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How do you find "leading" metrics?

I think everyone will agree that in the business scorecard there should be a balanced set of lagging and leading metrics. Business experts are exercising in explaining the difference (I'm not an exception, the last attempt is using a golf metaphor). But the main mystery remains unsolved - how do we find those excellent leading metrics?

In this article (http://www.bscdesigner.com/find-leading-measures.htm) I shared my thoughts. My method is about a mix of calculations, social research methods, scientific measurement and conducting tests under artificial conditions (a/b tests in simple words). I cannot say that it works for me in 100% of the cases, but at least it is a good starting point for me and my clients.

I'm interested in the opinion of the group members about the suggested approach, and I'm interested even more in learning the best practices about finding leading measures that work for you.

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1. 1. LEADING MEASURES SPECIFIC RECOMMENDATIONS TO FIND THEM Based on http://www.bscdesigner.com/find-leading-measures.htm By Aleksey Savkin
3. 3. BSC DESIGNER THE DIFFERENCE BETWEEN LAGGING AND LEADING MEASURES • Knowing the score or the distance between the ball and the cap is easy (lagging measure)
4. 4. BSC DESIGNER THE DIFFERENCE BETWEEN LAGGING AND LEADING MEASURES • Knowing the score or the distance between the ball and the cap is easy (lagging measure) • Knowing and controlling the parameters of golf swing that lead to an excellent score are hard (leading measures)
5. 5. MEASUREMENT TOOLKIT
6. 6. BSC DESIGNER THE NATURE OF MEASUREMENT • Before we were talking about such steps as observation and quantification that one needs to follow in order to come up with a metric,
7. 7. BSC DESIGNER THE NATURE OF MEASUREMENT • Before we were talking about such steps as observation and quantification that one needs to follow in order to come up with a metric, • In the business world most of the measures are actually simple calculations.
8. 8. BSC DESIGNER THE NATURE OF MEASUREMENT • Before we were talking [1] about such steps as observation and quantification that one needs to follow in order to come up with a metric, • In the business world most of the measures are actually simple calculations. • Still in the business we often forget about scientific nature of measurement and replace it with simple calculations.
9. 9. BSC DESIGNER THE NATURE OF MEASUREMENT • The measurement is probably as old as science itself
10. 10. BSC DESIGNER THE NATURE OF MEASUREMENT • The measurement is probably as old as science itself, • still in the business we often forget about scientific nature of measurement and replace it with simple calculations.
11. 11. BSC DESIGNER THE NATURE OF MEASUREMENT • Scientific research implies a certain level of uncertainty about a subject of the research and the goal of measurement is to reduce the uncertainty.
12. 12. BSC DESIGNER THE NATURE OF MEASUREMENT • Scientific research implies a certain level of uncertainty about a subject of the research and the goal of measurement is to reduce the uncertainty. • If we have a look at business measures from this point of view then we will be really disappointed.
13. 13. BSC DESIGNER THE NATURE OF MEASUREMENT • Scientific research implies a certain level of uncertainty about a subject of the research and the goal of measurement is to reduce the uncertainty. • If we have a look at business measures from this point of view then we will be really disappointed. • The majority of “measures” are actually calculations [2] or are based on the information obtained directly from the subject of the research.
14. 14. BSC DESIGNER [2] “How to Measure Anything: Finding the Value of Intangibles in Business” • Douglas W. Hubbard, “How to Measure Anything: Finding the Value of Intangibles in Business”, 2007, Wiley; 1 edition
15. 15. BSC DESIGNER AN EMPLOYEE TURNOVER EXAMPLE • An HR manager calculates turnover by dividing the number of employees who left the company over a period by the average number of employees that were in the company during this period.
16. 16. BSC DESIGNER MEASUREMENT VS. CALCULATION • All of the variables are available in the company’s ERP system and are simply divided.
17. 17. BSC DESIGNER MEASUREMENT VS. CALCULATION • All of the variables are available in the company’s ERP system and are simply divided. • We could call it Big Data,
18. 18. BSC DESIGNER MEASUREMENT VS. CALCULATION • All of the variables are available in the company’s ERP system and are simply divided. • We could call it Big Data, • But the idea is as simple as running two database queries to get two variables and divide one by another.
19. 19. BSC DESIGNER MEASUREMENT VS. CALCULATION • There is nothing bad about calculating something that might be insightful for HR,
20. 20. BSC DESIGNER MEASUREMENT VS. CALCULATION • There is nothing bad about calculating something that might be insightful for HR, • But let’s not call it measurement, as it is just a calculation.
21. 21. BSC DESIGNER SOCIAL SCIENCE MEASUREMENTS • The idea is to ask the persons that are in the focus group (the subject of the research) to share their opinion about something.
