The following is an excerpt from Bullseye by William Schiemann and John Lingle. The conversation here took place during a senior team meeting to determine the appropriate measure for “client retention”, identified as the key driver to revenue growth. The proposed measure being discussed was “percent of clients who renew their contracts each year”.
Executive 1: “Measuring contract renewal rates sounds reasonable to me. Can we track that? What about clients who have a couple of contracts with us? Are we counting clients who renew or the number of renewed contracts?”
Executive 2: “Wait a minute. I’m not sure I agree with that measure. The issue isn’t just renewing existing contracts. If we are going to drive higher revenues, we need a higher percentage of each client’s business. What we should be measuring is how many clients purchase additional services from us beyond their initial contract.”
Executive 3: “No, our real revenue growth will come from expanding into new industry groups. We just want to hold our base while we expand into new growth areas. Counting contract renewals is fine.”
Executive 1: “Are you saying we don’t care about getting current clients to buy new products?”
Executive 3: “I’m not saying we don’t care. I am saying that the real strategic thrust is to hold our base while we grow by penetrating new organizations. I don’t want to put a measure out in front of employees that will cause us to spend time and resources trying to sell a lot of new products to existing clients. We have to focus the majority of our sales resources on selling to new clients. The wrong measure will get our people focused on our existing client base, rather than focused on finding clients in new industries.”1
The discussion demonstrates the thought process involved in selecting appropriate measures for an Instrument Panel or set of organizational metrics. To determine which measures are most relevant, the executives had to consider what the strategic agenda is for the organization. If they placed a measure on the Instrument Panel emphasizing sales of new products to existing clients, yet their strategic plan emphasizes expanding to new clients in new markets, they would send a mixed message to staff.
The bottom line, make sure the measures you select for your Instrument Panel are in alignment with the goals and vision of the organization, and help you track your progress, effectiveness and efficiency in reaching them.
Questions on metrics and how to design and use them in your organizaiton? We would love to help. E-mail us to start a conversation.
1 William A. Schiemann and John H. Lingle, Bullseye (New York, NY: The Free Press, 1999) pp 112-113.