Why Most of Your KPIs Aren’t KPIs

If you work in an organisation of any size, odds are you’re swimming in metrics that are measured, tracked, and reported on every month, every quarter and every year. Often, those bits of numeric information are called KPIs (or Key Performance Indicators).

But most of your “KPIs” are not KPIs at all. They’re just a number. A number that someone somewhere some day decided they wanted to know. So it was put into a board report, and has been faithfully reported on every month since, long after anyone stopped understanding what it meant or why it was tracked in the first place.

What Are KPIs?

I know it might sound too obvious, but KPIs are “key” – that is, they’re important, which many of the numbers fighting for your attention in the monthly board report are most certainly not.

They are also about “performance”. Things you do, things you make happen, activities that take place in your business.

And they are “indicators”. In the same way as you use the indicators on your car before you turn, not after, KPIs should primarily be concerned about predicting future performance, not reporting on past performance.

In most organisations, true KPIs are rare. Reporting systems tend to be based on a mix of:

  • Financial results – numbers like your annual profit, sales made last week, or return on capital employed. These are numbers you need to know, but they are not KPIs.
  • Non-financial measures – employee satisfaction, NPS scores, ESG measures and the like. They are supposed to lead the business in the right direction for the future but, however important they might be, they aren’t KPIs either.

The Problem With Traditional Performance Measures

Running a business using only the standard financial and non-financial measures presents three main problems.

  1. Firstly, by the time you know what those numbers are, it’s too late to do anything about them. You can’t go back 12 months and start over if you don’t like them. They are outcome measures – recording the outcome, or end result, of how well a basket of strategies and tactics worked together over a period of time. But they do little or nothing to help you manage the business along the way.
  2. Secondly, you don’t know what to fix when things go wrong…or even if it’s “wrong”. If employee satisfaction is down, but profits are up, is that “wrong” or “not wrong”? Depends on where you work, but achieving short-term profits while storing up long-term problems is remarkably common in organisations of all kinds. Even if you want to fix that employee satisfaction result, what is the clear and unambiguous lever you can pull to make everything OK again?
  3. Finally, there is no clarity about who is responsible for what when using traditional financial and non-financial measures. Mostly because there can’t be – in one way or another, nearly everyone in any organisation bears some responsibility for a reduction in profits, but no one person working on their own can put profits back on track again. If profits are down, is that because marketing identified the wrong target market, sales messed up the conversion, production didn’t produce to quality, or logistics didn’t deliver on time…or some combination of the above…?

Because traditional measures don’t help much in figuring out what went wrong, and what needs to be better, your organisation needs a good KPI system with proper KPIs, not just random numbers on a reporting spreadsheet.

7 Criteria for Good KPIs

David Parmenter, author of the book “Key Performance Indicators”, proposes seven criteria for good KPIs which I quite like:

  1. They should be non-financial.
  2. They should have a disproportionate impact on the overall results of the business.
  3. Measured frequently (24/7, daily or weekly at the most – the more often, the better, generally).
  4. Can be acted upon by the CEO and senior executives – after all, since these activities have a disproportionate impact on company results, why they wouldn’t want to be all over them?
  5. They should clearly indicate what action needs to be taken should any measure go off-course.
  6. Responsibility should be clearly identified with a specific team.
  7. They encourage appropriate action – that is, they have been tested and drilled in real life so that everyone knows what needs to happen to get results back on track. They should help avoid knee-jerk, short-term decisions to fix today’s crisis, but at the expense of creating an even bigger crisis in the future.

That all sounds fair enough, doesn’t it? But be honest, how many of the “monthly KPIs” in your organisation fit that basic criteria? Likely, not many.

Most of the reporting I’ve seen in organisations of any size doesn’t meet even one of those criteria, never mind all seven of them.

Ironically, the position is often worse in organisations with well-developed reporting systems, where you can hardly step through the door without stumbling over Balanced Scorecards, ESG reporting, Triple Bottom Line methodologies, and many other management fads.

That’s not to argue against the underlying spirit behind those approaches. It’s just to say that, when it comes to organisational performance, you can’t really run a business using only that style of reporting because too many people are involved, the responsibilities for each element are opaque, and the actions required are unclear.

Most organisations need to track fewer, rather than more, metrics.

