The challenge is choosing metrics that matter, meaning those that measure what’s important to customers, and provide sufficient insight to help both the leadership team and all employees see problems and opportunities in time to react.
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Because scale was a critical core competency, it was necessary to build supporting systems and to measure it in meaningful, impactful ways. It wasn’t enough to merely say that scale was important.
2. Demands: Leaders have to balance two often competing demands on the business — People and Process. This requires simultaneously maintaining a great reputation with the employees, customers, and shareholders (the People side of the business); and improving the productivity of how the firm makes/buys, sells, and tracks these transactions (the Process side of the business).
3. Disciplines: To effectively execute, there are three fundamental disciplines (routines): Set Priorities; gather quantitative and qualitative Data; and establish an effective meeting Rhythm. It’s in these meetings, debating the data (the brutal facts!), where the priorities emerge.
4. Decisions: Ultimately, all of the above require some decisions. To scale the business requires getting four key decision sets — People, Strategy, Execution, and Cash — absolutely right, and there are right and wrong answers. Shortchange any one element and you’re not maximizing your opportunity.
Whatever challenges exist within the organization can be traced to the cohesion of the
executive team and its capabilities in prediction, delegation, and repetition.
In general, you’ll pick a Critical Number that will address either an opportunity or a challenge on the People/Balance Sheet side of the business (e.g., reduce employee turnover, improve customer service scores, or dramatically reduce a credit line with the bank) or the Process/Profit & Loss side (e.g., improve gross margins, reduce production cycle time, or increase sales close ratios).
At Gap Inc., for example, Paul Pressler realized in his early days that the management team needed a common set of metrics to create more shared accountability for overall corporate performance and shareholder value. Existing metrics focused on performance within each brand, without creating a strong link to corporate financial goals.