How To Improve Business Performance with the Right Metrics

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Why Choosing the Right Performance Metrics Matters for Your Business

The Importance of Accurate Performance Metrics

When you’re climbing a mountain using a navigation tool like a GPS and it’s tracking your position incorrectly you’ve got a problem. Reaching your destination will become nearly impossible. Even if you succeed reaching your target, you wasted plenty of time and energy following wrong routes, not realizing you’re off track.

The same applies to business. Without an accurate understanding of where your company stands, meeting your objectives is nearly impossible. And you waste a massive amount of resources while unsuccessfully chasing your objectives.

To navigate successfully, you need to succeed in identifying the performance metrics that truly reflect your company’s key activities and overall performance. With a clear picture of where your business stands, you can make informed decisions that lead you toward your goals.

This article explores the core principles and provides a step-by-step process for selecting effective metrics for the business performance management.

Understanding Performance Metrics

Performance metrics are measurable values that indicate how different aspects of your business are performing. You can use performance metrics to track any activity or process in your business—from customer experience and employee engagement to operational efficiency and financial health.

Metrics provide a comprehensive view of your business performance. By measuring various activities and processes, such as customer interactions, production times, and financial results, you gain the data you need to understand both your day-to-day operations and long-term progress. Reviewing your business performance holistically is crucial to improve business performance effectively.

Performance Metrics and KPIs

You will be familiar with Key Performance Indicators (KPIs), which are also measurable values that provide insights into business performance. KPIs are usually directly tied to strategic objectives. They are a subset of performance metrics. Every KPI is also a performance metric, but not every performance metric is a KPI. Performance metrics are much broader.

Examples of Performance Metrics

• Customer Complaint Rate
  This metric tracks the number of customer complaints received over a specific period. It provides insights into areas where customer experience may be lacking and can help to identify patterns that need attention.
• Machine Downtime
  This metric captures the amount of time a machine or equipment is not operational. It helps identify inefficiencies and potential maintenance issues affecting overall productivity in manufacturing or production environments.
• Website Traffic Volume
  This metric measures the number of visitors to your website over a given period. It provides insight into marketing efforts and overall brand visibility.
• Waste Production in Manufacturing
  This metric quantifies the amount of waste generated during production. It is a useful indicator for assessing the efficiency of production processes and identifying opportunities for improvement.

These examples are performance metrics that provide useful data but are less directly tied to strategic business outcomes than KPIs.

Leveraging a broad range of Performance Metrics

You often hear the recommendation that businesses should focus on tracking a limited set of Key Performance Indicators (KPIs). This advice holds true for well-known business frameworks like the Balanced Scorecard, developed in the late 20th century. By concentrating on a small number of KPIs, organizations can maintain focus on their most critical objectives. This ensures their efforts drive the greatest impact. Tracking too many KPIs, it was argued, would dilute attention and make it harder to prioritize.

However, it’s important to remember that the Balanced Scorecard is primarily a strategy performance management tool. It was designed to manage the implementation of new strategies. Strategy execution is inherently resource-intensive. Managing more than 15 to 20 KPIs  would mean you are running lots of new strategic initiatives. This would overwhelm most organizations. This focused approach of not managing more than 15 to 20 KPIs is critical for ensuring strategic success.

Adapting to a Data-Driven World

But strategy execution is only one piece of the overall business performance puzzle. My advice is to track your entire business performance with metrics.

With today’s technology and data availability, tracking a wide range of metrics is not a burden. While strategic KPIs should remain focused, businesses can now leverage big data and real-time analytics. This allows businesses to monitor dozens of operational metrics. With this they can ensure that every aspect of the business performs optimally, both at the strategic and operational levels.

The Business Performance Review Mechanism I propose takes this broad and holistic approach. It tracks the entire range of business activities, from strategy execution to daily operations. In addition to Key Performance Indicators, it includes a wide range of performance metrics. Depending on your company’s complexity, you may end up tracking dozens of measures. But with the right system in place this is both feasible and beneficial.

Making Better Decisions with Performance Metrics

The opportunity cost of not leveraging the wealth of data available to your business is high. There’s a clear relationship between data and decision-making: the more information you have, the more you can reduce uncertainty.

Uncertainty is one of the biggest factors in poor decision-making. When businesses operate with limited data, they make decisions based on assumptions, which increases risk. By tracking a broader set of metrics, businesses can identify early trends, spot potential issues, and make informed, precise decisions. This not only reduces uncertainty but also leads to better outcomes, improved agility, and long-term success.

