Metric Overload Syndrome

Following the adage, "what gets measured, gets managed," many managers (my early CEO-self included), think that every every process and every data point needs to be distilled into a "metric" that is tracked and reported and monitored.  That approach inevitably leads to "metric overload" a syndrome whose primary symptom is an abundance of numbers and graphs and trends followed by a general lack of true understanding.  Some managers get so caught up in the process that they spend as much time designing dashboards and driving their teams to assemble and mine increasingly meaningless and arcane minutia as they do actually growing the business they are trying to measure.  This "metric overload syndrome" has only gotten worse as data has proliferated and databases grown.

Complex dashboards filled with esoteric data points can actually serve to distract attention from the true key drivers of a business.  They can lull managers into a false sense of security thinking that "ok, we are tracking everything so we must have a handle on things."    In fact, a preponderance of metrics generally means that the team doesn't truly understand the essence of the business at its core.  They are monitoring many things leading to a lack of focus meanwhile the business is stalled, profitability flat and true product innovation is nowhere to be found.

In short, "management" may boil down to measurement but leadership certainly doesn't.  Leadership is found in understanding a business at such an intuitive level that you instinctively zero in on the small number of elegantly simple metrics that truly reflect the health and prospects of a business.  It is easy for a smart person to come up with a lot of things to track and monitor.  It takes far more effort and work to get to the point where a few well-designed, simple and instantaneously understandable metrics are used to illustrate the trajectory of a business.

One salient example of this point for me is the progression of how we tracked customer AR during my tenure at MDeverywhere.  Initially we started out measuring all the usual statistics- days in AR, percentage of AR over 120+, percentage of AR between 90-120 days, patient AR vs. payor AR, AR by payor, AR by provider, AR by procedure and/or visit type, etc.  As our customer base grew, this report also grew - exponentially.  It soon got to be such a tome that it became very time consuming to produce at the same time that it was becoming increasingly useless as a tool for senior management to quickly assess the health of this key process.  And while each of these data points are interesting and potentially important in specific instances or scenarios, they all represent lagging indicators - indicators that tell you there is a problem only once it has been around awhile when it is likely to be difficult to fix.  

Then came a big "aha" - instead of tracking a complex and muddy soup of metrics that often hid the underlying meat of the matter, we realized that the health of these important processes could be boiled down into three simple numbers - all of which should be at or very close to 100%.  Clean Claim Rate, Percent of Denials Worked within 5 days and Initial Resolution Rate.  A quick scan of three numbers for every client every month with anything below 100% flagged, told us immediately if there was an issue brewing - one that would have shown up eventually somewhere in the morass of lagging indicators that we used to track.  What was once of report of 100 pages or more became a report of 2-3 pages.  Not only were we finally tracking the right thing - enabling us to quickly zero in on issues before they became problems, we freed up precious time and mindshare to tackle other issues requiring real creativity and blue sky thinking.

This is just one example of many that I can think of throughout my career.  Whenever something seems overly complex or complicated, I know that we haven't yet done the hard work to distill it to its essence, that we don't yet fully have a handle on it.  Complexity is easy, it is simplicity that takes hard work and leadership.

When a Company has Grit

There has been much written recently about the importance of resiliency or grit in achieving anything significant.  Angela Duckworth cites it as the most important determinant of success in her now famous TEDtalk.( http://www.ted.com/talks/angela_lee_duckworth_the_key_to_success_grit). She says... "In education the one thing we know how to measure best is IQ, but what if success in school and in life depends on much more than your ability to learn quickly?"

In her research on West Point cadets, sales people, school children and school teachers, Duckworth states that "there was one characteristic that emerged as a significant predictor of success - and it wasn't social intelligence, it wasn't good looks, it wasn't physical health and it wasn't IQ.  It was grit." She goes on to define grit as "passion and perseverance for very long term goals."