22. 22. BSC DESIGNER SOCIAL SCIENCE MEASUREMENTS • The idea is to ask the persons that are in the focus group (the subject of the research) to share their opinion about something. • One supposes that well formulated questions will minimize the risk of receiving wrong information and making wrong conclusions as a result.
23. 23. BSC DESIGNER SOCIAL SCIENCE MEASUREMENTS • The idea is to ask the persons that are in the focus group (the subject of the research) to share their opinion about something. • One supposes that well formulated questions will minimize the risk of receiving wrong information and making wrong conclusions as a result. • It is not a calculation, but still we are doing only what social scientists can do – ask people directly about their opinion.
25. 25. BSC DESIGNER TRADITIONAL SCIENTIFIC MEASUREMENT • Traditional scientific measurement method is about observation. • They observe, they come up with hypothesis, and they test them to see if one worked or not.
26. 26. BSC DESIGNER TRADITIONAL SCIENTIFIC MEASUREMENT • Traditional scientific measurement method is about observation. • They observe, they come up with hypothesis, and they test them to see if one worked or not. • It is always about the reduction of uncertainty and almost never about precise calculations.
27. 27. DIFFERENT WAYS TO FIND MEASURES
28. 28. BSC DESIGNER DIFFERENT WAYS TO FIND MEASURES Source: www.bscdesigner.com Measure Why use Calculations Not a measurement, but still… We can "calculate." It is not a measurement, but still it gives us a number 1 2 + /
29. 29. BSC DESIGNER DIFFERENT WAYS TO FIND MEASURES Source: www.bscdesigner.com Measure Why use Calculations Not a measurement, but still… We can "calculate." It is not a measurement, but still it gives us a number Surveys Social science measurements We can communicate with the subject of the research (with our customers, prospects or employees), for example via surveys 1 2 + / ✓ ✓ X ✓
30. 30. BSC DESIGNER DIFFERENT WAYS TO FIND MEASURES Source: www.bscdesigner.com Measure Why use Calculations Not a measurement, but still… We can "calculate." It is not a measurement, but still it gives us a number Surveys Social science measurements We can communicate with the subject of the research (with our customers, prospects or employees), for example via surveys Observe and conclude Traditional scientific measurement We can observe and do conclusions (we are not limited to observing our own business only or the present day only) 1 2 + / ✓ ✓ X ✓
31. 31. BSC DESIGNER DIFFERENT WAYS TO FIND MEASURES Source: www.bscdesigner.com Measure Why use Calculations Not a measurement, but still… We can "calculate." It is not a measurement, but still it gives us a number Surveys Social science measurements We can communicate with the subject of the research (with our customers, prospects or employees), for example via surveys Observe and conclude Traditional scientific measurement We can observe and do conclusions (we are not limited to observing our own business only or the present day only) Artificially created conditions Traditional scientific measurement We can formulate a hypothesis and test it under artificially created conditions 1 2 + / b a ✓ ✓ X ✓
32. 32. BSC DESIGNER DIFFERENT WAYS TO FIND MEASURES • A practical conclusion from the ideas described above is that we always have several measurement options.
33. 33. BSC DESIGNER DIFFERENT WAYS TO FIND MEASURES 1. We can “calculate.” It is not a measurement, but still it gives us a number
34. 34. BSC DESIGNER DIFFERENT WAYS TO FIND MEASURES 1. We can “calculate.” It is not a measurement, but still it gives us a number 2. We can communicate with the subject of the research (with our customers, prospects or employees), for example via surveys
35. 35. BSC DESIGNER DIFFERENT WAYS TO FIND MEASURES 3. We can observe and do conclusions (we are not limited to observing our own business only or the present day only)
36. 36. BSC DESIGNER DIFFERENT WAYS TO FIND MEASURES 3. We can observe and do conclusions (we are not limited to observing our own business only or the present day only) 4. We can formulate a hypothesis and test it under artificially created conditions
37. 37. BSC DESIGNER CALCULATIONS • We could calculate satisfaction rate by calculating the number of repeat purchases.
38. 38. BSC DESIGNER CALCULATIONS • We could calculate satisfaction rate by calculating the number of repeat purchases. • This is not a measurement, it is a calculation
39. 39. BSC DESIGNER CALCULATIONS • We could calculate satisfaction rate by calculating the number of repeat purchases. • This is not a measurement, it is a calculation • but it still reduces the level of uncertainty about the subject in the sense that it allows managers to see the problem from a different perspective.
40. 40. BSC DESIGNER CALCULATIONS • With calculations we could normally generate excellent lagging measures, but not leading ones
41. 41. BSC DESIGNER CALCULATIONS • With calculations we could normally generate excellent lagging measures, but not leading ones • We suppose that satisfied customers are those who make repeat purchases within 2 months.
