Your company is losing money but you can’t figure out what’s wrong. Here’s how to properly use your metrics and goals at your company.
One of the most difficult challenges business owners and managers face is processing conflicting information. Some business metrics simultaneously show that a company is doing well while others raise red flags. These diverging signals could be caused by faulty metrics, poor tracking, unclear goals or perhaps all of the above. But how is an executive supposed to know where the problem lies? Kevin Peters had to deal with precisely this problem last year when he was promoted to the position of President, North America at Office Depot.
Office Depot is a global supplier of office products and services with over 40,000 employees generating in excess of $11 billion in sales annually. Like many office supply companies, Office Depot generates razor-thin margins which require near-perfect execution to turn a profit. Over the past three years the company has generated over $2 billion in losses. (Only in the most recent quarters has the company moved back towards profitability.)
Figuring out what’s wrong the old fashioned way
When Peters took charge of the company’s largest division overseeing retail stores in North America, he needed to turn this situation around. One of the first issues he addressed was the conflicting messages generated by the company’s various metrics. Sales and profitability were declining—a sign that something was wrong—but at the same time the in-store metrics the company developed to assess performance indicated customer satisfaction was high. Happy customers tend to buy more, not less, so Peters decided to investigate to determine what was really happening. Part of the investigation included personally visiting 70 stores across the country, incognito. The conclusion was sobering: the elaborate metrics the company was using to evaluate store performance had little to do with generating sales; in effect they were measuring the wrong things.
Righting the wrongs in metrics
As Peters puts it, Office Depot was evaluating store performance on issues like bathroom cleanliness and whether or not store shelves were fully stocked when the store was open—neither of which will help drive sales. In the case of a restaurant, bathroom cleanliness can be a key issue and stocked shelves are important to supermarkets, but to an office supply store targeting small business owners, these are largely irrelevant.
What the metrics failed to identify were important issues such as whether or not employees were helping customers find what they wanted; the user-friendliness of stores’ layouts; product mixes relevant to small business; and the sale of services that customers wanted in addition to products. This revelation led to an overhaul of the company’s metrics and subsequently led to important operational changes which are improving sales and profitability.
