A Measure of Success

Wednesday, May 29, 2013

Edmond Lau tells us that "$1 invested in Walgreens in 1975 would skyrocket to $562 by 2000". How did this drug store chain accomplish such impressive growth? By having a clear objective (i.e., becoming the most convenient store for its customers) and correctly choosing a way of measuring success that supported the goal.

The shift in metric played a huge role in aligning the company's focus. No longer focusing on [the traditional metric of] profit per store, Walgreens replaced its inconvenient locations with more convenient ones, buying up corner lots with multiple entries and exits for its customers. It would close down perfectly good stores to move them a block away if it could get a more convenient corner location. In cities, it would even cluster multiple stores in a single-mile radius so that customers didn't have to walk more than a few blocks to a Walgreens.

In order to increase profit per customer visit, Walgreens invested in a number of services to optimize for the customer's convenience once in the store. It built one-hour photo stops, drive-through pharmacies, and a network system called Intercom to electronically connect customer data from every Walgreens to a central database so that customers could, for instance, pick up prescription drugs from any Walgreens in the US as if it were their local pharmacy. [minor edits]
Lau rightly notes that finding the right way to measure success is just as crucial for individuals and small teams, and provides several positive and negative examples to make his point. For example, many people end up wasting time and actually being counterproductive by working too many hours per week:
I've been through a few phases at startups where expectations of 70-hour work weeks became the norm in the hope of shipping a product faster. Not once have I come out of the experience thinking that it was the right decision for the team or the company. The marginal productivity of each additional work hour drops precipitously once you reach numbers anywhere close to that ballpark. Average productivity per hour drops, errors and bug rates increase, difficult-to-measure costs of burnout and turnover often result, and the overtime is typically followed by an equal period of "undertime" as employees try to catch up with their lives. Ultimately, the metric of hours worked per week is unsustainable, and a much more reasonable metric is something aligned with productivity per week, where productivity is measured based on your focus area ... [hyperlink omitted]
Lau makes it clear that finding the right metric is crucial to guiding effort among individuals and over time. A vision statement may sound good, and people might be able to recite it off the tops of their heads, but a big part of translating abstract goals into concrete actions is evaluating the actions.

-- CAV

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