At the beginning of The Balanced Scorecard, a book on the new generation of performance metrics, authors-Dr. Robert Kaplan and Dr. David Norton present an analogy to drive home their case. They ask you to imagine entering an airline jet cockpit, and in front of the pilot, you see just one gauge. You ask the pilot, "What's that gauge measure?"
"Altitude", you're told.
"What about the other gauges?"
"We won't be using them this flight. I'm just focusing on altitude." "How about air speed?"
"No, that's the gauge I was using last flight. I wanted to try something different this one." "Compass?"
"Not this time"
The idea is, of course, that you need a balanced set of measures to accurately monitor business performance.
If You Don't Measure It, You Can't Manage It
Every business operates and has always operated in an ever changing and dynamic environment. And for successful entrepreneurs change has always meant opportunity. History of enterprise tells us that only those firms have succeeded in the long run which could adapt and change. What is common to the successful firms is that they not only do right things (strategy) but also do things right (implementation). For right implementation control function becomes very important. Fundamental to the control function is the concept of metrics which help the management as well as the stockholders to keep a track of the business. Use of metrics not only tells where we are headed but also indicates the need to change the direction if needed. Therefore it is very important to use metrics to measure the performance of marketing function as a whole and also the impact, efficiency and effectiveness of specific marketing mix components.
Both successful marketers and academicians hold the view that working without metrics is working blind. You do not know where you are headed. In fact in the absence of metrics it is extremely difficult to assess whether a course of action is giving desired results or needs re-adjustment. The proper use of metrics provides much needed valuable guidance to the companies to expand and strengthen market position; lower costs; retain customers and to grow financially.
There is a saying that what you don't know can't hurt you, but nothing could be further from the truth for those who run the business whatever may be the scale or area. Gut feeling is O.K. but taking decisions solely on the intuitive business-sense or gut feeling does not take a business far and wide. Believing that instinct or assumptions about how the business is performing without knowing the facts can serve the purpose is a disastrous idea. In today's world where future is no longer a distant possibility it is becoming increasingly important to have proper control systems in place to regularly monitor the business activities.
But this is a problem that has a solution and that too a simple one. Monitoring a few key business metrics allows a firm to get a handle on the business which can lead it on the path to improved profitability.
Business metrics, or measurements of business activity, have long been considered the exclusive tool of the number cruncher, the bookkeeper or the statistician. That's not true particularly now given the opportunities and threats that are present there for everyone doing business.
In today's increasingly competitive, diversified and flooded marketplace, the mantra is: "you can't manage it if you can't measure it."
A firm that defines the metrics to be used and then uses these effectively gains three distinct advantages:
Focus: defining the metrics most important to a firm's business allows it to tune out everything that isn't related to those key measurements. This makes business much more focused and efficient.
Better vision: Companies that monitor metrics spot threats and opportunities faster than those who don't. Use of metrics gives keen insights into what's happening within...