How to Build an Effective KPI System

The starting point is to be clear which measures out of the hundreds you’re probably tracking at the moment have a disproportionate impact on the overall results of the organisation and take a more systematic approach to measuring them. As a rule, your tracking needs to go deeper, not wider.

And once you get there, use the definitions above to set proper KPIs. Don’t track some random numbers that are easy to find in a particular function and just hope for the best.

When I’m doing this sort of exercise, I always like to tie KPIs back to activities, because that’s the level at which you can meaningfully influence an organisation’s results.

An example might help.

Your organisation probably has a sales target. A financial number that it needs to achieve in terms of income in order to cover your overheads and make a profit.

Well, that’s better than having no idea at all, but it’s not very helpful. If you get to the end of the week, month, quarter or year and “hit your KPIs”, champagne corks start popping. Miss that same target and some people might get fired and everyone’s bonuses are scaled back.

But I’ve worked in many organisations where it’s largely a matter of luck whether any particular target can be hit in any defined timeframe. That can depend heavily on matters entirely outside the control of your sales team, such as whether or not a government permit is granted on time, whether your customer overspent their budget on something else so they have to scale back what they were going to buy from you, or your customer’s CFO just implemented a purchasing freeze to protect their year-end target cash balances.

And anyway, is there really a meaningful difference between a sale on 31 March, just before the end of one financial year, or on 1 April, at the start of the following financial year? From an organisational view no, not particularly. Yet from a salesperson’s point of view, it can be the difference between being fired and keeping their job.

But whether or not you fire your salesperson it’s hard to tell from traditional metrics if that was the right course of action.

Getting Closer to the Root Cause

In the era of complex CRM systems, some organisations track it back a bit. They review salespeople’s performance based on the number of leads generated, or how many potential customers have made it through each key level of a selling process – have we been invited to make a bid, are we in the “final three” and so on.

While better, even that isn’t perfect. If the quality of leads from the marketing department is poor, no amount of selling skills from your sales team will make that into a viable deal flow. While we have a slightly better idea as to what the problem is in this model, we’re no closer to knowing what to do about it. So even a blizzard of CRM-generated statistics are not usually the basis for good KPIs.

This is where stripping things back to “things people do”, or activities as I call them, helps make both the responsibility for action and actions themselves unambiguous.

Let’s imagine leads are generated via outbound telephone calls to key decision-makers, who are taken through some sort of qualification process, and then a meeting is arranged for a member of the sales team to do a sales presentation to the prospect.

Straight away, we have two different activities we can focus on.

For the lead generation team, are they making a sufficient number of calls each week to clear the required number of prospects through qualification and arranging a sales presentation meeting frequently enough for the sales team to stand a reasonable chance of hitting their targets?

These are all yes/no questions and, assuming we know that a lead today would ordinarily be a sale (say) three months from today, we also get a good early indication of trouble ahead in enough time to do something about it.

For the sales team, they need to make a certain number of sales presentations each week in this model, and they need to convert a pre-determined percentage of prospects at a pre-determined price range to generate the sales required to hit the organisation’s sales target for the year.

All of these are activities that only one person, or one team, does.

They’re non-financial in nature. And they can be measured in more or less real time.

Achieving them will have a disproportionate impact on the organisation’s success, so they should attract the attention of the CEO and the rest of the C-Suite.

Responsibility for each element is clear – marketing does the lead gen calls, sales people do the conversion – and the action required is clear if the measure isn’t working. You know what part of the system you need to fix if salespeople make enough sales presentations, and convert prospects at the required percentage rate, but can’t get a unit price high enough to hit their annual sales target.

If only one member of the sales team misses their target, they probably just need a bit of training or mentoring to get them back on track. If the whole team misses target, individually and collectively, you’ve probably messed up your pricing model, or an aggressive competitor has entered the market and you need to think again. Either way you’re clear about where your problem is and which part of the process you’re trying to fix.

When your performance measures look like that, you’re much more likely to have actionable KPIs…true KPIs…that keep your organisation on track, and also help predict the future with a reasonable level of certainty, because you’ve designed your KPIs based on a range of trackable activities, each with clear outcomes and responsibilities.

The Bottom Line

The bottom line is that creating KPIs in this systematic way, focusing on root cause activities instead of outcome measures like sales and profits, builds a stronger business. You have a clear forward view of what your business results are going to be weeks or months into the future. And you can focus your efforts where they really matter, because you know what the key levers are to generate a disproportionate return on the time and effort spent on them in your business.

