Building the Metric Hierarchy

A metric hierarchy connects the CEO's North Star to every team's daily actions. At the top: one to three company-level metrics that define success. Revenue, profitability, customer count. Below: department-level metrics that decompose the company metrics into functional contributions. Marketing: pipeline generated. Sales: conversion rate. Success: retention rate. Below that: team-level metrics that decompose department metrics into actionable inputs. Marketing's pipeline generated decomposes into MQLs by channel, conversion rate by campaign, and cost per qualified lead. The hierarchy ensures that every team optimizes a metric that rolls up to the company goal. Without the hierarchy, teams optimize local metrics that conflict with each other.

1. Define the North Star One metric that the entire company aligns to. Revenue is the most common. Net revenue retention for recurring revenue businesses. The North Star must be influenced by every department, even if indirectly.
2. Decompose by Department For each department, identify the two to three metrics that represent their primary contribution to the North Star. These metrics should be within the department's control and directly traceable to company outcomes.
3. Decompose by Team For each department metric, identify the three to five input metrics that the team directly controls. These are the operational metrics that drive daily behavior. The connection from team metric to North Star should be traceable in two to three steps.