Therefore, you need to use performance metrics wherever possible to quantify your business activities.

Keeping Business Performance Management Manageable

Despite tracking many metrics, this approach doesn’t overwhelm your business. Here’s why:

• Dedicated Metric Owners: Each metric has a dedicated owner responsible for understanding its development, tracking performance, and driving necessary actions.
• Exception-Driven Focus: The Business Performance Review Meeting focuses on metrics that are off track or underperforming. This ensures that attention is directed where it’s needed most, rather than spreading focus across metrics that are performing well.

This approach allows businesses to gain a holistic view of operations while keeping the review process focused, efficient, and actionable.

The principles of selecting Performance metrics

Selecting the right performance metrics for your business performance review mechanism can be challenging. Like a mountain climber carefully deciding which gear and tools to take on the journey, you need to carefully decide which metrics to track. Let’s look at some principles that help to asses which performance metric to use:

Derive Performance Metrics from Your Company’s Future Plans and Current Activities

The most cruicial thing you need to realize is that the set of metrics being used are individual for every company. No two companies should track the same set of metrics. The reason is that the set of metrics you are tracking has to be based on your company’s future plans and current activities. And those are specific to your company already. No other company has the same future plans and current activities as your company has. And your set of metrics need to reflect exactly this individuality of your company.

How to select metrics relecting your company’s future direction? It depends. If your business has a clearly defined vision, strategy, and goals (such as SMART goals or OKRs), use those as a foundation for selecting metrics. These elements define where your company is headed and how you plan to get there. This makes these resources a valuable source for identifying relevant performance metrics.

For companies that haven’t formalized these plans, you can still derive meaningful metrics by focusing on what you want to achieve in the future. Consider the goals you have in mind—whether it’s expanding into new markets, improving customer satisfaction, or increasing operational efficiency—and choose metrics that will help track progress toward those aspirations.

At the same time, ensure that your metrics also reflect your company’s current activities. Monitoring ongoing operations—such as customer service, sales efforts, or product development—helps ensure continuous improvement in the day-to-day performance of your business. This balanced approach allows you to measure both immediate operational success and long-term strategic progress.

Obsess Over Leading Indicators

What Are Leading and Lagging Indicators?

Metrics in business generally fall into two categories: leading and lagging indicators.

Lagging indicators reflect outcomes that have already happened, such as revenue, profit margin, customer retention rate, or employee turnover. While these metrics are crucial because they measure results that matter most to your business, the real challenge is that you can’t directly drive activities to improve them. For example, if I asked you to increase revenue by 20%, you wouldn’t be able to affect the revenue figure itself directly. Instead, you’d need to focus on activities that influence revenue growth.

This is where leading indicators come into play. Leading indicators are predictive and influenceable—they serve as early signals of future performance. They are metrics that, when optimized, drive improvements in lagging measures. For instance, in a SaaS business, a leading indicator like “Feature Usage by New Users” can give you insight into future customer retention and satisfaction. Unlike lagging indicators, leading measures can be directly influenced by actions, such as improving the onboarding process, offering tutorials, or highlighting key features via in-app messaging.

Why Leading Indicators Matter More for Your Business

Many business leaders spend too much time focused on lagging indicators. It’s understandable—metrics like revenue and profit margin are more attention-grabbing than leading indicators. But to drive a highly successful business, leaders need to obsess over leading indicators. Leading indicators represent the levers you can pull to shape your future outcomes. They are where you can truly take action and influence results.

Obsessing over leading indicators means two things: first, identifying the leading indicators that will most effectively drive your key outcomes, and second, determining the activities your business can implement to optimize those leading indicators. The process of identifying and optimizing leading indicators is continuous. It can be challenging to find the right measures and you may need to follow a trial and error approach. And as your business evolves, you’ll need to adjust both the indicators and the actions that improve them.

How to Identify and Optimize Leading Indicators

When selecting metrics for your company, I recommend that at least 70% be leading indicators. This ensures your business performance review focuses on driving the future outcomes you want to achieve. Lagging indicators should still be included in your review process to confirm that improvements in leading indicators are translating into results. This step is crucial: if you don’t see corresponding improvements in your lagging indicators over time, it could be a sign that you’re not optimizing the right leading indicators.

