4 Simple Rules for Choosing SMB Scorecard Metrics
Selecting metrics for your scorecard is a necessary part of goal setting. Metrics go by many names: Leading indicators, lagging indicators, KPIs, activity metrics.
Rather than rehash concepts that you already know, we’ll constrain our discussion to some easy rules to follow when choosing SMB scorecard metrics.
Scorecard Metrics and the Superbowl
This past weekend, 33 of 43 ESPN analysts projected that the Rams would win the Super Bowl.
They were correct. But how did they know?
The NFL stores millions of data points about its players, coaches, and teams.
A handful of these data points have a stronger correlation with winning than others. These metrics are leading indicators of success.
During the season, the Rams outperformed the Bengals in eight of the 12 most measured categories, including yards per pass attempt, third down conversions, and sacks, to mention a few.
Acting on the right metrics in sports, business, and life is a cheat code for predicting success with great accuracy.
Now, if you saw the game, you know that the outcome was far from certain. The Bengals could have won, and there is data to back up that claim.
This uncertainty about what metrics to choose makes the act building scorecard challenging. But it shouldn’t be. Here are a few simple rules that I follow when choosing metrics.
Rule #1: Select Metrics that Correlate to Action.
The final score was 23-20 in favor of the Rams. But the score by itself is not directly actionable by the players. There are far too many variables that impact how many points are scored.
The purpose of creating a scorecard is to select actions that best correlate with the desired outcome (score, sales, profit), and repeatedly act until the desired outcome is achieved.
One test I use to see if I have a good leading indicator is if I can fit a verb somewhere in a phrase or sentence about that metric.
For instance:
Number of quality checks completed
Number of cold calls made
Number of proposals sent
Number of orders shipped
It is also important to include lagging indicators on your scorecard to make sure that your activity metrics (leading indicators) are producing the intended results.
More than 50% of our metrics are activity based. This also helps with accountability.
Rule #2: Select Metrics with Easily accessible Data
In a small business, your ability to choose metrics will exceed your capacity to track them.
In my early years as a leader with P&L responsibility, I made the classic error of selecting scorecard measures that were hard to collect. We spent more time figuring out how and where to collect the data than we did taking action to make the data work for us.
Don’t break Rule #1. Actions trump analysis every time.
The more complex a business is, the more important it is to invest in people and systems to measure performance.
The idea here is that we should not let a preoccupation with tracking data prevent us from acting on the data we do have.
Rule #3: Assign a single owner to each metric.
Numbers provide clarity. However, the simplest way to make the clear opaque is to forgo accountability.
Every number on our scorecard has one owner. It is the accountable person's job to find a backup to report on their metrics and actions taken against them if the accountable person for a measure is not available.
Rule #4: Expect your Scorecard To Change.
Every business is evolving. The rate of change might vary depending on industry, market and technology
In the NFL, the leading indicators for success change weekly.
In one game, a measure of success might be keeping the opposing team’s run yards below 50.
In another game, a measure of success might be keeping the quarterback’s passing yards below 50.
In a small business, you shouldn’t have to adjust metrics weekly.
Metrics take time, trial and error to get right. Assess whether the metrics you’ve chosen actually drive meaningful change in your lagging indicators (revenue, profit). Those that do stay. And those that don’t should be discarded quickly.
Choosing metrics is a subjective process, though the metrics themselves are objective.
We make necessary tweaks to our scorecard metrics at our quarterly EOS meetings to ensure that we are on track to meet our goals.