Without a systematic set of KPIs, you’re firing in the dark. With properly-structured, activity-based KPIs in place, you’re on the front foot, you can spot trouble coming a long way off, and you can focus your time where it gets the best results.

Meaning vs process

One of the business world’s biggest faults in recent years has been it’s obsession with following processes over making meaning for customers and staff.

I’m not talking about those hippy-trippy sort of things like brand purpose or Simon Sinek’s “starting with why”. Rather I’m talking about taking the meaning from what people want to do and facilitate that in the simplest way possible.

That’s particularly true when you consider that many of the most important things in life don’t lend themselves to a process terribly well.

If you want to know how much tax you owe the government, you need a process and some rules. No question.

But what about if you want to make a customer feel valued, or a member of staff feel motivated, or a member of your management team feel safe enough to speak up to express a different opinion to the boss? There’s not a process in the world that does any of those things.

Of course, you can build in some elements of process if you want. You can start your marketing emails with “Dear Valued Customer” instead of “Dear Customer”. You can make sure your staff comms team puts out a weekly newsletter with happy, smiley pictures in it. You can tell your management team till you’re blue in the face as often as you like.

But, except among the perpetually naive, nobody pays those much attention or believes them even if they notice them. It rarely does any harm, but you’re scratching at the surface at best when you use processes in the hope that will get your meaning across.

Instead you need to demonstrate a pattern of behaviour consistent with the meaning you want to create and people will get on board remarkably quickly.

Want customers to know they’re valued? Introduce them to a new potential customer for their business. Then they’ll know you care enough about them to do something for which you derive no personal benefit from doing so.

Want staff to feel motivated? Demonstrate you trust them by not tying them up in bureaucratic rules and nit-picking management approaches. Then they’ll be motivated to see what positive attributes they can bring to play for the benefit of your business in the time they would otherwise have spent complaining about it.

Want your managers to feel safe to speak up? Have a special “challenger of the month” award with a trophy and a bottle of champagne to demonstrate how much you appreciate people presenting different points of view. Make a big fuss of them and make sure they get treated well in pay reviews.

Most people you deal with are, one way or another, looking for meaning, which is an emotional connection of some sort. When we respond with a clinical process of some description where we expect our staff to behave like robots we’re just not going anywhere near the part of the brain that creates emotional responses.

We might have ensured that nothing terrible happens, we might have minimised any potential downside. But we haven’t tapped into the positive side in the slightest.

When it comes to conveying meaning, the old 80/20 rule applies. 20% of it at most (and usually a lot less in practice) is about the process. 80% of it is how what you do makes someone feel…and if that’s not right, no amount of process can put it right.

What’s more, processes are expensive to administer. They need someone to design a process, track it, manage it, report on it, improve on it…the list goes on. Processes are a lot less efficient than they appear because of all the extra overhead that comes with them.

“Marketers should know what budget they have to spend”

I read this statement in an article written by a marketing expert earlier. Of course, at one level it’s true…the last thing any business wants is the marketing department going wild with the corporate bank account.

But I see a lot of marketing commentary which goes along the lines of “once I know the budget, I’ll work out what I can do”. Every time I see that, I can’t help but feel everyone is missing the point.

After a trial run, perhaps, to make sure the numbers are robust, how much money would I give to a marketing department which is bringing in high quality leads which convert into customers on a reasonably predictable basis?

As much money as I had.

When your starting point is a budget, your results are always sub-optimal. As a business leader, your primary focus needs to be on outcomes.

Let’s imagine two companies operating in the same sector with broadly similar stats for their respective marketing campaigns. They both start off with a marketing budget of $1000 and ultimately sign up 100 customers on the back of that activity, ie the cost per customer is $10.

Company A spends their $1000 and stops. Company B spends another $1000 next month, then the same the month after, then the month after, and so on.

Which company is going to take a dominant position in that industry in pretty short order? Company B, of course.

What company A forgot was that the real business objective is “sign up as many customers as you can for $10 a time”, not “don’t spend more than $1000 on marketing”.

You might think this is a silly example, and of course it’s more complicated than this in real life. But this is the sort of decision businesses make every day. I’ve seen it more times than I care to remember.

If you want to build a better business you throw every penny you’ve got at a marketing campaign which brings in profitable customers. You don’t set arbitrary and artificial limits and then shut up shop when you reach them, pat yourself on the back, and head off to the pub for a celebratory drink.