42. 42. BSC DESIGNER CALCULATIONS • With calculations we could normally generate excellent lagging measures, but not leading ones • We suppose that satisfied customers are those who make repeat purchases within 2 months. • But we have no idea about what leads them to a repeat purchase.
43. 43. BSC DESIGNER SURVEYS • We could calculate some customer activity by taking some variables
44. 44. BSC DESIGNER SURVEYS • We could calculate some customer activity by taking some variables • But sometimes it is easier to conduct a survey by asking customers about their preferences and decisions.
45. 45. BSC DESIGNER SURVEYS • We could calculate some customer activity by taking some variables • But sometimes it is easier to conduct a survey by asking customers about their preferences and decisions. • the procedure of measurement is easier itself, but the formulation of survey questions is always a challenging task.
46. 46. BSC DESIGNER OBSERVE AND CONCLUDE • We just observe what they do and make appropriate conclusions.
47. 47. BSC DESIGNER OBSERVE AND CONCLUDE • We just observe what they do and make appropriate conclusions. • You might install a special script on the website that will show you the most clickable zones.
48. 48. BSC DESIGNER OBSERVE AND CONCLUDE • We just observe what they do and make appropriate conclusions. • You might install a special script on the website that will show you the most clickable zones. • You can observe the process of customer choice in the physical shop.
49. 49. BSC DESIGNER ARTIFICIALLY CREATED CONDITIONS • A measurement by observation as described above might be as difficult as finding black holes in the space by tracking light behavior.
50. 50. BSC DESIGNER ARTIFICIALLY CREATED CONDITIONS • A measurement by observation as described above might be as difficult as finding black holes in the space by tracking light behavior. • We are not pretending to do a space science in the business, and we can artificially create some conditions and see what will happen.
51. 51. BSC DESIGNER ARTIFICIALLY CREATED CONDITIONS • Instead of asking customers for their opinion, or silently observing their behavior,
52. 52. BSC DESIGNER ARTIFICIALLY CREATED CONDITIONS • Instead of asking customers for their opinion, or silently observing their behavior, • One could create two options and see which one works better.
53. 53. BSC DESIGNER ARTIFICIALLY CREATED CONDITIONS • These two measurement methods actually give us more opportunities to find excellent leading measures.
54. 54. BSC DESIGNER ARTIFICIALLY CREATED CONDITIONS • These two measurement methods actually give us more opportunities to find excellent leading measures. • Under artificially created conditions you can test business hypotheses and get closer to the drivers of performance excellence.
55. 55. ALL THESE APPROACHES MIGHT GIVE CONTRADICTORY RESULTS
56. 56. BSC DESIGNER THE DIFFERENCE BETWEEN VARIOUS TYPES OF MEASUREMENTMeasurement Results Calculation Information from CRM system is calculated. 70% of customers buy while balls. Survey Survey was conducted. Customers prefer white balls because they like the white color 60% more than the black one. Source: www.bscdesigner.com What change will lead to more sales?
57. 57. BSC DESIGNER THE DIFFERENCE BETWEEN VARIOUS TYPES OF MEASUREMENTMeasurement Results Calculation Information from CRM system is calculated. 70% of customers buy while balls. Source: www.bscdesigner.com What change will lead to more sales?
58. 58. BSC DESIGNER THE DIFFERENCE BETWEEN VARIOUS TYPES OF MEASUREMENTMeasurement Results Calculation Information from CRM system is calculated. 70% of customers buy while balls. Survey Survey was conducted. Customers prefer white balls because they like the white color 60% more than the black one. Source: www.bscdesigner.com What change will lead to more sales?
59. 59. BSC DESIGNER THE DIFFERENCE BETWEEN VARIOUS TYPES OF MEASUREMENTMeasurement Results Calculation Information from CRM system is calculated. 70% of customers buy while balls. Survey Survey was conducted. Customers prefer white balls because they like the white color 60% more than the black one. Observation 1 Observation was done within a company's own sales history. 20% of customers who buy white balls buy a black one during the next 6 months. Source: www.bscdesigner.com What change will lead to more sales?
60. 60. BSC DESIGNER THE DIFFERENCE BETWEEN VARIOUS TYPES OF MEASUREMENTMeasurement Results Calculation Information from CRM system is calculated. 70% of customers buy while balls. Survey Survey was conducted. Customers prefer white balls because they like the white color 60% more than the black one. Observation 1 Observation was done within a company's own sales history. 20% of customers who buy white balls buy a black one during the next 6 months. Observation 2 Observation was done in competitor's business. In ABC company they have balls of 4 colors and they all are equally popular. Source: www.bscdesigner.com What change will lead to more sales?
