Innovation, Organizational Culture

Beyond Numbers: Using Non-Financial/Quantitative Measures of Success

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“The Big (Big!) Question About Yahoo Is Its Future, Not Its Quarterly Results” is the title of an article in Fast company about Yahoo.

In spite of the criticism and turmoil surrounding her tenure, CEO, Marissa Mayer was quoted as saying: “My responsibility is to build for our shareholders the strongest, most future-leaning, fastest-growing Yahoo that I can.”  According to this article, Mayer, “emphasized that she wasn’t running the company to please anyone who was interested only in making a quick buck.”  It is still too early to tell how successful she will be, but wouldn’t you like to respond the same way to your board, pressing you for constantly higher numbers and ignoring the investments that will increase and sustain such numbers? “Hey, I’m not here to please you but to please our members.”

Some companies have long adopted non-financial measures of success.
In “Profit as a “Direct Goal” Overrated? Jim Heskett notes that “Almost to a person,” leaders of profitable companies that he observed,
“…treat profit as a by-product of other things to which they devote most of their attention, things such as a focused strategy that delivers results to carefully-selected customers while pursuing policies and practices that leverage results over costs, hiring people with the right attitude (one that fits with the organization’s culture), and proper training and organization (often in teams). Financial targets are given no more or less emphasis than targets associated with employee and customer engagement, often by means of some kind of balanced scorecard. Rewards and recognition—whether based on the performance of the entire company, teams, or individuals—reflect this philosophy. The idea is to create what my colleague, Michael Beer, calls a “high commitment, high performance” (HCHP) organization.”

In a Harvard Business Review article, however, Christopher D. Ittner and David F. Larcker caution that adopting “an off-the-shelf checklist or procedure that is universally applicable and completely comprehensive” is useless. It will not by itself “help identify which performance areas—and which drivers—make the greatest contribution to the company’s financial outcomes.”

What is needed is an understanding of cause and effect.  “For instance, does a dollar invested in product development yield higher returns than a dollar spent on customer retention?

As an example, he cites the case of a successful fast food chain whose measures of success are based on the performance of proven drivers of success and the relationships among them: the right employee selection results in satisfied employees and hence in improved performance. All these, in turn, produce increased customer satisfaction which, in time, results in more and more frequent purchases, increased retention and referrals.
So claiming success on the basis of great hires, satisfied customers, creativity or community building alone will not help you change your board’s understanding of the value your bring to your business and their criteria of success. Neither will it give you a new basis for allocating resources. However, establishing that creativity contributed to the kind of unique outcomes that increased retention will. Understanding what drives customer satisfaction and how satisfaction converts to increased sales will allow you to make the kind of cultural and managerial changes that will nurture such drivers.
 
Adopting non-financial/quantitative measures requires a culture change as well as a different way of doing business. It starts, however, with acknowledging and detecting new sources of value, identifying drivers of success and conducting new types of research that validates assumptions and identifies relationships between cause and effect.

Research question to investigateOld measure of successPossible new measure of success
Are all customers equally valuable? Are you better off having 4,000 nominal members, who consider you “nice” but not “essential” and are hard to retain?  Or having 1000 members who “can’t live” without your services; buy multiple and higher-end services, bring other members and drive demand for more and higher end services?
 
Numbers of membersThe quality of members you retain or recruit

Is it better to have a large number of members whose value is transactional sales and whose relationship with you never changes or deepens; or a smaller number of “strategic customers,” e.g. those whose relationship with, and commitment to you constantly grows; collaborate on product development with you and help drive innovation; exert great influence in their professions or markets; become your champions and bring you valuable relationships and referrals?


Sales numbersConverting transactional into strategic relationships; and/or acquiring strategic customers

Is the number of new products and initiatives you launch more important in creating value for the customer than the outcomes customers perceive they get from them?


Numbers of programs; visibility and attendanceOutcomes members perceive they derive from products and services
Are product design and development more important drivers in delivering results to members or the ability to understand member problems and customize existing programs and raw assets to their needs? For example, making research data easily searchable and interactive, and combining it with consultative advice to help members use it more effectively toward results.Staff performance evaluated on the basis of inputs and successful completion of functions
utcomes.

 

Staff performance evaluated on the basis of outcomes and capabilities for innovation, learning, relationships and conversion of concepts into customer o