Truth and Agency Management

The fifth of the five goals that mark our journey to Santa Clara is “We are profitable to enable growth and giving back.” Taking this seriously means doing the math.

Most agency managers see metrics as some kind of administrative exercise to be delegated to the accountants.

Weekly metrics are so much more than that. There’s been a lot of good work in this area, and I’m not sure I could add much value to the nuts and bolts of why a good and comprehensive set of weekly numbers is even more than an essential tool of financial management. I will say this, though – one of the most common symptoms of poorly defined operational metrics is a dysfunctional management team, along with the inter-departmental friction and infighting that fragmented management teams invariably encourage.

Why do better metrics encourage better team dynamics?

Because if you give smart people with aligned incentives the same set of facts, nine times out of ten they will come to the same conclusions about what needs to be done. And then they will do it.

Good business metrics define an objective truth for a group of people trying to get to the same place from very different points of view. This is absolutely essential as a business becomes too large and complex for the people in one part to understand what’s happening day-to-day in all the other parts.

And yes that’s “an” objective truth, rather than “the” objective truth. It’s not clear that the latter exists in business except in retrospect. Rather than be paralyzed by this, executives can use it to their advantage by choosing specific metrics that focus people on the right things. For example, think about the many ways to measure what is most often the easiest thing to measure: revenue. A company interested in driving behaviors that maximize revenue growth in a highly transactional business might want to make sure that week-over-week percentage sales growth is the big number in bold at the top of the reporting package. That same business, if it was more interested in maximizing gross profit (revenue minus direct expenses) might be more interested in measuring the gap between forecast and actual sales in a given week, or even in projecting a quarterly variance number that reflects the gap between the budget and the new forecast.

Once you get these numbers right you begin to understand the levers behind each, the drivers and even leading indicators that provide real insight to the state of the business. The numbers evolve, into percents and ratios first, then into bar charts and pies and scatterplots. With a little creativity and genuine commitment it’s not long before the weekly reporting package takes shape as a pithy and well-formatted document people really depend on to make decisions… and when that happens, more and more of those decisions tend to be aligned with one another.

We are trying to build a culture of disciplined, metrics-based management at Holland-Mark… not to limit creativity, but to liberate it. We are doing so not because we value numbers over judgment, or action, or creativity; but because we understand the importance of seeing the truth.