Sure, if coasting along is your preferred management style, you might as well. But if you’re serious about growing your business, focus on outcomes instead.

Why so many KPIs make so little sense

If you work in a business of any size, you’ll be familiar with the daily/weekly/monthly round of KPIs, or Key Performance Indicators.

Despite their popularity in management circles, many KPIs are either pointless or provide only a partial view of what’s going on. And a dangerously partial view at that…it’s like trying to run an organisation of thousands of people spread around the planet using only the tools of keyhole surgery.

In my own career I’ve also found an unerring correlation between how badly an organisation is failing and the number of KPIs they track. In theory, if KPIs worked as well as their evangelists claimed, organisations with lots of KPIs would be stellar performers, but I’ve never seen one that is.

One organisation I dealt with tracked 42 (yes 42!) KPIs at board level, in a room full of people with very little idea how the levers they pulled impacted front-line staff or customers. But they were absolutely certain that anything adverse which happened from the minute the board meeting broke up was the fault of their feckless front-line staff who, as far as I could see, had their work cut out staying on top of each month’s fresh batch of lunacy.

But, crazy though large organisations are sometimes, if you want to find an example of how to do things really badly, the government is always a good place to look.

Take, for instance, the use of GDP (Gross Domestic Product) to measure the health of the economy. This is used by politicians in much the same way as KPIs are used in a corporate environment.

Without getting too technical, GDP is just the total of all the money spent in the economy. A bit like measuring customer satisfaction or employee engagement, this doesn’t seem like a completely crazy idea. (In concept at least…the application often leaves something to be desired…)

And, to be fair, GDP is a number I might be interested in if I was running the country. I’m just not sure I’d obsess about it because there are too many problems with using it to track anything meaningful, a similar fate to many corporate KPIs.

For example, GDP takes no account of where the money spent has come from. At its simplest, if the government borrows money and just gives it to people to spend, after a short time-lag while the money works its way through the system, GDP goes up.

There’s a sugar rush of economic activity in the short term (if you’re lucky…over time, like any addiction, you need a progressively bigger dose for the same effect). But in the end, all that’s left is additional debt for someone else…specifically your children and grandchildren…to pay back through higher taxes, poorer public services or some combination of the two.

Nobody actually got richer. You just borrowed money from your children and grandchildren and, to add insult to injury, your children and grandchildren will also be the ones who have to pay it back with interest in a few years’ time.

In a corporate environment, this is like meeting a sales target by persuading customers to let you invoice them early on the basis that “we’ll worry about next year when we get there”, leaving you already in the hole before the next financial year even gets under way. In case you think nobody could possibly be that stupid, even large PLCs get embroiled in this sort of scandal from time to time.

Another problem with GDP is also a frequent issue for corporate KPIs.

GDP is just an average, when what really matters is the distribution of government largesse. To give an extreme example, if GDP goes up but all the benefits are captured by a few individuals, the government gets to chalk that up as a success for the economy even if a large chunk of the population is destitute.

And before you laugh about how ridiculous that would be, this more or less has been US economic policy in recent times, with the UK not much better. According to Bloomberg, just 50 individuals in the US owned 50% of the country’s entire wealth, with billionaires’ wealth growing rapidly in recent months despite the economy crashing into a once-in-a-century economic crisis.

I know all that sounds crazy, but corporate KPIs are often little better.

Sales teams can hit their KPIs by cutting prices to attract bottom-fishing, price-sensitive customers who will cost the customer service department a fortune to keep happy and ultimately won’t pay their bills. But that isn’t the sales department’s problem. Others parts of the business get to pick up the pieces.

Cost-based KPIs can be met easily by just not spending money. But if that includes halting the marketing campaign that brings in new customers, most corporate KPI systems would call that a victory. As, usually, would the budget-holder concerned…especially since blame for the lack of new customers a few months from now when the budget cuts have worked through the system will invariably fall on somebody else.

Companies can hit staff sickness KPIs by intimidating staff to come into work instead of staying at home to avoid infecting others, or designing compensation systems so nobody can afford to take a day off, no matter how sick they are.

You might think nobody would behave that unreasonably, but I once worked for a large PLC where more than three sick days a year got you an automatic written warning…short of hospitalisation, sick days were rare there but staff motivation was, unsurprisingly, in the sewer.

