Future Numbers: Getting Beyond Traditional Metrics

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To see around corners, CEOs and CFOs are getting creative with KPIs— and looking beyond the usual measures of success.
“The classic financial indicators like revenue and profit trends didn’t tell us much of anything last year, other than things were not good, not good at all,” says Jim Eickhoff, CEO, Creative Dining.

Jim Eickhoff was blindsided by Covid. The chief executive of Creative Dining, a privately held provider of cafeteria-style food management services to large businesses, universities, hospitals and senior citizen centers, with approximately $100 million in annual revenues, he saw his business almost totally evaporate overnight in April 2020.

Cafeterias at universities, colleges and corporate facilities shut down by the thousands, as students transitioned to distance learning, and employees to remote work. Creative Dining’s 2,000-strong full-time workforce across 14 states dwindled to about 400 employees, the remaining workers serving up food at hospitals and senior citizen centers. As for the other 1,600, they were furloughed for an undetermined period.

Now, as he looks to plot a course forward, the kinds of traditional metrics he’s monitored can’t tell him much about where he’s going—or how to get there. “The classic financial indicators like revenue and profit trends didn’t tell us much of anything last year, other than things were not good, not good at all,” he says.

And so, like a lot of CEOs and CFOs reading the tea leaves for the remainder of 2021 and beyond, Eickhoff is breaking from the traditional financial metrics he relies on to comprehend business opportunities and risks. As a result, this year may prove to be a turning point in the decade-long rise of nontraditional “soft” ways of evaluating performance.

“Our client CEOs are grappling with trying to sense the extraordinary shifts that are underway, to know if the choices they’re making or not making are appropriate for the circumstances,” says Lara Abrash, chair and CEO of Big Four audit firm Deloitte & Touche. “The KPIs they typically rely on to sense these shifts don’t always tell the whole story.”

Traditional KPIs are lagging indicators that may come in too late to make a needed pivot, says Abrash. “To sense trends in the behaviors of employees and customers, you need leading indicators.”

For Eickhoff, that means calculating the percentage of non-working managers and employees attending an ongoing series of bimonthly and monthly virtual gatherings.

He came up with the idea for the conferences to openly discuss Creative Dining’s future business conditions and employees’ personal lives. Why was the number of people at a videoconference an important performance indicator? Because it suggested how likely the company would retain workers to serve its customers’ needs when they reopened their dining facilities. In other words, Eickhoff didn’t want to competitively be at the wrong end of an employee-retention debacle. “Close employee relations are crucial to us, especially as we journey through continuing economic uncertainties,” he said.

Tale of the Tape

While the use of softer non-financial metrics to evaluate the success of a CEO’s strategy is nothing new, prolonged business uncertainty has resulted in the development of highly creative and even singular performance metrics, several falling into the category of key performance indicators.

As Jim Clifton, longtime chairman and CEO of global polling and consulting firm Gallup, puts it, “We need to measure something different.”

The “something different” that Clifton is measuring is employees’ anonymous opinions about Gallup’s managers, given the new flexible and hybrid ways of working, and concerns over employees’ mental health and well-being in transitioning to these models. “Employee stress is through the roof, with many people experiencing symptoms of burnout and depression,” he says.

Clifton directed a redesign of the firm’s traditional engagement survey to include a series of new questions about managers. The new survey questions were blunt. To paraphrase: Does your manager care about your well-being? Do they treat you with respect? Are they helpful when you express a problem? Does the manager listen? The response data was turned into a metric that Clifton uses to make workforce decisions. “One thing we’re doing is changing the function of our managers from administrative supervisors to coaches,” he says.

Based on the manager-related responses in the revised engagement survey, Gallup managers are now advised to ask questions about an employee’s mental health and wellbeing. “If someone is feeling subpar, it’s the manager’s job to find someone else on the team to pitch in,” he says.

—Lara Abrash, Chair & CEO, Deloitte & Touche
“It’s just a much more agile way to understand what employees need to efficiently and productively perform.” —Lara Abrash, Chair & CEO, Deloitte & Touche

Abrash has a similar perspective. Like Clifton, she is entrusted to manage the future of work at Deloitte & Touche. “We see our employees are our key stakeholders, as do an increasing number of our clients,” she says. “We need to ensure the work our people do is productively aligned with clients’ performance expectations. To do this, we have to ensure our values and the workforce culture are aligned.”

Abrash recently launched a series of pulse surveys that elicit from employees what they consider to be optimal work conditions in the future. The data is deconstructed across client sectors, geographies and generational demographics. “It’s just a much more agile way to understand what employees need to efficiently and productively perform their jobs going forward, and what they’re not getting in these regards,” she says. “The metric informs us on the choices we need to make.”

What’s Next?

The drive for forward-looking metrics is hardly limited to HR. At Myplanet, a 12-year-old provider of customer experience software with revenues in the $50 million range and a client list that includes Google, Salesforce and Sun Life, “we need to reinvent the company to maintain consistent growth,” says Jason Cottrell, Myplanet founder and CEO.

In early 2020, Myplanet ditched its former product-centric sales methodology to compete against new rivals on a software-as-a-service (SaaS) basis, deriving recurring revenues from annual subscriptions. While the shift helped lock in key customer relationships, Cottrell sensed the sudden market saturation posed a shake-out ahead. “We needed a way to stay ahead of this development,” he says.

The solution was the creation of a metric comparing the number of completed tech deployments by competitors with Myplanet’s own completed deployments. “The metric helps me define which competitors are winning and have the most credibility [in the marketplace],” Cottrell says. “I now have information to respond to our market pressures.”

