As a group, sales managers are not big on “managing by the numbers.” Only a very few use more than a half-dozen or so measurements to monitor the quality and effectiveness of sales performance. Most rely on two, revenue and profit. They are the ultimate indicators of success, right? Why would anyone need to know any more?
Consider this… Assume that you just “volunteered” to manage a little league baseball team. One of the first things you need to do is come up with a batting order. Lacking any information, your only choice is to list the names in random sequence. In other words, the success of your first management decision will be based purely on luck.
Now assume that you find a list of each kid’s batting average from last year. You now have a metric and can make a better batting order decision. For example, put the kid with the highest average first, second highest second, etc.
Next assume you also find each kid’s on-base percentage from last year. (This is different than batting average. In addition to actually getting a hit, a batter can get on base by drawing a walk, getting hit by a pitch, or due to error made by a fielder on the other team.) You can now make an even better batting order decision.
For example, put the kids with the three highest on-base percentages up to the plate first, second and third. Put the kid with the highest batting average up fourth. Doing so increases the odds that your best hitter will go to bat with three runners on base, thus increasing your odds of scoring more runs. One metric yields a better decision than no metrics. Two metrics yield a better decision than one.
The scenario can continue to change. What if you also knew each player’s stolen base percentage, runs-batted-in, extra-base-hit percentage, etc., etc., etc… Each additional metric enhances the manager’s ability to make a better decision.
Shift gears and look at the big leagues. Since the Oakland Athletics pioneered the use of metrics and statistical analysis back in 1999, their use has skyrocketed. Over a 7 year period from ’99 through’05, Oakland won 658 games. That’s 22 fewer than New York Yankees over the same period – essentially equivalent results. In the same time frame, Oakland paid out a total of $295 million in player salaries. The Yanks? $965 million!!! Each win cost Oakland $448K. Each win cost New York $1.4 million. For the math challenged, a win for the Athletics cost 1/3 of what win cost the Yankees. No wonder every Major League Baseball team now has a statistician on board.
Maybe there really is something to this managing by the numbers stuff… Maybe it even applies to sales… Maybe my competitors will continue to mange like little leaguers… Sadly, maybe you will continue to manage like a little leaguer.
Think about it…