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Originally published January 20, 2009
Canaries in the Coal Mines: Miners always kept a canary with them in the coal mines because the birds were so much more sensitive to air quality than the miners. If the canary was alive and singing, the miners worked. If the canary was dead or dying, the miners knew to immediately evacuate the mining shaft.
Canary metrics are an organization’s crystal ball into future profitability! Carefully developed canary metrics serve as early notices of challenges and opportunities for the business.
While key performance indicators (KPIs) have been the “darlings of the dance” for many years now, identifying KPIs is no longer enough to provide a sustainable competitive advantage. At the intersection of theory and practice, KPI identification will buy your dance ticket; active monitoring will get you in the door. But then, how do you get to dance with the prettiest girl in the place? That requires a lot more planning and, most importantly, early action.
Organizations thought they were doing that by investing in technology for the last decade. From implementing complex ERP applications to upgrading their infrastructure, organizations have sunk huge investments of time and money into planning for the future. They have the data. They have fast hardware. Everything is best of breed. But their top and bottom line results are only marginally different, and the leadership is left wondering, “What’s going on?”
As a single symptom, it could mean many different things. It could be a lack of commitment by the business unit or a great solution poorly implemented. If it’s clearly not either one of these, the leadership needs to ask a tough question: Are we measuring the right things? The answer might be yes… and no. Properly developed KPIs can always add value to leadership decision making. With tight integration to organizational objectives, KPIs are indispensible in the boardroom and executive offices. It’s a given that organizations will continue collecting, monitoring, reporting and doing their best to predict their KPI performance.
But KPIs alone won’t provide a sustainable competitive advantage. For that, organizations have to turn to canary metrics – the metrics that actually drive the KPI performance. The hallmark of a good canary metric is its ability to warn the audience so far in advance that the KPI is never really in much jeopardy. Even if the KPI on the dashboard turns yellow, the canary metric has already turned the corner on the recovery. Ideally, the canary metric is so far back in the chain of events that the KPI dashboard barely has a chance to register an alert, as in the following dashboard illustration:
Good canary metrics allow organizations to minimize performance-based risk and damage. Without the benefit of a canary metric, organizations with KPIs may reduce their risk but are still likely to face recovery issues and need to practice damage control.
Good canary metrics all share the same attributes. They are unique to your business, time sensitive and true derivatives of KPIs.
Tying these three requirements together yields simple but elegant results that yield consistent performance and lead the way to a sustainable competitive advantage.
Organizations should redirect their energies toward the development and monitoring of true canary metrics. With unique, sensitive canary metrics deeply tied to KPIs, the management team will consistently have enough time to take action so KPI performance doesn’t suffer. Even in the case of severe market disruptions, an organization with true canary metrics will be able to make proactive adjustments to maintain performance levels.
Because canary metrics allow organizations to minimize performance-based risk and damage, an organization can reap sustainable market advantage.
SOURCE: Canary Metrics, Part 1