Getting there wasn’t easy. He decided to track his competitors’ press releases and media coverage, augmenting this data with information from the company’s channel partners and the MACH Alliance, a recently formed industry group. “We triangulated the different data elements into a metric we’re using to distinguish our specialties from our competitors’ use cases,” he says.

As a result, Cottrell made the decision to focus on customer segments with a partial direct-to-consumer sales strategy, where he felt competitors were vulnerable. At the same time, he is actively deprioritizing marketing efforts aimed at companies with a purely business-to-business sales methodology. “We now have a roadmap with a new marketing narrative aimed at fewer customer segments where we strongly believe we can deepen the relationship, rather than our previous strategy of spreading ourselves thin,” he says.

Beyond ARR

OpsVeda is confronting a different dilemma: continued survival. The 10-year-old provider of operational intelligence software optimizing supply chains has endured a substantial slowdown in new business. “We experienced vanishing prospects,” says Sanjiv Gupta, CEO of OpsVeda, which tallies about $5 million in annual revenue.

As new business continues to evaporate, Gupta is building out the number of SaaS services OpsVeda provides existing customers, a dozen or so large enterprise businesses with annual revenues in the $500 million range. To determine which customers are most likely to be interested in expanding their current offerings, the CEO is diving deeper than ever into a common SaaS metric: annual recurring revenue.

As you know, ARR is based on the amount of recurring revenue from different subscription components, normalized to a one-year period. For example, if a customer signs a 30-month subscription for a single service at $30,000 ($1,000 per month), the annual ARR would be $12,000. If the customer adds more services, the ARR increases; if it abandons a service at renewal, the ARR decreases. By analyzing subtle shifts in each segment’s month-to-month ARR, Gupta is able to discern which segments offer the best opportunity to reposition the company’s capital and marketing resources. “The only way to prevail and thrive is to grow revenues from our existing customers but with money tight, I needed to know which ones offer the most promise and which ones don’t,” he says.

The decision is working to OpsVeda’s benefit, as these businesses continue to shift a large number of employees to remote work. “Suddenly, there is a need for real-time information provided by digital software,” Gupta says. “And we’ve got it. What began as an existential risk for us has turned into an opportunity.”

Know Thy Customer Data

Scott Settersten, CFO of Ulta Beauty, sees similar opportunity in his data. The cosmetics, fragrances and skin care products retailer closed more than 1,250 stores in March 2020. All the brick-and-mortar stores have since reopened, and Settersten is presently tracking the return  rate of customers to determine omnichannel spend considerations.

“Our digital platform handling e-commerce, direct home deliveries and curbside and store pickup certainly helped offset the weakness in our store fleet,” he says. “But as an omnichannel retailer, we wanted to track the number of return shoppers to understand how everything is counterbalancing.”

In addition to tracking and comparing the sales metrics in each of Ulta Beauty’s shopping channels, Settersten is assessing how customers are engaging with its stores through the lens of its highly successful loyalty program, Ultamate Rewards, which tallies more than 32 million members. “As we open new stores in 2021, we’re monitoring metrics on both new and reactivated loyalty members to see how frequently they are going to our physical stores and comparing the data against their other omnichannel shopping patterns,” he says.

Mike Speetzen, CEO at Polaris, the publicly traded manufacturer of motorcycles, snowmobiles, boats and ATVs, also wants to get a better understanding of customer sales trends. The company has long relied on Net Promoter Score to calculate the inclinations of buyers to recommend its products. “During the pandemic, we were watching NPS intently, as we were concerned about late deliveries impacting customer satisfaction and loyalty,” he says. To get in front of the issue, Speetzen tracked an on-time supplier delivery KPI.

“When it looked like a delivery was going to come in later than planned, we told the supplier to send the product to our distribution centers or dealer outlets for immediate installation, instead of to the plant, to reduce overall transportation times,” Speetzen says. “By combining the NPS and on-time delivery metrics, we were able to preempt possible customer impacts.” And keep them happy.

Measure Twice, Cut Once

There are no hard and fast rules when it comes to developing a metric providing insight into business performance and the continuing efficacy of the strategic plan. At some companies, one metric can be revised into a new metric that tells a more thorough story of prospects ahead.

This was the case at online and mobile bank Upgrade. Since its U.S. launch in 2017, Upgrade has delivered more than $5 billion in consumer credit, boosting its valuation to more than $1 billion to become a so-called “unicorn.” Then, in March 2020, the stock market crashed.

“It was a big day of reckoning for us and every other business that what we feared had now come true,” says Renaud Laplanche, Upgrade CEO. “Within a few days, more than 7 million people lost their jobs and unemployment rose from there. We became very worried about our customers’ ability to pay back their loans and the money owed on the credit cards we’d provided.”

At the time, Upgrade measured loan and credit delinquencies on a 90-day and 30-day period, respectively. The longer periods were prudent since people “sometimes forget to pay their bills,” Laplanche says.

As the economic situation worsened, the metric lost its value as a risk measurement. “We decided for the first time to move to a short-term, 10-day delinquency metric, which would help us better determine why people were getting behind on their payments,” he says. “This way, we could figure out ways to potentially help them.”

Laplanche did just that, unveiling Uprade’s first-ever customer hardship program. “If a customer lost his or her job for Covid-related reasons, we allowed them to postpone payments for three months without any penalties. We then extended it another three months,” he says. “We didn’t want to push people to default. Frankly, we wanted to help them through to the other side. Looking back, it was the right thing to do, as the situation improved faster than we expected.”

He chalked up the turnaround to a combination of government unemployment benefits and federal stimulus legislation, in addition to the bank’s primary customer demographic—white-collar workers earning about $100,000, on average. “We watched that 10-day delinquency rate metric each and every day, and as quickly as it went up it started to go down,” he says. “Had we not measured it, we’d be operating in the dark.”

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