KPIs aren’t bad necessarily. But they way they’re implemented in practice often hinders, rather than helps, achievement of the underlying business objectives.

KPIs are meant to focus attention, but often focus attention on the wrong things. Sometimes completely the wrong things, such as focusing on continued cost reduction at the expense of deteriorating customer satisfaction. Sometimes KPIs lead to a focus on the irrelevant, taking time, energy and resources away from fixing the problems that really matter.

In the place I worked with 42 KPIs, we spent all day mired in triviality. Major organisational issues were rarely, if ever, addressed. Deliberately so, some might say.

Another theoretical benefit of KPIs is that they provide clarity, so people know what they’re aiming to achieve. But it’s rare to find a manager without stacks of mutually-conflicting objectives. That’s not a triumph for clarity, it’s an indication of poor strategic thinking.

Finally KPIs, in theory at least, have a useful role to play in performance improvement and can be a useful benchmark for continuous improvement. But if targets can be fiddled or non-performance excused by re-basing the comparator, they’re not much use.

Flipping back to a government example again, we saw this a few days ago when government ministers hailed the fact that the UK economy had “bounced back” after lockdown because “GDP had increased”. When comparing September with June that was factually accurate, but GDP was still around 8% lower than it had been pre-lockdown.

It’s not just in the world of politics that an 8% reduction in performance gets presented as a victory. I’ve seen similar tricks pulled probably hundreds of times in a corporate environment.

The net effect of all these issues, and others we don’t have time to go into today, is to neutralise many, if not all, of the benefits organisations can enjoy from a well-conceived system of KPIs.

Poor KPIs drag down organisational performance, spawn never-ending bureaucracy and rarely achieve what they set out to achieve. Setting better KPIs means thinking about performance management very differently.

Sadly, few bother.

If this article has resonated with you in some way, I’m starting the research for my next book, which will be how to create and manage KPIs better than most organisations do at the moment. If you have any stories or experiences you would like to share, in complete confidence naturally, please get in touch via the contact page. I’ll be delighted to hear from you.

Frank Sinatra, Marilyn Monroe and a guy you’ve never heard of

The world’s biggest problems seem impossible to solve. But they’re not.

Take diversity and inclusion – ensuring an appropriate recognition of the talents of women, ethnic minorities and LGBTQ+ communities within the country’s boardrooms, courtrooms and legislatures.

Despite many years of hand-wringing about this injustice, a recent study found there were more Fortune 500 CEOs called David than female ones. And even fewer black ones.

I was thinking about this when I read that Jerry Jeff Walker, someone you’ve probably never heard of, passed away last weekend.

Jerry Jeff Walker was a songwriter. His most famous composition was “Mr Bojangles” which became the late, great Sammy Davis Jr’s signature song. The lyrics about an out of luck song-and-dance man travelling through the American South resonated so strongly with his own experiences that Sammy Davis Jr recorded the iconic version of that iconic song.

As a young black man in 1940s and 1950s America, Sammy Davis Jr didn’t have the easiest route to stardom. But Frank Sinatra liked Sammy Davis Jr and believed in his talent.

He insisted on Sammy Davis appearing on the bill with him, going very much against the grain at a time when many major venues booked an all-white roster of entertainers. Thankfully, Ol’ Blue Eyes wasn’t an easy man to say “no” to.

Marilyn Monroe did something similar.

She adored Ella Fitzgerald’s voice – and, let’s face it, who wouldn’t? But when the owner of a top LA nightclub refused to book her because he thought no-one would turn up to watch an overweight black woman sing, Marilyn Monroe pitched in.

One of the biggest stars on the planet at the time, Marilyn told the owner of the Mocambo nightclub that if he changed his mind not only would she sit in the front row every night Ella Fitzgerald sang, but she’d bring her movie star friends along too.

Wisely, the nightclub owner decided this offer was too good to refuse. The house was packed every night. Ella Fitzgerald’s career never looked back because someone believed in her and went to bat for her.

I’m not suggesting for a moment that Frank Sinatra or Marilyn Monroe were saints. There’s plenty of evidence around to suggest they were not.

What they did, though, was something which would have been easy for them not to do. They stood up for giving someone the chance their talents deserved, notwithstanding the colour of their skin, their gender or how much they weighed.

We might not be Frank Sinatra or Marilyn Monroe, but we can all do that.

Frank Sinatra could have shrugged his shoulders and got Dean Martin booked instead. It would have been no skin off Frank’s nose.

