Metric Fixation

I often see high-level managers and business owners express an almost irrational fixation on a singular internal metric or Key Performance Indicator (KPI). Their steadfast focus, while admirable, is often shockingly misguided and harmful to the business. This owner intensity typically drives the organization to dramatically improve one specific metric while ignoring others, which frequently results in business trauma, unintended consequences and collateral damage.

One organization I recently worked with focused all of their attention, compensation and recognition on their top volume revenue producers. They characterized these agents as ”top performers” and rewarded them as such. Upon closer inspection, however, the agents who had produced the most revenue were not the best salespeople. They were simply “churning” calls and skimming opportunities rapidly for the easiest sales. This “cherry-picking” does produce large revenues; however, it does so at the expense of more needy customers who require greater attention and patience. Once conversion of opportunities handled and a customer service index were added as performance indicators, many of the perceived top agents fell significantly in the rankings. Although they were producing large revenue sums, the hidden collateral damage they were doing to the brand through their insensitivity to other customers largely outweighed the positive sales results they were generating. This situation is tragic…and common. Conversely, with the new performance indicators in place the true capabilities and contributions of some of the near-top and average agents were seen for the first time.

In one industry, an owner might place all of his focus on sales revenue only to get burned by profit slippage from excessive agent-to-customer incentives or discounts, or on the back-end through poor quality sales resulting in high accounts receivable defaults. In another scenario, an owner may become fixated on utilization percentage (as in car rental or hotel room usage) while simultaneously neglecting to see the harsh effect of the lower daily rates needed to drive that utilization. If you had a four room hotel, would you rather have 100% occupancy at $100 per room night or 80% occupancy at $150 per room night? The first example produces a Revenue Per Unit of $100 while the less-used property produces a Revenue Per Unit of $120 — a 20% revenue premium for less work! Factor in the reduced labor needed to handle the lower number of transactions along with the reduced product cost, and you see a new perspective surface. In yet another case, transactions produced per hour may be the driving force while little or no consideration is placed on the profit or brand-building potential of those transactions to the organization.

All of these metrics, along with many others, are worthwhile and critical to your success. However, it is important to remember more often than not it is the calibration of several Key Performance Indicators that will ultimately drive the two metrics that matter most, long-term customer care and profit.

Chris Brown- Senior Vice President, Frontline Performance Group