And while one can think of many examples where that statement is certainly true for individuals - Nelson Mandela, Winston Churchill, Steve Jobs all immediately come to mind for me; I think grit is equally important for companies.  Companies have a "life" cycle just like people do.  And they rarely progress in an even, predictable trajectory.  There are ups and there are downs.  Highs and lows, Successes and failures.  Good years and bad.  And just like the response of individuals to setbacks and hurdles will help determine their ultimate success; the response of companies to a product failure, a customer loss, a major vendor or partner dispute funding challenges; will ultimately determine its fate.  

At MDeverywhere, 2012 was one of those years when we learned what we were made as a company by how we handled the challenges that inevitably came following years of tremendous growth and progress.  We had our fair share of challenges that year but we also proved our mettle and fortitude by exiting the year stronger and more prepared for the opportunities and new challenges ahead.

What we had set out to do was hard.  As is anything worthwhile.  There had been set backs along the way.  There always are.  Truly successful companies  learn from those setbacks, are better ultimately for them and never lose sight of the goal.  Determination, resiliency, grit - call it by whatever name you prefer - it matters.  We  had struggled in the wave of system transitions driven by the incentives to drive EMR implementations in the government's HITECH act; we had lost a friend and colleague too soon to a sudden heart attack; and, we had to do some painful restructuring that had us saying goodbye to others as we prepared for the future. The struggles were real and the resulting changes difficult.   But we knew that we were a part of something special.  That we had that unique magic that happens when a set of individuals melds into a team to build something special – to build something lasting.  

Sometimes when you are working your way through a tough transition, it is easy to lose sight of the accomplishments and the progress.   It is often during these times of struggle that the most significant leaps forward are made.  Such was the case with 2012 for MDe.  Our team made some significant leaps that year that helped us meet our challenges head on and got us back solidly on a posture of growth and expansion.  Although the year was hard and there were many sleepless nights, the company was better off for having gone through it - coming out stronger and more confident of in our staying power.  And I was a better leader for all the same reasons.  

A Top 10 List Especially for CEOs

Everyone loves "Top 10" lists ... from Ugliest Dog to worst Celebrity outfit.  This time of year especially as we wind down the year, there appears to be a top 10 list for everything.  So I thought that I would jump on the bandwagon and post a Top 10 list for CEOs in 2016.

1. Build the right culture, hire the right talent and foster a healthy team dynamic.  The Companies that outperform competitors and grow faster than their market create an environment where individuals are encouraged to achieve their full promise and where teams operate at full force.  A team of talented people communicating effectively and truly working together with all the collaboration and friction that implies, can achieve great things
2. Increase revenue growth through focused consistent sales strategies designed explicitly to increase yield on sales spend and drive predictability and peak effectiveness.  Management of a sales team should be as crisp as a military operation
3. Drive higher revenue yield within the customer base through proprietary product extensions and rigorous inside sales iniatives
4. Leverage partners to speed up new product offerings and open up new distribution channels
5. Ensure high customer retention rates.  First - measure it and be honest about the facts.  Second - work to drive a customer-centric culture starting with how often you visit customers
6. Prioritize new products vs. upgrades to existing ones through a disciplined process of assessing market requirements and competitive offerings.  Don't be afraid to "shift the development curve to the left" with some blue sky thinking
7. Drive operational excellence throughout the organization through a commitment to transparency and adherence to the rigorous measurement of the right leading metrics
8. Improve gross margins through process redesign, automation and rigorous productivity standards
9. Accelerate growth through synergistic acquisitions
10. Review balance sheet for opportunities to unlock capital and/or reduce its cost.

Finding Growth at Home...Mining the Base

Current customers are often the best – most overlooked – source of revenue for a Company. Many organizations and sales leaders have a "one and done" mentality. They close a sale and move on quickly to the next opportunity. That often leaves no one in the organization accountable for selling into the base for incremental revenue opportunities.   This happens especially when managers perceive there to be a "greenfield" opportunity with a new product or service and race off with a land grab mentality. "Let's grow our installed base first and worry about incremental revenue opportunities later" is the often unconscious logic.  While growing share initially is likely to be very important with a new product or service, not making the effort early on to embed the ethos of customer expansion is an opportunity lost.  What most managers don't realize is that if you aren't growing a client, you are losing a client.

