I recently wrote a post in the NY Times on the concept of hidden metrics. A hidden metric is a measurement that you use in your company that is not included in your normal financial statements. It’s usually something you’ve developed that helps you understand your business better.
Hidden metrics are prospective.
The information in your financial statements is all about history. It’s what has occurred in the past. It hardly helps you figure out what you need to do in the future.
In some cases your financial statements might point out where you have a problem. I’ve found that by the time I notice issues that show up in my financial’s it’s too late. I should have done something about the issue months earlier.
Hidden metrics are small enough to make a difference.
Your financial statements are usually about really big numbers. Gross profit is a big number. Inventory is a big number. Cost of goods is a big number. Hidden metrics is always about small numbers that are easy to improve.
A hidden metric might be how long it takes to turn a machine around for a new product. It might be how long it takes to put together a particular part. It might be how long it takes to return an email to a customer.
When I had my vending company a hidden metric was how long it took us to repair a vending machine. We tracked how many repeat service calls we had on our vending machines. We paid attention to what percent of our machines on an individual basis were filled at every service. Each of these are small numbers that had a big effect on our bottom line.
Hidden metrics let people take initiative.
The really cool thing about hidden metrics is that they allow your people take action and make your business better. The people that work for you want your business to get better. They want to make their job easier. Usually paying attention to hidden metrics can help them do both.
It’s all about everyone having a number.
I love the idea of everyone having a number they influence. That number should be one that will move the needle in company success. I’ve found that employees I’ve worked with love seeing their work have a positive effect. Making sure that you have hidden metrics that are measured goes a long ways towards making this a reality.
Your numbers don’t have to be complicated. You can start with simple ones. As time goes on you’ll experiment and find numbers that are more and more meaningful. This is part of the evolution of finding hidden metrics in your company. You start, make some mistakes, and keep experimenting until you find numbers that are useful.
You should always share your hidden metrics.
You can’t just have numbers that you pay attention to. If you don’t share your hidden metrics with your staff there is no way for them to know what to concentrate on. The more that you share, the better the chance is that you’ll have real impact from a hidden metrics program.
Your people do want to help you make your company better. You need to learn to trust them with information that will allow them to help. Let your people help. They’ll appreciate the trust you place in them.
We have a special report on four tiered budgeting. It just might be a start that will help you think about hidden metrics in your company. To get this report, click on the button below.