Marilyn Monroe could have sighed quietly and let Mocambo book Peggy Lee instead. It’s not like she was short of invitations to glamorous night-spots. But she sat in the front row at Mocambo every night because that’s how she made sure her friend’s talents got the exposure they deserved.

It would have been easier not to, and they gained nothing by taking a stand, but Frank Sinatra and Marilyn Monroe went to bat for people with talent who deserved a chance.

If we really want to solve the problem of diversity and inclusion we just need to do what Frank Sinatra and Marilyn Monroe did, and make sure people get the opportunities their talents deserve.

We might not be able to change the whole world on our own, but we can change one person’s life on our own. If we choose to…

Train hard, fight easy

What do jet engine manufacturers do with key components? The run them and run them and run them. They put them through the equivalent of thousands of landings and take-off, and millions of hours in the air.

Their sole purpose is to see when they break. When does that part shear off, collapse or buckle under the continual strain?

That’s how they know when airlines need to replace their parts.

If a jet engine manufacturer tests hundreds of those parts and every one of them, within a tight tolerance, lasts 10,000 hours, they’ll be pretty safe telling airlines to replace the parts once they’ve spent 5,000 hours in the air, for example. The chances of anything going wrong in that timespan are infinitesimally small.

While you probably shouldn’t test your business to destruction, you can try to model the same thing relatively easily. Most of the time you can work out what it would take to “break” your business.

Let’s say your factory can produce 10,000 units a week. What would happen if your order book doubled overnight? How would you cope…what options would you have?

Or your customer order telephone line can handle 1,000 inbound calls a day. What would happen if the number of incoming calls doubled overnight?

Or you need to make a gross margin of £500,000 per month to cover your fixed costs, but this month it’s only £250,000. What would you do…how would you cope?

Taking where you are today and moving some key numbers dramatically up and down gives you the opportunity to think through your options and understand where the weak points in your business model are.

In most businesses I see, putting through quite a lot more sales is a relatively solvable problem. Yes it might mean putting on a night-shift and paying some overtime, but it’s not usually the most challenging problem to handle.

By comparison, handling more customer orders is a much bigger problem, because you’ve probably optimised your call centre performance over the years and cut back on people, desks, PCs, phone lines and physical office space to make sure your costs are as low as possible.

So what happens if your world goes crazy overnight? Usually businesses have over-optimised their operations and have nowhere to go.

And if you think that’s unlikely, just remember the hand sanitiser business was the epitome of dull back in February 2020. Just look at it now – how would you feel if you could have ridden that wave of excess demand, but missed out because there weren’t enough people to answer your phones and take customer orders?

Of course, if you know what you’d do to handle a doubling of your business, you’ll have a pretty good handle on what you’d do if business blipped up by 20% overnight. Compared to having your business double, that would be a walk in the park.

Similarly, if your profits dropped by 10%, but you’d worked out how you’d handle things if they dropped by half, the likelihood of you being able to manage that without too much trouble along the way is correspondingly high.

That’s where the old army saying comes from – “train hard, fight easy”.

Once you know how you’d handle big swings, up or down, you can take small ones in your stride without over-reacting and possibly hampering your potential for tomorrow as a result of taking hasty action today.

But most businesses which train easy crumple at the first sign of adversity. Which is a shame, as it could easily have been so different.

What will you do today – train hard, or train easy…?

The Knight of Uncertainty

No, not the Sir Lancelot sort of knight, but Frank Knight, a University of Chicago economist.

He’s most famous for drawing a distinction between risk and uncertainty. I know those sound like much the same thing, but in reality they’re not.

Risk involves having a large data set with a strong track record of known outcomes, such that you can use statistical modelling to make reasonably reliable decisions about future events.

Life insurance, for example, is about managing risk. If you’re a 45 year old, female non-smoker a life insurance company will write a policy in full knowledge of the likelihood of that policy ever having to pay out, and price it accordingly.

With the benefit of hindsight, might that be the wrong judgement for a specific individual? Almost certainly. And some will be wildly out – the unfortunate lady who steps in front of a bus tomorrow or the fortunate one who reaches 120 unscathed.

But on average, across a large enough group of people, statistics kicks in and the average lifespan of a 45 year old, female non-smoker will be reliable enough for you to price life insurance policies and make a profit.

Uncertainty is something entirely different.

