Measurement and optimization is the lifeblood of sustained company profitability
When done effectively, measurement and optimization will drive company value by improving the effectiveness of all other departments.
Business in the 20th century fully adopted the value of measurement when it comes to optimizing a business. It became most famous in the idea of just-in-time inventory management where efficiency can be squeezed out of every crevice of the business by understanding what is going on at every level. It came to full fruition with digitization and ability to capture enormous amounts of data
Today, you can't find a business of any meaningful size without a coterie of business analysts, dashboards, reports, and PowerPoint presentations so thick with numbers that you can't possibly understand what they mean without significant explanation or experience.
Indeed, measurement is the lifeblood of a business. If you do not understand what is going on, how can you possibly make effective decisions? A small business can simply look at the shelves to know whether they have a shrinkage problem. A large business must rely on inventory reports that aggregate data. But it's in that aggregation of data where the difficulty comes in.
Be honest about what you can measure and what you can’t
One retailer decided to stop the quarterly cleaning program for its stores because the finance department stopped cleaning in two districts and determined that it didn’t negatively effect revenue. They could save a significant amount of money by chopping out this cost that clearly wasn’t important.
Good measurement means tracking the data that is closest to the source of the change. Topline revenue is several steps removed from the value of clean stores, both in metrics and in time. Being honest about whether you have the data to truly measure the effects of a decision can lead to gathering the right data or recognizing that a decision must be made in the absence of good data.
Pick the right KPIs
I have worked for a company that was committed to testing. They would test everything and measure the results of that test against dozens of variables. That would lead to results where the intervention is deemed wildly successful even though topline revenue didn’t change. Or, just as problematically, category improvement was discounted because a category unrelated to the test saw significant degradation.
In another business, young analysts would “mine” expansive datasets for insights only to overfit models. They would find “statistical significance” that made no sense in the real world. They might index the data and find correlations that led them to make recommendations that would be impractical on a broad scale.
It isn’t enough to use sophisticated analytics tools to churn through big datasets. You must be clear about what key performance indicators (KPIs) must be optimized to make a meaningful improvement to your business.
More than just dashboards
Dashboards are essential to day-to-day business management. Effective dashboards facilitate tracking key KPIs over time and can support agile business decision-making. Developing, maintaining, and evolving good dashboards is the foundation of business optimization and improvement.
Dashboards alone can lead a business into competitive eddies that prevent it from seeing industry currents that undermine long-term business model viability. This is because a dashboard is designed to help you optimize business operations for a particular moment in time. Hopefully, that moment in time is measured in years (not just quarters), but dashboards can’t only hint that the environment is changing.
Check your flanks
Good analytics can explore what is happening to trends not captured in the dashboards. This kind of analysis requires creativity, patience, and a willingness to “find nothing.” But checking a business flanks is essential to long-term viability of a business.
At one company, our reports and dashboards failed to illustrate the dramatic erosion of one of our key performance indicators because it had happened over such a long period of time. Profitability was good, so the growing headwind to marketing effectiveness was not seen as a crisis. As a marketing analytics team, we delved into the data to find where the erosion was taking place and how much it was costing the company. The thoroughness of the analysis demanded company’s attention to the issue.
When done effectively, measurement and optimization will drive company value by improving the effectiveness of all other departments.
