I keep returning to Working backwards. Insights, Stories, and Secrets from Inside Amazon. A great insiders view of Amazon’s period of growth and mindset of customer obsession.
I want to focus here on what Amazon calls input and output metrics. Amazon focuses on controllable input metrics, the drivers, when managed well can lead to profitable growth.
The CEO, and companies in general, have very little ability to directly control output metrics. What is really important is to focus on “controllable input metrics,” the activities you directly control, which ultimately affect output metrics such as share price.
Amazon calls leading indicators, ‘controllable input metrics’ and lagging indicators ‘output metrics’. Input metrics are factors that you can control like SKUs in a category. Output metrics can’t be directly manipulated in a sustainable manner over the long term, like sales. It now becomes clear that focusing on inputs that don’t have an impact on outputs is waste. Choosing the right metrics, and tools to measure them takes time.
Output metrics show results. Input metrics show guidance. Trends will show up earlier in input metrics, if you only focus on output metrics like ‘revenue’ you won’t see the effects of, for example, customer deceleration for quite some time.
If you look at the input metrics for Amazon, they often describe things customers care about, such as low pricers, lots of available products, fast shipping, few customer service contacts, and a speedy website or app. A lot of the output metrics, such as revenue and free cash flow, are what you’d typically see in a company’s financial reports. Customers don’t care about those.
Controllable input metrics are quantitative (diving deep with data) and qualitative (anecdotes) way of measuring how well the organization is satisfying those customer interests so that the output metrics trend the way the company desires.
Input and output metrics is such a simple way of looking at systems and can be applied to both business and life in general.