• Strategy
  • CFO Magazine

Measuring Up

Many companies still struggle to use metrics effectively. It may be that fresh thinking is what really counts.

When Red Sox ace Pedro Martinez gave up a double, a single, and another double in Game 7 of the 2003 American League Championship Series, he not only squandered a three-run lead (and ultimately the pennant), but also provided a poignant lesson in the value of metrics.

Martinez’s eighth inning collapse against the New York Yankees underscored what even a casual Red Sox fan knew: as Pedro got closer to the 100-pitch mark, his effectiveness declined markedly. Plotted on a line graph, the opposing team’s batting average soared like a shot over the Green Monster whenever Martinez approached a triple-digit pitch count.

But baseball managers don’t manage by line graphs. Grady Little left Martinez in, losing the game and, several weeks later, his job. The best the Sox could do was to enjoy watching the Yankees lose to the Florida Marlins in the World Series.

Those events unfolded even as Michael Lewis’s book Moneyball, which described how a new breed of baseball visionaries used statistical analysis to assemble competitive teams on modest budgets, was proving to be not only a best-seller but also a business touchstone. If disciplined and innovative measures of player performance could level the literal playing field, what would happen if business managers thought more analytically about various aspects of their operations, from customer service to worker productivity to health-care costs to the fruits of innovation?

Some companies are doing just that, extending metrics into areas that would seem to defy measurement. How, for example, do you measure innovation, or the future capabilities of your workforce, or the optimum menu of health benefits? It’s not easy, and before serious progress can be made companies may need to overcome organizational inertia. But some experts say the time is ripe for companies to move away from a managerial “feel for the game” in favor of more-rigorous, data-driven decision making.

It’s hardly a new idea, of course; a passion for measurement lies at the very heart of American business history. Harvard Business School, which will celebrate its centennial next year, took as the model for its initial curriculum the works of Frederick Winslow Taylor, the efficiency guru whose careful quantification of manual labor gave birth to what came to be known as “scientific management.”

A century’s worth of MBAs would seem sufficient to propagate a by-the-numbers approach into every nook and cranny of the business world, but it hasn’t worked out that way. By most accounts, companies have done a respectable job of mastering financial metrics, but have largely taken a flier on measurements of operations or intangibles such as customer satisfaction or brand loyalty. Fifteen years ago the advent of the “balanced scorecard” sought to redress this imbalance by demonstrating how nonfinancial metrics could be captured and used to help managers “see their company more clearly — from many perspectives — and make wiser long-term decisions,” according to its creators, Robert Kaplan and David Norton. But despite the popularity of that approach at a strategic level, many consultants and academics say it left thorny questions unaddressed at more tactical levels.

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