One of the most common mistakes that companies make is to focus too narrowly on a small set of metrics while overlooking the broader ecosystem of inputs that drive results. At Amazon, we rejected the conventional wisdom that Executives should focus on just a few high-level metrics.
Instead, we spent years developing mechanisms to measure, analyze, and improve thousands of input metrics (actions) based on the impact they have on output metrics (business results).
The key lessons from this approach are:
1. Do not limit the number of metrics you monitor – Track a broad set of metrics, add, delete, and edit them over time based on observed results.
2. Review both controllable inputs (leading indicators) and output metrics (results) – They must be reviewed in tandem to understand cause-and-effect relationships.
3. Regularly review, analyze, and adjust metrics – The metrics that Amazon tracks are continuously improved to more accurately represent the speed, quality, and cost of every customer-facing process.
4. Implement new product and process improvements designed to deliver improvements for your input metrics. If you have selected the right inputs, then improvements to your outputs will follow.
5. Control your processes by continuously reviewing all relevant input metrics to ensure they stay within desired tolerances as internal and external factors change over time.
Following these steps uses the Six Sigma technique known as DMAIC – Define, Measure, Analyze, Improve, and Control.
The typical approach is to focus deeply on metrics like sales and gross margin while spending little or no time measuring or managing elements of the customer experience.
At Amazon, this focus is reversed.
