What Are the Advantages and Disadvantages of Metrics in Business Management?

Metrics can help you evaluate whether your business is succeeding or failing, but you need to give careful thought to which metrics to track. A well-designed program can provide data about what you're doing well and warn you in advance of what's failing. A poorly designed plan, however, can drag your business off track.

For metrics to provide an advantage, you must consider what data to track. In an October 2012 article in the "Harvard Business Review," Michael J. Mauboussin argues that selecting the right metrics involves a four-step process. First, define your business’s governing objectives. Then think about what drives your business success, as this will help you decide what you should be worried about. Third, identify activities that employees can do to meet the governing objectives. Finally, re-evaluate the statistics on a regular basis to verify a link between employee activities and the governing objectives. Putting this kind of rigor into your metrics strategy will give your business an edge over businesses that select more superficial numbers.

Metrics serve as an advantage when causality can be proved and when they are easily accessible so you and your employees can track progress. Make sure your analysis isolates the critical variables for success. If same-store sales are a predictor of revenue growth, use that. If you want to measure the effects of a particular marketing effort or promotion, isolate how those products influence the bottom line as compared to your usual approach. Many use a dashboard approach for tracking purposes; it gives you an instant look at the few numbers that carry greater weight, rather than forcing you to wade through a larger report or a complicated spreadsheet. If you take this approach, make sure your dashboard is tailored to your business and its goals; don't rely on a one-size-fits-all solution from a vendor.

Poorly considered metrics can have a negative effect by pulling employees and resources away from objectives that will grow your business and cause them to chase measures that don’t reflect company goals. Metrics can also be a disadvantage if they become so tied into employee compensation that the numbers become the focus. A salesman judged on quarterly sales volume, for example, may be tempted to book large orders on the last day of the reporting period that he knows will be canceled or returned later just to boost numbers. Others may pressure customers in ways that reduce the chances of repeat business and hurt future growth. Make sure your metrics reflect how your business is doing and not how well your employees can guess what you’re looking for and manipulate the data accordingly.

Metrics can also be a disadvantage when they are gathered for reasons other than their effect on business. Many business owners make the mistake of measuring what they “know” to be true rather than using the data to decide. For example, you may be so confident that acquiring new names on a mailing list leads to a broader customer base that you might measure acquisition rates on your website or social media without considering whether that contact information correlates with increased sales. Make sure to not pick metrics because they are easy to generate or because it’s the status quo. For metrics to be an asset for your business, they need to be the ones that have the greatest utility for your business.