That’s where we have no signposts to make statistically reliable decisions. No data. We might not even be able to imagine what the range of potential outcomes might be.

By way of example, imagine someone in 1998 asking you to guess which woman would have the largest Twitter following in 2020.

Back then, Twitter wasn’t even a thing. In fact the internet was barely a thing. And you’d have no way of knowing what the next 20 years might bring…smartphones were almost a decade away, back in 1998, as was Twitter itself and 4G mobile data.

Since I know you’re dying to find out, Taylor Swift is the woman with the most Twitter followers at the time of writing. She was 9 years old in 1998.

The reason this is important is that in business, you need to understand whether you’re managing risk…like a life insurance company using historic data and high-powered statistics to make a fairly safe bet about someone’s remaining lifespan…or uncertainty, like picking out the 9-year old Taylor Swift as the woman with the most Twitter followers 22 years later.

Of course, now you know the answer, it’s not surprising that one of the world’s foremost female music artists has more Twitter followers than any other woman. But it wasn’t obvious 22 years ago and no matter how much data you crunched back then, you’d never have got the right answer.

Why does this matter?

When you’re planning for uncertain future events bear in mind that more data almost certainly won’t get you a better answer.

The key to handling uncertain future events is to be as light on your toes as possible, and have as many options as possible, together with having the authority to make decisions as events unfold.

If there’s one thing we’ve learned from 2020, it’s that most companies thought they were managing risk, insurance company-style.

In reality, they were managing uncertainty. And by and large doing a poor job of it, because they’d developed rigid systems and processes based on their belief that the world was inherently predictable and plannable.

Coronavirus as such would have been just as hard to predict as 9-year old Taylor Swift’s future stardom.

But “bad things happening which sideswipe the economy” is a remarkably frequent event. And you don’t need to know exactly what’s going to happen to prepare for adversity. It’s just that very few businesses do.

Yes, but is it true?

I’m convinced a poor appetite for research causes many of the business world’s most intractable problems.

I don’t mean academic research, necessarily, but more chasing down the facts rather than relying on lazy assumptions or outdated perspectives.

To give just one example, the big Hollywood studios have only embraced diversity slowly. Despite the success of films like Black Panther, non-white actors are not seen as often on the silver screen as they might be, and when they are it’s often in unflattering roles.

The studios’ excuse? Moviegoers, especially overseas, prefer all-white casts.

Now, I know you’re probably ahead of me here, but it turns out that particular lazy assumption is completely untrue.

What’s more, based on a recent review of nearly 1000 feature films, those which featured multiple ethnic minority actors actually achieved significantly higher revenues than films with fewer or no ethnic minority cast members.

But this isn’t about Hollywood movies, though. It’s just an example of what happens when assumptions are accepted without question….or data.

Assumptions like: customers won’t pay more than £X for our products…only men buy engineering components…nobody outside the UK would be interested in what we sell, and so on.

Whenever I come across an assumption, my instinct is to ask for the proof behind it. This occasionally makes me unpopular, but usually only for as long as it takes people to realise they have no rational basis for the views they’d expressed so forcefully just a few moments earlier.

It’s worse than that, of course, because the most insidious assumptions are the ones which are never talked about…the ones where “everybody knows that’s the way things are”. Nobody ever vocalises them, so nobody ever questions them.

So, by all means question the assumptions which get talked about in your business.

But try to spot the assumptions nobody talks about. Odds are those are the ones which hide your biggest opportunities. Because they’re the ones “everybody knows”, there’s almost certainly a market opportunity in doing the exact opposite.

And you’ll get a significant head start, because most of your competitors won’t even see your move coming. They’ll remain convinced “it’s impossible” right up to the moment you prove them wrong.

Because you challenged an assumption, but they never did.

It’s the what, not the how

Of course, the recent Covid-19 crisis has made people re-think their business. But there’s one fundamental mistake I’m seeing a lot at the moment (and which government appears to have bought into too).

It’s what I call the “let’s get things back to the way they used to be” approach.

That rarely works because the world moves on remarkably quickly, leaving business owners who won’t adapt (or perhaps can’t adapt…my heart goes out to you if you run a pub, for example) high and dry.

Most often, it’s because businesses get so absorbed in their “how” they forget their customers’ “what”.

This isn’t just for 2020. It’s happened again and again throughout business history.

