Net Promoter Score: The Power of Simple Metrics

The goal of a corporate "dashboard" should be to provide a quick snapshot of how the business is doing.   However, far too many firms create complex dashboards full of a wide variety of metrics.   They overload managers with information, and they don't get the results that they intended to achieve.

I was reminded of the power of simple metrics, as I read this article at Knowledge @ Wharton.  It discusses the concept of "net promoter score."   The concept is straightforward: How likely would you be to recommend my company, my product or my service to your friends, your colleagues or your family members?  Fred Reichheld and Rob Markey developed this concept, and their research suggests that a firm's net promoter score is highly correlated with a number of other key measures of financial performance. 

In this exchange between Markey and Wharton Professor Peter Fader, we see a fascinating discussion about Net Promoter Score.  The bottom line: We could enhance the accuracy of the Net Promoter Score, but it may not be worth doing so.  Every firm should keep this conversation in mind as it identifies and formulates key business metrics:

Markey: The truth is that the Net Promoter Score is designed to be radically simple, not because it is statistically better, but because it is statistically fine and that simplicity appeals to frontline employees. Even CEOs can understand it.  The designations of promoter, passive and detractor are based on one question. It's a simplifying construct that helps motivate and inspire people to want to create more promoters and fewer detractors. If you really wanted a statistically robust thing that was about the statistically accurate correlations, you would always go for more questions. But what we found is that there's about a 10% or 15% improvement by adding more questions in terms of statistical accuracy, but it tremendously degrades your ability to motivate the organization to take action because then you get into these debates: Which questions are part of the index? How are they weighted? I don't know, maybe that question isn't relevant for my business. Then you end up debating the score and not actually focusing on what matters, which is getting your customers to stay longer, buy more and tell their friends. 

Fader: Indeed, what you've just described is very consistent with the academic research, which shows that a richer, multidimensional scale can be 10% to 15 % better. But this one question -- this ultimate question -- really is good enough. In the academic community, it's kind of a half-full, half-empty [situation]. I'm a half-full kind of guy, saying, "Give me a measure that is good enough, one that managers can actually appreciate, understand, implement and spread throughout the organization." It raises the whole idea of measurement and understanding customer differences to a level that we've never seen before in any organization.

Preventing Analysis Paralysis

The Corporate Executive Board has posted a useful article on Business Week's website regarding how managers can avoid analysis paralysis.   Among their recommendations, they advise the following:


Unclutter dashboards for managers: Even the most relevant and informative survey data won’t get very far in your organization if managers cannot readily access them. Our research shows that managers who transform data into usable information for their teams can increase business performance by 24 percent. So, focus managers on what matters by providing them with personalized views of the data they need to be effective. Streamlined online dashboards provide managers with instant access to aggregate survey results from their team and organization overall. Ideally, they highlight areas of strong performance and opportunities for improvement for each manager, and equip them with the resources to improve.

I agree completely.   Many organizations face metric overload these days.  Senior leaders need to think carefully about the priorities of the organization and communicate those to all the troops.  Then, the dashboards used to run the business must reflect those priorities.   How does one rationalize the metrics and reports being generated? It starts with tying the dashboards closely to senior leadership's priorities.  One can go further though.   I can recall an exercise we undertook when I worked in corporate finance at a major aerospace firm in the early 1990s.  We went out and talked the people who received the reports we generated.   We asked them whether they used our reports, and if so, how.  We also asked them when was the last time that they had examined each report.  It sounds so simple, yet many people who put together dashboards and reports don't actually know how their data are being used.  By connecting the dashboard creator and user more closely, one can identify which metrics are most useful.