In previous blog posts, I’ve zeroed in on two of the three main areas where companies struggle with metrics. This time, I’ll focus on the third – the use of short-sighted metrics.
“Localized metrics” are metrics that measure small (individual or departmental) goals. They do not have a link to broader company objectives. This use can produce satisfactory results near term but ultimately guide the company to severe problems later on. Metrics should in some way address the big picture.
Many companies focus on short-term metrics to please someone else (such as Wall Street, or a parent company). This can be much to the detriment of the future health of the company. Instead of just saying “our hands are tied, that’s what the Street wants,” companies should sit down with analysts and get them on the right track. Similarly, clinical operations people should talk with upper management why blowing past this year’s budget will yield benefits for years to come.
Corporate vs. Departmental Performance Goals
A different twist on this tale is the struggle between corporate and departmental performance goals. Maximizing performance of a department or division is often done at the expense of corporate financial goals.
For example, a department from a mid-size pharma company utilized a lot of contractors. They did this despite the fact that contractors were about 50% more expensive than fully-loaded full-time employees. Why? There is a simple reason. Salaries for permanent employees came out of the departmental budget. But they paid contractors out of the corporate budget. In short, for the department to keep under budget they needed to cost the company more money.
Be sure to check out the previous blog entry in this series, “Clinical Operations Process Improvement Metrics (Part IV – Getting It Right)”
More Examples of Short-Sighted Metrics
Here is another example of short-sighted metrics. A major North American cell phone company tracked a key performance indicator (KPI) called “customer churn.” This KPI was an undesirably high 3 percent. The company spent huge amounts of money through a combination of promotional pricing and marketing activities on customer retention. But, when the company took a closer look, it found that 75 percent of its customers were unprofitable or only marginally profitable.
Once it discovered this, it refocused its marketing resources. They focused on the 25 percent of customers it really wanted to keep, and on attracting more like them. This brings to mind the old marketing axiom, “there are some customers you just don’t want.” In the world of clinical operations, one can argue that a parallel (of sorts) exists when dealing with investigator sites. But that is another article unto itself.
Consider another example from the cell phone industry. Many companies were going out of their way to improve on the primary Wall Street metric of new subscribers (which turned into net new subscribers, then cost of acquiring customers, then net additions of profitable customers, etc.). As a result, early on many companies fell into the trap of pumping up new subscribers (through promotions, discounts, etc.) to the disadvantage of their own profitability and cash reserves. Many of these companies, not surprisingly, are now out of business.
It is obvious from these many examples that companies need to keep their “eyes on the prize” when defining metrics and setting goals. It should be clear that what is set in place will help to incent and guide employees to corporate (not departmental) success over the coming years (not months). If that is not the case, the company should head back to the drawing board.