LP Gas

Having the right measurements can create a competitive advantage

By now you’ve heard this phrase or variations of it so much it may have lost some clout: What gets measured gets managed.

However, I would encourage you to resist the urge to roll your eyes the next time you hear it and instead assess where in your operation you’re lacking insight. As a good friend who’s very successful at turning around distressed companies often says, “However beautiful the strategy, you should occasionally look at the results.” But at what “results” should we be looking? What’s most important to my operation and how do I quantify my findings?

It’s always useful to examine the way other industries seek insight. In our industry, there’s no shortage of numbers to measure; we’re blessed with large volumes of measurable, repeatable transactions.

Another industry that is numbers-obsessed is baseball. For the longest time, the king of baseball metrics was batting average: the number of hits divided by times at bat. There is only one problem with batting average: It doesn’t adequately measure a hitter’s value.

The movie “Moneyball,” which outlines the strategies of Oakland A’s General Manager Billy Beane, is a good example of how measurement can even the playing field. The A’s are a small-market team with a fraction of the payroll of the Yankees, Red Sox, Dodgers and many other teams. Every year, though, they are one of the better teams in baseball. It’s not because they have better talent; it’s because they take a brutally honest look at their pieces and what’s really important in winning games. When you truly break things down to their basic form, things come into focus.

For instance, the game’s greatest hitter, Babe Ruth, ranks only 10th all-time when measured by batting average. But measure Ruth by the combination of on-base percentage and slugging percentage and the Bambino appropriately ranks first by a large margin. By relying on batting average, the baseball community was using the wrong metric by which to weigh many decisions. Batting average, like many business metrics, is an oversimplification used by humans to process large numbers. It was a familiar statistic relied on for over 100 years in its industry to measure value. But following some critical examination, batting average has now been replaced by more robust metrics of value.

In our world, key performance indicators or KPIs can be compared to slugging percentage. By having access to KPIs, managers can test and tweak strategies, analyze the results, refine their strategy and repeat. It’s important for each operation to get its best sense of what metrics are vital and a way of mining accurate and timely information.

Sometimes acknowledging the need for critical evaluation is the hardest step. Saul Bellow, who wrote “To Jerusalem and Back,” is quoted as saying, “A great deal of intelligence can be invested in ignorance when the need for illusion is deep.” I urge you to tackle your business status quo head-on and face the demons you know you’ve been avoiding within your operations.

It’s not easy, but there are places you can go for assistance. Vendors should be able to help with this process. Ultimately they are your partners and should have a world of experience in knowing how their product or service can impact your operation. Benchmarking groups provide help, too, as do companies that help with analytics.

There will never be an end to areas in your operation that need attention. It may seem like one big game of whack-a-mole, but it’s imperative you stay on top of these challenges to be competitive. In commoditized industries such as retail petroleum, competitive advantages come from within. Doing it faster, better and less expensively matters a great deal because your competition is probably not standing still.

The first step to improving anything, whether it’s personally or professionally, is to know where you are currently. Assess what your natural competitive advantages are and devise a strategy that plays to your strengths. Likewise, understand where your organization is lacking and create a plan that chips away at those areas.

In the words of famed statistician, W. Edwards Deming, “It is not enough to do your best; you must know what to do, and then do your best.”

Vinny Mullineaux is the CEO of Vertrax, a provider of back office and mobile technology. He can be reached at vmull@vertrax.com or 203-952-7666.