New Metrics

Counting What Counts:
The Evolution of New Metrics

We've come a long way since the first New Metrics conference seven years ago.

By Gil Friend | Published 6 years ago | About a 8 minute read

We've come a long way since the first New Metrics conference seven years ago.

Back then, much of our focus was stuff — resource efficiency and the physical "metabolism" of our organizations; now, we focus more and more on value. Back then, we were very concerned with reporting; now, we're increasingly concerned with how reporting contributes to strategic insight. Back then, we focused on the metrics of the tangible — the stocks and flows or both physical resources and traditional financial reports; now, we recognize the large and still rising value of the intangibles — from climate risks to human happiness. Back then, we were working to think about natural capital alongside financial capital; now, we're working to bring five capitals into the management equation. Back then, we were focused on the numbers themselves; now, we're beginning to understand the critical importance of context and the power of science-based goals. Back then, our conversation was on the fringes of the business world; now, it's moved much closer to the heart of the mainstream.

But even the old is new again, as "traditional" metabolic metrics provide a foundation for value leakage discovery, which builds internal and external engagement, which fuels business and service model innovation. This has been a powerful center point of recent Natural Logic engagements — unlocking, in the words of one client, "massive" unseen business value that was literally invisible in standard management and financial reports. In other words, the new metrics disclosed value to which the old metrics were literally blind (see "10 Things You Need To Know About Your Value Stream”).

That's not the only way we're blind. Permit me to share a conversation that was eye-opening for me. About 15 years ago, I spoke with the CSO of a very large global manufacturing company, which had just released its first CSR report. The CSO was proud of this accomplishment, and was a little taken aback when I asked, "How will you use this report to help your people make better decisions, and manage the company better?"

"Well," she responded, "we print several thousand copies" (uh-oh), "and distribute them to all our managers. They keep them on their desks (this is not going to end well, I thought), and when they get a relevant question, they can look up the answer in the CSR report."

"Yikes," I thought. "That's not management at all, and certainly not better decision-making" (as I contemplated shorting their stock). And it certainly misses the opportunities that appropriate metrics, appropriately deployed, can open.

So, let me ask you the same question: How do you use your sustainability metrics and reports — as a rearview mirror displaying past performance, or as a radar system illuminating the path ahead? As a box you need to check, or as a tool to help your people and partners be smarter?

JM Juran (who, along with W Edwards Demming, was one of the founders of Total Quality Management) approached this question with great lucidity nearly 70 years ago, when he observed that "To be in a state of self-control, a person should be provided with knowledge about what he [sic]... is supposed to do, what he is actually doing, and what choices he has to improve results wherever necessary. ... If any of these three conditions [is] not met, a person cannot be held responsible."

I've polled audiences on these questions at nearly every opportunity over the past two decades, and I'm dismayed at the responses. Typically, barely five percent of people say that their company has all three. How can you manage an organization effectively and hold your people accountable in an organization that fails to provide these fundamental conditions (it polled at 30 percent at New Metrics ‘17 — great progress but still woefully inadequate)?

New metrics — properly contexted, deployed and used — can provide an opening to this dilemma. They can help organizations use sustainability reporting not merely as historical records but as tools of discovery, to help people be, think and act smarter — to cut waste, operate more efficiently, see pattern and disclose value, share insights and unlock opportunity.

And they can serve as a modern-day council fire. Think about it: For as long as we've been human, we've commonly gathered together in a circle at the end of the day, often around a fire, and shared the stories of the day, the imagined or hoped-for stories of the next day, and the other stories that would arise as we'd watch the dancing flames. I've observed the same pattern, as teams gather around the cool fire of a computer screen, gaze into charts displaying trends, ratios and context, and discover stories — and value, and hidden opportunity — in the patterns of the data, and share those stories as a way to open new futures.

My mentor, Fernando Flores (former Chilean minister and senator, businessman, writer, provocateur), has observed that we humans are strange monkeys — ones that have conversations, declare concerns, invent futures. And ones that freak out, duck responsibility and slip into resignation. But something else is possible, if we can enter into a different sort of conversation together.

So, the challenges of New Metrics go beyond the metrics themselves. Here are several:

Consider context: Metrics not as numbers, but as numbers in relation to other numbers and other concerns. This gets to the heart of a human economy coupled with nature’s economy, tied together through reality-based accounting — what Jahn Ballard calls "G!d's balance sheet."
Include externalities: Our accounting systems are blind to these explicit impacts of our value chain on both the regenerative capacity of earth's ecosystems to sustain our economy, and on us (Trucost has determined that most major companies would not be profitable if they had to bear the true costs of their activities. How exposed is your company?).
Stop (or at least see and shift) subsidies. Include the exposure of your business to explicit & implicit subsidies (explicit, as in tax credits and transfer payments; implicit, as in unpriced externalities.).
Get the prices right. Markets may be a better way to allocate resources, but as Adam Smith once observed, perfect markets depend on perfect information. Markets can't work well with the market-distorting lies of unpriced externalities.
Open everything. Resist the automatic temptation to play your cards — whether IP or performance data — close to the vest, since the value of shared learning can dwarf the value of control.
Include everyone. Since none of us is a smart as all of us.
Find pattern without resorting to the easy escape of mechanistic reductionism — obsessing on things rather than systems — in a complex, interconnected and emergent work.
Embrace and navigate uncertainty (which, if you haven't noticed, will be a central feature of the rest of our lives), and nurture emergence.
Ground that uncertainty in the stable science that underlies all we value and do (we've found The Natural Step framework an unusually powerful tool for getting everyone in an organization aligned around consensus science, shared commitments, big goals and systematic action.).

For the sake of what? Why does this matter? In order to:

Nurture our capacity to "navigate the anthropocene." The biggest competitive advantage this century will belong to those able to see through the fog, see the reefs and clear channels that the fog obscures for the competitor.
Provide a clear line of sight that connects purpose, goals, actions, impacts for every member of your organization, your value chain and your communities of interest, so everyone can see the impacts of their actions…including CFOs.
Enable the self-control that Juran identified 70 years ago.
Enable diverse teams to work with that magical balance of what Allenna Leonard has called "autonomy in a coherent whole."
Include the metrics that could disclose disruption, and identify disruptions that could disrupt your metrics (Blockchain, anyone?).

There's one more challenge — one that can't be measured: Courage. Literally (or at least etymologically), “strength of heart” (I and other capable sustainability coaches and advisors can help you with many things; this is one you'll have to bring forward on your own!).

Finally, let me leave you with this guidance from William Bruce Cameron, who challenges us to remember, when thinking about metrics, that "not everything that can be counted counts, and not everything that counts can be counted."