The Disadvantages of Business Metrics
Business metrics are critical ways of determining the success of a business venture, but they also can come with disadvantages. Focusing on statistics that don’t reflect your company’s goals, making metrics the only tool by which employees are judged and picking metrics that are easily manipulated can turn an emphasis on data-driven analysis into a negative that distracts your business from its core objectives.
Metrics can be a negative for your business when they are used improperly, not coordinated with your objectives or won’t have the desired effect on the bottom line. For metrics to be useful, they need to be persistent and predicative, with a consistent relationship between what the statistic measures and the desired outcome. If you’re placing great importance on metrics that don’t advance your strategic objectives and your company mission, you’re not moving in the right direction.
It's also a negative if you're measuring events that occur because of luck and treating them as benchmarks for the future. An ice cream shop at the beach will sell more product in September when weather is unseasonably warm. If the hottest September on record coincides with a new marketing campaign, and you don't factor the weather variable into the equation, you may credit the campaign for increased sales undeservedly, only to later find out it was less effective than planned and the metric was useless.
Placing too much reliance on metrics can cause employees to make decisions based on those statistics rather than strategic goals. If you deem market share a critical metric, your business will tend to focus on gaining new customers even if they wind up being unprofitable. If an employee knows he’ll get a bonus for perfect attendance, that employee may show up even with a bad case of the flu, maintaining his eligibility for extra money -- and infecting his co-workers.
What is in the best interest of your business may not be in the best interest of an individual employee, particularly if the individual is judged by different metrics than the company. If a manager knows his bonus is tied to hitting a particular benchmark or scoring high in a certain metric, he may be tempted to game the system to get there even if it goes against the company goals. On a basic level, he may encourage customers to make big purchases at the end of a quarter and return them the following week, so the revenue will count toward the period sales goals and the return falls under a different period. Employees may be tempted to book revenue early, offer greater discounts or otherwise act in their own interests as opposed to yours.
Metrics that your employees can easily manipulate are also a disadvantage to your business. Getting more names on an e-mail list is easy if your cashier gets his friends to write down fake names or tells them to sign up and then immediately unsubscribe. If you own a radio station, you could easily gain listeners by offering a weekly million-dollar prize -- but you’d likely go broke. Think about what you really want to accomplish -- a robust and engaged social media following, perhaps, or a steadily increasing audience -- and come up with metrics that gets you closer to those goals. A superficial metric is no business owner's friend.