EkaLore releases analysis from time to time on critical management issues in the markets. Today’s release looks at changing enterprise metrics in Challenging Times. See our other releases on Challenging Times at https://www.ekalore.com/post/challenging-times-bet-the-warehouse
EkaLore divides enterprise metrics into two categories, dynamic, and baseline. The dynamic set deals with rapid changes in marketspaces and operations. The baseline set provides consistent comparable metrics. As rapid changes in macroeconomics and market space occur, so do changes in the enterprise metric sets. Ongoing metrics may not be appropriate for Challenging Times and may actually cause greater harm.
Board-level continuity (for investors, compensation, and other stakeholders) applies a high value for consistent and comparable metrics to emphasize the longer-term perspectives valued by stakeholders and broader communities. Emerging “ESG”, equity-based measures, and alignment of metrics with enterprise goals reflect these needs.
Operational metrics are the daily life and death in the enterprise. EkaLore has released notes on metrics and measures in particular areas (Alien Invasions, Advertising, and ARS. Operational metrics are critical to suppliers, talent, revenues, and customers. In this release, EkaLore will look at a sample of metrics enterprises may need to adjust to reflect Challenging Times.
A highly visible set of metrics for operations are revenue related. Sales metrics reflect the priorities (as do linked compensation plans) and short-term objectives. In Challenging Times the value of short-term revenues (show me the cash money…) overshadows those measuring longer-term. Even more critical are costs to acquire (and grow) revenues in old markets (addressing competition) and new markets (such as new recurring revenue sources and new competitors).
Costs to acquire new customers are likely to rise in Challenging Times. Penalties for new customer acquisition costs to sales make performance simple – no new revenue or customers. Margins are likely to be reduced in the near term as operational, product, and service adjustments are made for a major new customer.
Customer performance metrics and sales metrics are entwined – failures to fulfill result in failures to sell. A simple management decision can reflect rapid marketspace changes: announce sales targets with early achievement bonuses and a pre-planned change to occur during mid-year to match Challenging Times. Adjusting cost targets and planning for new customer acquisition costs are also adjustments to target metrics and performance objectives.
Supplier metrics are affected by rapid market space changes. The ‘cost’ may increase while the ‘value’ of the supplier relationship changes. Critical shortages have placed billions of revenue monies where ‘long term relationships’ became critical. A 10% increase in costs in a supply part may be less critical than holding up 10,000 times as much revenue. In critical supply chains (with limited competition) qualifying new suppliers (if they exist) may create market space delivery costs far in excess of ‘supplier management costs. The value of suppliers is now clearly seen as being more than ‘the lowest cost’ (especially from global talent suppliers). Toyota gained clear advantages for maintaining orders for critical vehicle semiconductor components compared to the short-term ‘cancel cancel cancel’ reactions of competitors. Given this context, management would be wise to demand an analysis of supplier criticality and relationship costs, instead of demanding the cheapest parts.
Part 2 of this article will extend the discussion to changing measures of Talent cost, R&D, IT, and a conclusion to the article as a whole.
You can find this and other articles regarding management at www.ekalore.com/blog-1
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