearly and steadily improve gross or net margins?
- Which metrics do good managers affect most?
- How can you help managers them see the quantifiable difference they make?
Good managers help the organization become more profitable year after year. That’s common sense. But how can you use KPIs to measure and then manage the changes you want? Most businesses use lagging indicators—and that’s a big mistake because you get motion, but not forward movement.
3 Big Ideas
- Using leading, not lagging, indicators, so you’re creating the conditions for lasting success.
- Use metrics as a tool of delegation—but well informed and supported delegation.
- Use metrics to drive collaboration, not competition. Big sales bonusses create friction.
- A construction company made over $350,000,000 last year. The director of business development said, “That means we have to bring in $1,000,000 a day in new business just to stay even.” Metrics needs to be relatable.
- A customer service manager wanted to give each customer $55 flower bouquets. His boss pointed out that with a Net Margin of 15%, that meant they had to get $300 in revenue for each gift. People need to understand the numbers.
- A CEO told their employees they needed to be “lightening rods,” meaning they had to be the place where change happened. People need to commit to making the metrics move.
Use KPIs to delegate
- Warning: KPIs will distort behavior and value if everyone isn’t clear on the big goals
- People who can be relied to on make their numbers get the tougher jobs—and noticed
- Just delegating metrics creates distortion: The boss must clarify the challenge or goal
- Communicate success and analyze failures
- Metrics areaccountability, sometimes include P&L metrics
- Get deep agreement on KPIs, don’t just impose them
- Bosses need also to be clear about the qualitative rules of behavior
Don’t pick the wrong type
- Metrics for projects vs. metrics for process
- Project metrics are often clear: budget, deadline, conformance to spec, disputes, payment
- Process metrics are very different by sector: easier to measure in manufacturing
- Metrics for managers vs. for managers of managers
- Easier to measure quantitative effect of frontline managers
- The question for executives is, “Did your direct reports meet their metrics?”
- Metrics for affiliates: most managers now also responsible for working with other companies.
Make them meaningful
- Understandable, relatable, useful: See the 3 stories above
- Balanced: Remember the “Iron Triangle” of Speed/Cost/Quality when balancing metrics
- Interesting: The information behind a metric should be useful and interesting
- Consistent: To see long-term trends, not just short-term gain.
- Controllable: People can actually make a big difference
- Collaborative: If Sales Growth is the #1 metric, it makes the salespeople seem all-important
Be very, very careful with the data
- Using industry benchmarks can be helpful—but rarely
- Metrics affect pricing, so you’d better be accurate, logical and defensible
- But you can create good data, e.g., engagement surveys, customer satisfaction surveys
Don’t think all traditions are good: “The problem of the billable hour”
- When professional service firms only track billable hours, they’re ignoring quality and efficiency
- A set rate is not meaningful for pricing everything
- If 100% focused on billable hours, what happens to the six management disciplines?