Balancing Leading and Lagging Indicators in Your Review

To ensure a balanced approach, include both leading and lagging indicators in your performance review. Leading indicators help you take action to shape future outcomes, while lagging indicators verify that those actions are achieving the desired results. Regularly reviewing this balance allows your company to be proactive and responsive, driving performance while confirming progress.

Include Metrics to Track Counter Effects

The Importance of Tracking Potential Side Effects

When your team is asked to optimize a leading metric, they will work hard to succeed.

However, you need to be careful that the activities they initiate to optimize the metric don’t generate undesirable outcomes. For example, you may ask your team to increase the “Number of New User Signups”. This seems like a great leading indicator because increasing new signups should lead to more paying customers and therefore more revenue.

But when your team focuses solely on “Number of New User Signups,” they may engage in very aggressive marketing tactics. While this can increase the number of signups, it may attract users who are not a good fit for your product, leading to low engagement and high churn rates. Another undesired behavior could be the use of unsustainable tactics. For example offering deep discounts or running excessive promotions. This could devalue your product and hurt your long-term profitability.

How to Prevent Undesirable Outcomes

It’s crucial to be mindful of the activities used to optimize a metric and ensure they don’t yield undesirable outcomes. Always try to identify potential side effects and address them upfront. One way to do this is by tweaking the metric itself. For example, instead of measuring the “Number of New User Signups,” you could measure “Number of Qualified Users Who Complete Onboarding”. This shifts the focus to attracting users who are more likely to engage with and benefit from your product.

Using Complementary Metrics to Track Counter Effects

Often, the best way to address potential side effects is to track several complementary metrics. Identify the potential side effects of a metric and make sure you track a metric that reflects those. For example, when measuring “Number of New User Signups,” potential complementary metrics to track that can signal counter effects are:

• Churn Rate: This can show if an increase in sign-ups is resulting in users who quickly leave the platform.
• Customer Lifetime Value (CLTV): This can help ensure that the users acquired are of high value and stick around long enough to justify acquisition efforts.
• Feature Usage by New Users: This can indicate whether new sign-ups are actually engaging with key features of your product after onboarding.

By tracking these additional metrics alongside your primary goal, you ensure that efforts to optimize one area don’t harm others. This leads to more balanced and sustainable growth.

Keep dependencies minimal

Each metric has a metric owner who is accountable for the development and performance of the metric. The metric owner must be the person or team responsible for driving the activities that directly influence the metric.

Ideally, you should select metrics where the owner has full control over the factors that impact the metric. Full control means the metric owner is not dependent on decisions made by others or activities outside their scope of influence. Without full control a metric owner has limited ability to optimize the metric. This also means the metrics owner’s accountability is lower. This makes the metric less effective to track and improve.

In reality, metrics almost always involve some level of dependence on other teams or external factors. For example, take the metric Customer Support Response Time, owned by the Customer Support Manager. The manager controls many aspects of this metric, such as agent staffing, training, and scheduling, which directly affect how quickly customer inquiries are addressed. However, external factors—like a surge in tickets due to a product defect—can create dependencies on other teams to resolve the underlying issue. Until the product issue is fixed, the Customer Support Manager may struggle to bring response times back down.

Therefore, while selecting metrics, aim to minimize dependencies as much as possible, understanding that complete independence may be rare. The goal is to empower the metric owner to drive performance and improvements without being overly reliant on external teams or conditions.

Prioritize lean metrics

Focus on metrics that are easy to measure without incurring significant additional cost or effort. And ensure the metric can be quickly understood by a broad audience.

With the weekly (or at least monthly) cadence of the Business Performance Review Mechanism, you need metrics that are simple to produce. Complex metrics can lead to delays in metrics production or increased costs. Additionally, the audience of the review meeting will include many people. As they review a lot of metrics they can’t be deeply familiar with the specifics of one metric. Therefore, the metrics must also be easy to explain and understand.

For instance, when evaluating the effectiveness of your customer support team, Multi-Touch Resolution Time (MTRT) could measure how long it takes to resolve issues requiring multiple interactions. However, MTRT is complex and effort-intensive to track frequently. A leaner, more effective metric for a high-cadence review is First Contact Resolution (FCR) Rate. FCR is easier to measure, quicker to produce, and simpler for stakeholders to grasp. This makes it a better fit for regular review meetings.

Using lean metrics ensures that reviews are conducted efficiently, with minimal costs while maintaining clarity across teams.

Everything is Measurable

Every process, action, and activity in your business can be measured with a performance metric. It may not always be obvious how to measure certain areas. But it’s important to realize that everything is quantifiable with the right approach.