61. 61. BSC DESIGNER THE DIFFERENCE BETWEEN VARIOUS TYPES OF MEASUREMENTMeasurement Results Calculation Information from CRM system is calculated. 70% of customers buy while balls. Survey Survey was conducted. Customers prefer white balls because they like the white color 60% more than the black one. Observation 1 Observation was done within a company's own sales history. 20% of customers who buy white balls buy a black one during the next 6 months. Observation 2 Observation was done in competitor's business. In ABC company they have balls of 4 colors and they all are equally popular. Artificial Condition 1 Hypothesis of price perception was tested. When black balls are 10% more expensive than white balls, then 60% of customers buy black balls. Source: www.bscdesigner.com What change will lead to more sales?
62. 62. BSC DESIGNER THE DIFFERENCE BETWEEN VARIOUS TYPES OF MEASUREMENTMeasurement Results Calculation Information from CRM system is calculated. 70% of customers buy while balls. Survey Survey was conducted. Customers prefer white balls because they like the white color 60% more than the black one. Observation 1 Observation was done within a company's own sales history. 20% of customers who buy white balls buy a black one during the next 6 months. Observation 2 Observation was done in competitor's business. In ABC company they have balls of 4 colors and they all are equally popular. Artificial Condition 1 Hypothesis of price perception was tested. When black balls are 10% more expensive than white balls, then 60% of customers buy black balls. Artificial Condition 2 Hypothesis of a bundle was tested. When a white ball is bundled with a white hat 75% of customers buy the bundle. Source: www.bscdesigner.com What change will lead to more sales?
63. 63. BSC DESIGNER ALL THESE APPROACHES MIGHT GIVE CONTRADICTORY RESULTS • It is not a real business case, but I think you do agree that we are faced with situations like this very often:
64. 64. BSC DESIGNER ALL THESE APPROACHES MIGHT GIVE CONTRADICTORY RESULTS • Our CRM system gives us a number, but we don’t know how we can change it.
65. 65. BSC DESIGNER ALL THESE APPROACHES MIGHT GIVE CONTRADICTORY RESULTS • Our CRM system gives us a number, but we don’t know how we can change it. • We do some survey and sometimes we get some ideas, but they might not be coherent with real customers’ actions.
66. 66. BSC DESIGNER ALL THESE APPROACHES MIGHT GIVE CONTRADICTORY RESULTS • We obverse and do some conclusion about what might work
67. 67. BSC DESIGNER ALL THESE APPROACHES MIGHT GIVE CONTRADICTORY RESULTS • We obverse and do some conclusion about what might work • We try various options and it appeared that something unmentioned works better
68. 68. BSC DESIGNER ALL THESE APPROACHES MIGHT GIVE CONTRADICTORY RESULTS • It is obviously that the company needs to do some more tests or conduct more specific surveys to understand the challenge better.
69. 69. BSC DESIGNER ALL THESE APPROACHES MIGHT GIVE CONTRADICTORY RESULTS • It is obviously that the company needs to do some more tests or conduct more specific surveys to understand the challenge better. • Finding leading metrics is actually about finding a solution that works.
70. 70. FINDING EXCELLENT LEADING MEASURES
71. 71. BSC DESIGNER HOW TO FIND A BETTER LEADING MEASURE • We need to have a balance between various measurement methods.
72. 72. BSC DESIGNER HOW TO FIND A BETTER LEADING MEASURE • We need to have a balance between various measurement methods. • We need to combine the results of calculations, the survey results, the results of observations and the results of tests under artificial conditions.
73. 73. BSC DESIGNER SAFETY RULES NEED TO BE FOLLOWED • Have your business context in mind. We don’t want to measure something just because we can measure it.
74. 74. BSC DESIGNER SAFETY RULES NEED TO BE FOLLOWED • Have your business context in mind. We don’t want to measure something just because we can measure it. • Don’t believe people who tell you that it is impossible to measure, as it is possible to quantify and measure anything [2].
75. 75. BSC DESIGNER SAFETY RULES NEED TO BE FOLLOWED • If you cannot quantify something then you need to decompile the subject into measurable pieces
76. 76. BSC DESIGNER SAFETY RULES NEED TO BE FOLLOWED • If you cannot quantify something then you need to decompile the subject into measurable pieces • Combine various measurement and research methods like calculations, surveys, observations and a/b tests.
77. 77. BSC DESIGNER • [1] Aleksey Savkin, The difference between quantification, measure, metric, and KPI, January 2014, BSCDesigner.com • [2] Douglas W. Hubbard, “How to Measure Anything: Finding the Value of Intangibles in Business”, 2007, Wiley; 1 edition RESOURCES
78. 78. BSC DESIGNER MORE ABOUT THE BALANCED SCORECARD Find more insightful articles about the Balanced Scorecard in ”Articles” section at www.bscdesigner.com BSC DESIGNER
79. 79. BSC DESIGNER THANK YOU! Feel free to send us your questions using the contact form at www.bscdesigner.com