Most companies don't focus on the revenue opportunities associated with existing clients until such point as new sales begin to get harder and/or slow down – either because of market or product dynamics, sheer saturation or increased competitive efforts.  Once at this point, they belatedly turn attention to the base in the hopes of maintaining traditional growth rates. But that is often too late.  The time to be begin the process of maximizing "same store sales" is when the company is still young and the customer base still small. 

Companies need to have the same sort of rigorous attention to metrics and pipeline management and sales cycle process with current customers as they do with new customers. And this isn't built overnight. That infrastructure should be developed once the first customers sign. Your customers also need to be "trained" to expect new product enhancements and new service offerings.  They need to learn to expect that the relationship will continue to include contract expansions. Having the conversation early on with a customer that there is the expectation that the relationship will grow if the product exceeds expectations will help pave the way for incremental revenue.  If you haven't talked to a customer in the last five years about add on business and lob in what would effectively be a "cold" call, you are very likely to be met with a quizzical and potentially hostile response. It is the sarcastic "Well, nice to hear from you!), response.

One of the questions most companies need to consider when tackling this opportunity is whether to use the existing salesforce to pursue both customer add ons and customer extensions as well as new customers. And the answer to that generally lies in the nature of the product or service provided. If there is intensive ongoing support for the service, it would be natural to have those providing the support also look for and incentive to sell ad on opportunities.

Where this effort should reside is also a function of what percentage of new revenue every year can be expected to come from the customer base.  That number will shift overtime as a Company penetrates the market and new customers become more scarce and harder to close. In the early days, the sales team is often better focused on new opportunities where contract value and sales cycle is likely to be higher and longer respectively.  Sales people are highly efficient economic creatures.  They will zero in quickly on where they can generate the most commission in the shortest amount of time.  How you set up incentive comp will drive behavior and focus much more effectively than any management dictate.  If add on sales are perceived to be incremental and smaller, they are likely to fall by the wayside as the sales team focuses on the new deals that drive their comp higher in chunks.

A Company risks having add on sales become an afterthought  if one group is doing both add-ons and new sales and is a mistake many companies make.  In my experience, it is best to have an inside sales/support organization that is incented and organized to increase the net annual revenue per client - with product extensions, the addition of new users or better contract terms at renewal. 

There should be an explicit revenue goal for expansion of the base.  If it is a combined support/add on team, you may  want to also have a client satisfaction goal.  This may not be necessary as the team will figure out quickly that the only customers who buy more are the happy ones.   The "new" sales team's comp can be more heavily weighted towards incentives for chasing the "net" new customers.  The base/incentive comp ratio may be different for the two groups as a result.

We took this approach at MDeverywhere giving our Account Management team (which historically was focused on providing service support) a quota for increasing the revenue for their assigned client base. They could bring on additional users or additional groups, they could sell add-on service offerings. Or they can do all of the above. This effectively accomplished two things - it focused the support team on developing relationships at the right levels of an organization and on solving the big problems for clients that were blocking incremental sales - driving home that a growing client is a satisfied client.  Growth and retention go hand-in-hand.   It is a virtuous circle

The sales team, while initially grousing about losing this potential source of commissions; eventually recognized that they had been spending little to no time on this anyway. Their incentive comp plan was restructured to more clearly incent the closing of net new business.   We gave our Account Management team extensive training on sales techniques but, frankly, not all of them made the transition successfully. Some were uncomfortable with asking for new business and were reluctant to consider themselves "sales people." But the more creative and aggressive members of that team were excited about the opportunity and realized significant increases in their annual compensation from driving a great deal of new business - very profitable business - for the Company. Once those commission checks started flowing, it didn't take long for it to become part of the Company culture that "everybody sells." 