This principle is crucial because too often, businesses assume that certain processes or activities are unmeasurable. It’s true that measuring complex or abstract activities can be challenging. But with creativity and thoughtful consideration, even the most intangible aspects can be tracked. When you find it difficult to identify a metric, start by defining the outcome you want to achieve from the process or activity. Once the outcome is clear, it becomes much easier to determine what can be measured to track progress toward that goal.

Going the extra mile to quantify these activities is always worth the effort. If you choose not to measure a key process or action, you lose the opportunity to benefit from performance management. Without measurement, you sacrifice clarity, miss opportunities for improvement, and risk being unable to make informed decisions that drive your business forward.

Change Metrics as your situation changes

As your business grows and evolves, the metrics you track must evolve too. What was once a critical metric may lose its relevance as your company enters new markets, launches new products, or shifts its strategic focus. Regularly reviewing your metrics ensures they still align with your current objectives and business context. It’s important to validate the relevance of each metric and determine if new metrics are needed to track emerging priorities or challenges. Staying flexible and updating your metrics helps ensure that you are always measuring what matters most to your business.

Step-by-step process for selecting Performance metrics 

When selecting performance metrics for your company’s business performance review mechanism, follow this structured step-by-step process to ensure you establish meaningful and effective metrics:

Step 1: Nominate a Project Leader and a Sponsor

Start by assigning a project leader and a sponsor for the initiative.

• The project leader should ideally be someone with experience in business performance management, such as a member of the business intelligence or finance team. Their role is to drive the process and coordinate efforts across departments.
• The sponsor should be a member of the company’s leadership team, such as the CFO, COO, or CEO, depending on your company’s size. This person champions the initiative and ensures that it aligns with the company’s strategic goals.

Step 2: Assess the Current Situation

The project leader should conduct a thorough assessment of the current use of KPIs and metrics in the company:

• Review existing reports and performance management systems.
• Identify KPIs and metrics that are already being tracked and assess their relevance to current business goals.
• Determine any gaps or areas for improvement in the existing set of metrics, and document opportunities to align better with strategic objectives.

Step 3: Hold a Kick-Off Session with Stakeholders

Host a kick-off session to introduce the business performance review mechanism and outline its purpose:

• Educate stakeholders on the importance of effective metrics and how they drive business performance. This is especially important if the company has a low level of data usage or familiarity with KPIs.
• Explain the key differences between KPIs and performance metrics and discuss how these will be used in the performance review mechanism.
• Ensure the session includes managers and team leads from across the business, as their buy-in is critical for the success of the process.

Step 4: Teams Prepare Metric Proposals

Each team or department should be tasked with preparing a proposal of metrics they believe best measure their activities and contribute to overall company performance:

• Encourage teams to choose metrics that are aligned with their goals and reflect their day-to-day operations.
• Provide teams with access to the project leader or other knowledgeable personnel to help with any questions, offer guidance, and ensure the metrics proposed are actionable and relevant.

Step 5: Review and Refine Proposals

Once the teams have submitted their proposals:

• Management reviews the proposals within their respective departments to ensure they align with broader company goals and provide clear insight into performance.
• Feedback should be incorporated to refine and improve the metrics. Focus on selecting metrics that are both actionable and controllable by the teams responsible for them.

Step 6: Create a Prototype of the Metrics Deck

The project leader compiles the refined proposals into a prototype metrics deck, which will serve as the foundation for the business performance review mechanism:

• Review the deck with the leadership team and key stakeholders to ensure it accurately reflects strategic priorities.
• Make any necessary improvements based on feedback and suggestions.
• Ensure that the metrics selected are easy to measure, understand, and communicate to stakeholders across the company.

Step 7: Obtain Approval and Implement the Metrics

Once the final metrics deck is created:

• Present the deck to the leadership team for final approval.
• Upon approval, ensure that the metrics are implemented into your company’s reporting systems.
• Set up a production process for the metrics, ensuring they are tracked and available for review at the agreed cadence (weekly, monthly, or quarterly).

Selecting the right metrics is crucial for driving business performance and achieving your strategic goals. By focusing on a broad set of performance metrics and balancing leading and lagging indicators, you can proactively address challenges and seize opportunities. As demonstrated by Amazon’s data-driven approach, reviewing a comprehensive range of metrics provides deeper insights into your operations. With the right metrics in place, you’ll empower your business to make smarter decisions, improve efficiency, and maintain long-term success.

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