Business Metrics and KPIs: Lessons from more than a century ago

What is the single KPI (only one) that can drive your business performance?

 

Infographic history of performance management

 

While the majority of business organizations will answer that the single most important metric is the net profit – they are right but you need to come up with the one KPI which will motivate and directly drive your performance. Imagine that you can measure your entire company success by looking at only one number. This will definitely improve your focus and minimize distractions – the two most critical variables for effective management and leadership.

While management dashboards and reporting tools are in high demand because the know-how and technology today allows us to be able to monitor and track each and every performance measures, there is nothing new about measuring performances. If we look at the business history we can find some very useful examples which can definitely motivate us to improve our management.

More than a century ago, Charles Schwab (the American steel executive) noticed drop in productivity and variations in the production process. He talked to his mill manager about this issue and the mill manager tried various approaches to increase production output and productivity. The approaches included every possible scenario including threatening the workers but none of them worked.

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As they talked before the night shift started, Charles Schwab took a piece of chalk and asked the first man he saw around – how many heats they made in their shift. The answer was 6 so Schwab wrote the number 6 on the floor and left.

When the next shift came to work (the night shift) they saw the number on the floor and asked about it so they learned that the previous shift manufactured 6 units. When Schwab came in the morning he saw the number 7 on the floor – the workers from the night shift erased the number 6 and wrote the number 7. The next shift made even more – when they saw the number 7 they thought that if the night shift was able to produce 7 they should outperform them and that is what they did – they made 10…

This is a very simple and yet very powerful lesson for every manager because it shows how Charles Schwab was able to motivate everyone by creating a healthy and positive competition among workers in various shifts. While none of the other approaches used by the experienced mill manager the power of metric motivated everyone and delivered the required results for the business.

What is the lesson for us today from this example from more than a century ago? Would this approach be as effective if Schwab had used more than one metric? Probably not because the simpler the analysis and reporting the more effective the message is because everyone can understand the priority.

Now the logical question is – if we just need a very few KPIs why do we need complex reports with many metrics. Because of this it is important for every business manager to understand the difference between KPIs and metrics in reporting and business analysis:

While we need only a few KPIs to monitor and track the performance, we need all the supporting business metrics in order to be able to understand the performance of the very few KPIs. Once we understand the trend in our KPIs we can go into more details by analyzing the metrics to identify the real causes for the latest trends.

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