Sales As a Science

A successful business model is one that effectively translates customer value into profits and company value.  A successful sales and marketing model is one that helps make that translation seem seamless.

Understanding the true economic value proposition of your product or service to customers and successfully reflecting that value in product position and pricing are critical precursors to an effective go-to-market strategy.  But it isn't sufficient to stop with the strategy and messaging - building an effective sales organization requires applying scientific-like rigor to managing the sales process.  Although the process of selling and closing includes intuition and "emotional intelligence" on the part of the individuals involved, the process of managing a sales organization to produce predictable performance comes down to rigorous management of metrics and numbers.  Increasing the "yield" of new bookings to sales spend requires a deep understanding of:

• Buying patterns and decision making processes
• Market segmentation - who is the b ideal purchaser and why?
• Sales cycle timing and milestones
• Customer acquisition and implementation costs
• Sales process at a very detailed level
• Price sensitivity in various sectors of the market and the right economic levers to pull to close a profitable sale
• The relative value and profit impact of bundling vs. a la carte pricing

When I joined MDeverywhere as CEO, a systematic review of the sales and marketing model led to a wholesale restructuring from a traditional region-based, "feet on the street" model with all reps handling small as well as a "enterprise" accounts."  The results from that approach were predictably average.  Reps were doing an average of 3 meetings a week with new prospects, the average contract value was $35 K reflecting the lower resistance of smaller accounts for reps and "yield" - new sales vs. sales spend was a paltry 1.2 x.  We were spending almost as much on sales-related expenses as we were bringing in every year in new revenue.  In our restructuring, we concentrated lead gen in an internal team, put the reps on a "next up" rotation without concern of geographic region, created an Enterprise team that focused on larger, more complex sales and transitioned from a "feet on the street" model to one focused on online demos.  The impact was immediate - meetings with new prospects every week went from 3 to 12 for each rep, average contract value went from $35 K to $120 K and our sales yield grew to 3.5.  To support all the changes, we implemented a sales management tool to give much greater visibility to the activity levels and pipelines of each rep.

Crossing the Chasm to Predictable Growth

Companies need to "build muscle" when they compete in the rigors of the market and strive to meet the demands of customers.  Scaling an organization from a concept or "early adopter" phase to a self-sustaining company serving the needs of a large customer base is the chasm most companies fail to navigate.  The idea is generally good, the market is ripe, the product "works" but making the transition to self-sustaining scale successfully often requires a wholesale change in how managers think, how processes are designed and how performance is measured.  And a complete rebuild of the basic infrastructure and plumbing supporting the company - basic things like a robust general ledger, a full-function CRM system.  Things that aren't sexy but are the "roads and bridges" of a Company.

When companies scale - processes, systems and organizational structures can all breakdown under the weight and pressure.  This will ultimately stall growth as sales leads drop through the cracks, operational performance and service levels suffer and, finally; customers become frustrated and leave.  Creating an infrastructure to support sustainable growth requires planning, investment and experience.  Maintaining a competitive cost structure in today's environment often requires the added complexity of accessing offshore capabilities and capacity.  Having created an organization in India and built it to 450 employees, I have lived through the arduous process of setting up an offshore operation and lived to tell about it.  There are many pitfalls and places to lose one's way.

An early focus on Operational Excellence helps ensure a company experiences expanding operating margins as it grows its top line - no small feat.  High profit margins help ensure that rapid growth rates are self-sustaining as G&A expenses ramp to support the growth.  A robust operational model requires the building of a strong organizational foundation for revenue growth and enhanced profitability through increased productivity.  Gross margin and operating profit are "lagging indicators" that reflect the results of how a company is performing every day on the key operating metrics that drive the cost and quality of a product.  Defining those 2-3 key drivers of cost in an operation is a critical precursor to understanding what truly needs to be measured and managed.  Models need to go beyond the financials - which are lagging the indicators - and focus on the leading performance indicators in the business.  It is those leading indicators that tell you how much further you have to go in crossing that chasm.

