OWould you be interested in a business planning tool that would ensure your business runs exactly the way you want it to? What about readily available metrics that could ensure your staff is performing optimally?
Michelle’s company had a problem
His problem was that his business was going badly. Michelle was an enterprising single mother of two in her mid-forties who owned a business that repaired and maintained x-ray equipment. Michelle was very technically gifted; but she had trouble leading and managing people. She struggled to determine how much autonomy she should give to each of her field workers.
Initially, she started micro-managing everything they did and running behind their backs. This prompted a number of them to resign. Then she gave them so much leeway that they ended up doing the work for the clients any way they wanted. This led to complaints from customers, with his staff regularly ignoring his instructions, and then they even started stealing supplies from the company and doing work on the side.
She began to regain control of her business when she was introduced to the concept of metrics, how to implement them, and hold people accountable to them. In no time, she was able to use Metrics to manage the work done and appropriately reward her employees for their contribution to the achievement of various company goals.
Does your business struggle with these issues?
You may be facing your competitors upping their game and improving their operations while your business struggles to keep up. Maybe you are facing a staff shortage, but need to get more output from your staff. You might want to take your business to the next level, but getting out of your current systems can’t get you there.
Understanding how to use Metrics effectively may be the solution for you. The following Business Planning 10 actions will allow you to use Metrics to take your organization to the next level.
1. What is a metric?
Metrics are internal scores and measures of a company’s performance, and they can be invaluable to the business. They apply to small businesses as well as to medium and large organizations. Ratios and percentages are external measurement tools, while metrics are used for internal measurement of a company’s performance.
2. What is a metric measurement?
Metrics are used to measure and evaluate a company’s systems and processes. Every company has its own systems and processes, which means that a company’s internal metrics are unique to that specific company and provide crucial information regarding a company’s operations. In the diagram below from my forthcoming book, Work less, earn more and have fun in your business, reading from the bottom up you can see your metrics related to measuring your systems and the staff that operate those systems.
Metrics are tools and indicators that can be used to quantify the target or expected results of your systems and processes. Comparing your operating parameters to their target values will allow you to assess the production you are achieving from the organizational structure and resources you are employing.
Looking at the diagram above, it is important to note that metrics apply to all six areas of a business:
- Vision & Direction
- marketing sales
- Finance & Administration
- Human assets
- Computer science
3. Why are metrics worth a pot of gold?
Measurements are crucial because:
- What gets measured gets managed and improved
- You can’t improve what you don’t measure
- In the end, what you measure is what you get
Let’s take a closer look at these three statements.
4. What gets measured gets managed and improved
If you’re not measuring something, there’s no way to tell how well you’re managing it. Without continuous measurement, it would be as if a person wanted to lose weight, but never stepped on a scale to see how they were doing.
5. You can’t improve what you don’t measure
You cannot determine whether your actions to improve a process or an area of your business are successful unless you monitor them through an effective indicator (a metric).
6. In the end, what you measure is what you get
If metrics are the key to determining if your actions are improving your operations, and if you’re using those metrics correctly to keep improving your processes, you can tell that what you measure ultimately determines what you get out of your business.
7. Use metrics that provide the best yardstick
To determine your metrics, you want to take a close look at the process you’re trying to measure and ask yourself, “What is the key metric that indicates whether the process is working well and the desired outcome is being achieved?” If more than one metric can be used as an indicator for a process, choose the metric that is the most comprehensive gauge for the process.
8. The Two Flavors of Metrics
Metrics fall into two categories: financial and non-financial. Financial metrics are obtained directly from your company’s accounting system, such as daily collections from your accounts receivable, daily sales amounts, or gross profit on each sale. Non-financial metrics should be obtained from another source, such as customer surveys, direct mail response rate, product inspection defect rates, employee turnover statistics, or number of calls to customer service regarding product quality issues.
9. Historical and predictive metrics
Metrics can be historical or predictive. Historical metrics reveal past performance, that is, how your business performed today, this week, or last month. Predictive metrics predict future performance – how your business is expected to perform next week or next month or later this year – for example, the amount of your unfilled customer orders, the number of leads in your sales funnel, or the government forecasts for your area. Although historical metrics are of great value, you want to get as many predictive metrics as possible so you can plan for the future.
10. Look before you jump into choosing a metric
When choosing your metric, keep in mind how easy it will be to get the metric and how reliable it will be. This means that whenever possible, you want to select a metric that is a consistent and cost-effective indicator to collect.
Where to start
To effectively use business planning metrics, start by determining what your critical systems are, then move on to your key systems, and finally focus on the remaining systems in your business. Once you have identified the systems or processes you are trying to measure, determine the best measure of function performance. If more than one measure can be used, choose the measure that is the most complete gauge in the process.
When choosing your metric, keep in mind how easy it is to get the metric and how reliable it is. This means that whenever possible, you want to select a metric that is a consistent indicator and not cost-prohibitive to collect.
To establish the initial target value of the metric against which you will measure your ongoing operations, start by reviewing your organization’s records for past historical system results. For example, what was your average daily sales per salesperson? If you can’t find any historical records, look for anecdotal evidence of what the starting target metric should be. For example, by talking with department heads, determine the percentage of late customer deliveries.
Next, review the industry norms and standards for the system, then adapt it to your particular situation. Then, on an ongoing basis, compare your operating metrics to their target values to determine if you are getting the desired result from your processes.
By putting in place and then monitoring the necessary parameters to ensure that your company’s systems and associated personnel are functioning properly, you will be able to ensure that your systems will enable you to achieve your organization’s business objectives consistently. If you need help using Metrics effectively within your business, please contact us using the information below so we can be a resource for you in this key area.
Fountainhead Consulting Group, Inc. is an innovation and business planning firm. Over the past 21 years, we’ve shown over 1,200 companies how to achieve their goals using our unique, comprehensive and systematic approach. FastTrak™ Innovation Program,Innovation Academy™, and Structure for Success™ methodologies. Using the components of these methodologies, each month we look at one aspect of transforming your business or organization into a true 21st century business.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.