For example, in the early years of the 20th Century, all the US railroad companies…the predominant form of cross-country transportation at the time…were approached by a range of “upstart entrepreneurs” to invest in their new automobile manufacturing operation or their recently-formed transcontinental airline.

The railroad companies turned them all down “because we’re a railroad company”. What they forgot was that being a railroad company was a “how”…it’s how people moved across the country, not the “what”.

The “what” for their customers was getting to their destination, not the precise method by which they got there.

So when the airlines could fly across the US in eight hours instead of a four or five day train journey, people who valued their time flew instead of taking the train.

For people who wanted to travel on their own schedule, make stops along the way, or divert off-course to visit relatives, the car was an attractive alternative.

Things never went back to “the way they used to be” for the US railroad business.

Their premium customers flew. Their budget-conscious or more independent-minded customers drove. Ultimately, there weren’t enough travellers left to cover the huge fixed costs of operating a passenger railway and, outside commuter lines serving some big cities, railroads virtually disappeared as a way for people to travel around the US.

Why are events of 100 years ago relevant today?

That’s because, just like those railroad companies, people who are desperate, for understandable reasons from their perspective, for things to go back to the way they used to be, are likely to be very disappointed.

City centre commercial landlords, for example, are in the vanguard of the “everyone needs to get back to the office” movement at the moment.

Unfortunately for them, the sort of businesses which which rent city centre office space have spent six months discovering that Zoom and occasional office visits for client meetings works just as well as piling everybody into a central physical location. What’s more, they can save six-figure sums every year by dramatically downsizing the amount of swanky city centre office space they lease.

At the next break clause in their lease, or after whatever notice to exit they have to give, no sane business which pays six-figures in city centre office rents is going back to “they way things used to be” any time soon.

Commercial landlords have become so wrapped up in the particular “how” they profit from (ie getting people physically together in the middle of cities to conduct business), they’ve forgotten their customers’ “what” (ie businesses just want to get the work done, bill clients and make a profit – if they can do a lot of that remotely and save a fortune on rent at the same time, they’ll bank that saving at the first opportunity).

Whatever challenges your business faces at the moment, you’re more likely to survive and thrive by re-orientating your business round your clients’ “what” and attach a lot less importance to your “how”…the particular way you help them do that at the moment.

Don’t end up like the American passenger railroads and get edged out by someone else providing a better or at least “close enough” end-result for your customers, more attuned to their specific needs.

If 2020 has taught us anything it’s that there’s always another “how”…another way to get things done.

Focus on your customers’ “what” instead. If the US railroads had done that 100 years ago, today we’d be driving around in Union Pacific automobiles and flying coast-to-coast on Atchison, Topeka and Santa Fe Airlines.

Scooby-Doo, where are you?

The power of a few words…

For most of us, with those five words we’re instantly transported back to watching cartoons on TV when we were kids. That’s all it takes. Just five words.

So, if just five words can magically transport you back two, three, four or even five decades…why do businesses think an 80-page strategy document is a good way to communicate anything?

Nothing is made clearer by 80 pages of closely-typed script. As an old boss of mine used to say, if you can’t explain something on the back of a fag packet, you don’t understand it well enough.

Often, this lack of clarity holds businesses back.

Trying to “cover all the bases”, satisfy everybody, tick every box and pay homage to every special interest group and sub-sector in the economy is more likely to cause you trouble than take you where you want to go.

In communication, less is always more. A handful of words can shift your mood in an instant and kick in memories you’d forgotten you even had.

I had exactly that experience last weekend. My dad mentioned the name a singer my late grandmother used to like. That’s all it took to transport me back to memories of my granny dancing around the kitchen to one of his albums while she made the tea.

Just his name…the name of someone who’s not been in the public eye for probably 30 years…and I was transported back to the early 1980s.

If “Scooby-Doo, where are you?”, “Nice to see you, to see you nice!” or “Listen carefully…I will say this only once” mean anything to you, you’ll recognise that a handful of words, if they’re the right words, is vastly more powerful than an 80 page strategy document when you’re trying to engage hearts and minds.

Which is important because you can’t build a great business without engaging hearts and minds.

That’s how you motivate your people, engage your suppliers and enthuse your customers. You have to talk to their emotions, not their logical brain, for results like that.

How many words do you need to motivate your people, engage your suppliers and enthuse your customers?

I’m prepared to bet it’s a lot fewer words than you’re using at the moment.