I just got back from presenting at Visual Sciences event on "How to Put eBusiness in the Heart of Your Business." I’ll share some articles on this topic later.
The Keynote speaker was Tom Davenport, who wrote "Competing on Analytics", featured in Harvard Business Review and getting a lot of attention. The topic is timely.
Tom and I spent some time discussing the organizational and strategic considerations for measurement. Here’s what I shared with him, although not in so many words… WHAT you measure WHEN determines HOW You Succeed.
Organizations choose their positioning and strategy to succeed. They also choose their measures and metrics — what to focus on, what to enforce, and how to enforce achieving measurable goals that support the strategy. These two choices are inextricably linked, but not necessarily sequential. Your strategy could be chosen for your (or cemented) by the measures you choose to enforce.
As such, a company’s choice of measures determine how they will win (or lose if chosen poorly) in the market. Obviously all companies strive to achieve maximum topline revenue and bottom line profitability. However, for example, Apple’s position against Dell is very different in their quest to achieve this goal.
Another example: I’m on an American Airlines flight where I got a cup of coke and no pretzels. Jet Blue with a seemingly unlimited supply of snacks and free wi-fi and TV is positioned differently. When did I consider American to be a no-frill airline…and when did I consider flying Jet Blue? When JetBlue came to the market and was a contrast to American.
Would you believe that WHAT each of these companies consider the most important measures is different? Is it possible that what the top executives focus on is different? What’s at the top of their dashboards? What questions do they ask – what follow up analysis or numbers do they ask for after a meeting? What are in their people’s performance plans? Do all of them put bonuses behind a customer-centric metric such as Net Promoter, which measures word of mouth?
I’ll bet there are similarities as it relates to similar operations, but I’ll also bet there is a perceptible difference in focus, attention and interest in the measures that supports and enforces their strategic position.
In fact, if you pay attention, it’s not that difficult to actually see what measures a company focuses on. What’s on their home page? How are the details in the customer experience? What do they ask in surveys? What do salespeople push? Examples: at checkout Best Buy pushes magazines and warranty – they need margin. Auto dealers are relentless on their customer satisfaction surveys – they are rated against each other and there must be some benefit for their ranking. Every company may be focused on the bottom line, but their strategy to get there is different and their measurement focus reflects that.
Dell is the best at cutting costs. At least I think the best, I’m not an analyst, but I’m challenged to find any other company that can operate at 10% opex. They are a leader at running such low margins because they can operate as such low opex. I think Fortune or Forbes called them the King of Commodity Hell. Dell chooses to reach the bottom line through volume and margin dollars. By cutting costs they can cut price and sell more. Perhaps that’s why Kevin Rollins feels confident of reaching $100B. If you can make a team or business more efficient at Dell, you can do it anywhere. However, while this pre-occupation is valuable to any company’s P&L, a myopic extreme might not work for all companies, all markets. For that matter, any extreme may not work for any company over a long period of time.
Apple understands the impact of investing in innovation, design, and form factor. As such, I’ll bet they have more attention to measuring usability and other measures as it relates to the value of their design. I bought an iPod when I left Dell (not that I couldn’t own an iPod at Dell in fear for my career, but it didn’t feel right). I’ve used my video ipod for the past 4 months — my wife thinks I’m a dork for watching 24 on the beach in Mexico. I’m addicted! I’ve appreciated the effectiveness in software and hardware design. And even in the quality of the packaging…I didn’t want to throw the box away!
Now, imagine if over the next year Apple’s singular focus year was to cut costs of the ipod (not innovation or improved satisfaction). Every department (silo) needed to squeeze costs — $.35 out of the packaging, $.50 out of the touch wheel, etc. In fact, this may be happening…I’ve been reading more and more about iPod quality issues. For now, I’m happy with mine (except for battery life). I paid $499 for this thing, and I don’t regret it. And neither do millions of others. But if they choose to change their focus on measures, this might change.
So, Apple and Dell are both succeeding at different games. I’m not suggesting one is right and the other is wrong, but there is a choice to make of your strategy and where you focus your measures to enforce this strategy. Furthermore, there is a choice of WHEN you choose to change the balance of this strategy or focus. Sustained extremes in a changing market are rarely a good thing.
There’s a corporate law of nature that as you evolve you’re on a pendulum swing of extremes — and your measurement focus will direct and accelerate (or decelerate) this pendulum swing. Dell bought Alienware to recapture a premium market after years of cost cutting in every function and a focus on share growth that alienated their key market (no pun intended). Perhaps Apple is thinking more about efficiency and cost savings as it struggles to continue its revenue growth. I know when Steve Jobs took over Apple years ago he pulled the company back from an overextended product line and lack of focus — he reigned the company in, focused everyone on iMac, and put in CEO-level controls on expenses. He focused the company and then built out from there.
There are exceptions to the fault of extremes — those companies who seem to defy the pendulum swing. There are a few companies I can think of who seem to have sustained a healthy balance of measurement focus between bottom line and top line. Who can sustain a focus between financial and operational measurement with customer-centric and employee measures.
Companies such as Southwest Airlines, Costco, and USAA seem to achieve a healthy balance of strategic measurement. They can sustain a balance of measuring and executing with operational efficiency, while at the same time measure the ‘softer’ things – employee, customer satisfaction, friendly culture, new product or service innovations. Perhaps Apple and Dell will find this balance.
Bottom line: The focus on strategy and therefore the measurement focus starts at the top. To compete on analytics requires culture, systems and process – also at the top. A sustained balance is sustained at the top, set by strategy and reinforced by balanced focus on executution with the right measures. Corporations are in desperate need of executives and change leaders who can understand how to achieve this balance.
WHAT you measure WHEN, determines HOW You Succeed. Also, this not only applies to corporate success, but also personal and functional team success.