Taking HR out of Hiring

What is the most important part of a company – it's people. You can have the most elegant strategy, most advanced product and the strongest balance sheet but if you don't have the right people in place to execute on thei strategy, to iterate and surmount the inevitable hurdles and curves;  a company will ultimately fail to reach its full potential.

It is the people in an organization that determine how competitive a company is and how successful company will ultimately be. It is the people who drive the customer experience, who dial in the commitment to execution. And they determine how efficiently and effectively resources are deployed.  Yet effective hiring is the one area in an organization that most resists measurement by metric.  How do you know that the people you hire have the fire and the competitive spirit to achieve exceptional performance?   How do you know that they have the drive to make the people around them better?  That they have the passion and perseverance to push through setbacks and hurdles?  With the infinite complexity of human beings, there is no other way to assess these qualities then a rigorous process led by the cultural leaders of an organization. 

Individuals will sub-consciously raise or lower their game according to the prevailing denominator on the team. Leaders should take it as their responsibility to ensure that all team members are only surrounded by exceptional peers - people that help them be better. They should openly and explicitly commit that to the team - "my most important job is to ensure that you are surrounded by only the most exceptional people."  

A lot of companies rely on their human resource departments to source and evaluate candidates.  To check references and confirm experience. Or rely solely on hiring managers who are very often under the gun to hit metrics and meet plan and who are-  as a consequence - all too often in a rush to put a "butt in the chair" quickly.  At MDeverywhere, I made it clear that there were no more important decisions to be made than hiring decisions. That meant that everyone - senior people especially - had to allocate significant time to the process. The hiring process for all levels of the organization was aggressively rigorous.   We took it seriously and spent a tremendous amount of time on getting it right. We made it hard to be hired at MDeverywhere.  

Even people applying for level positions, had to go to multiple screening interviews. Including interviews with peers, interviews with individuals from other departments (who often had the highest bar), and senior people in the organization. Everybody committed to finding time on busy calendars for this process. Every candidate also had to give a presentation to a group of peers. Even if the position was not one requiring this sort of work on a day-to-day basis, we used the presentation – which could be on a topic of their choosing - to assess how people communicated, how they behaved under pressure, to measure their ability to cogently organize ideas and how they thought on their feet. It also gave their personality the space to show itself.   

Finally, reference checks were not a simple box check. We did a minimum of six professional and personal.  The hiring manager was responsible for making these reference calls following a very detailed script.  To ensure a consistent process, the managers submitted their notes as part of the hiring file. These were reviewed by the hiring team before a final decision made and an offer given.  We dug deep during these reference calls, as a way of not only of assessing whether they would be a good fit for the role and the Company but also to gain insight into how we should best onboard them and work with them to achieve their greatest success. That is why it was critical for the hiring manager to make these calls.  There is no better way for a manager to learn how to work with a new person than in having detailed conversations with former colleagues.  We didn't just accept the list initially supplied by the candidate - we told them the people with whom we wanted to speak - which supervisor, which peer, which subordinate and asked for their contact info.   And we always, always did back-channel checks.  

We came to this process through some degree of trial and error.  After learning the lessons and costs of bad hiring decisions.  And make no mistake, the costs are far higher than lost recruiter fees or out-of-pocket expenses.  The cost to an organization - especially a small one - of having even one person without the right skills, the right attitude or the right commitment - is unbelievably high.  Mostly in time.  It takes months to find the right person and take them through the hiring process, it takes a couple of more months to come to grips with the fact that you made a mistake, some time to "counsel" the person because you don't want to accept that you made a mistake and then at least a month to get them off payroll.  Meanwhile the work isn't getting done, the team is distracted and people lose faith in the process. 

As my father says, if you don't have the time to do something right the first time, how are you going to find the time to do it over?  You'll know if your team is spending enough time on the hiring process when they begin to try and shift activities back the HR team.  Don't let it happen.