How to measure success in business- ‘what gets measured, gets done’
August 17, 2012
What gets measured gets done, but if you measure the wrong things the exercise is pointless. If you don’t communicate what you’ve measured and the reason why, very little will get done. If you are measuring too many things it just confuses everyone, and if you don’t follow up on the results what’s the point? If you don’t recognise and reward results, behaviours won’t change, and so they won’t be repeated, and finally it helps if you can closely align your remuneration system to your measures.
Businesses are built on a mountain of numbers.
The larger the business the more the numbers. Often these are prepared by coachloads of accountants who are a bus stop away from the coalface. They impose their thinking on executives until the production and review of the numbers becomes a bureaucratic nightmare delivering little but anxiety and certainly not value. It attempts to replace intuition, judgement and creativity with a template of useless figures leading to chaos, demotivation, a skewed view of the business and missed targets.
Numbers and financial figures are an output of the business and a lagging indicator.
Common sense would dictate that the key numbers to measure are the KPI”s that lead to such output numbers . These indicators should measure success the same way that the customer or client does. The success of a business is the result of clients returning. Profit is not in the minds of customers when they chose to return or not to return. A key indicator must measure success in the same way that a customer does. They are most likely therefore to be non financial indicators and they should be indicators that employees can influence. Of course there must be financial indicators as well but these should not dominate the space they do in meetings. They are the output. Talk about things that you can influence and can influence quickly.
Peter Drucker wrote “ Nothing is so useless as doing efficiently that which should not be done at all. No matter how many times you do it , it will always be pointless.”
The most important function of the KPI is to define success the same way as the client does.
Professional service firms by way of example constantly review chargeable hours as an indicator of the success of the business. Even allowing for the fact that the figures are usually wrong and vastly inflated does anyone think the client cares ? This is simply an internal objective and provides no external value or gives any indication as to whether the client will return. Better indicators would be turnaround time, client loyalty, client referrals, number of client contacts per week. A few external activities that an employee can influence on a regular basis and his or her activity can be monitored. If you think that 80 to 95% of revenue in professional services firms comes from existing clients , measuring that is paramount to success.
Having your entire team focused on a few KPI’s that they can influence not only gets the job done right on a daily basis but it gives them a sense of commitment to the business and to its mission of growth and improvement. Involve them in the setting of the KPI’s. Every business is different and they are at the coalface and should be involved if you want them to give their all to achieving the measures. Before you measure you must first understand.
Do not over complicate KPI’s.
There is ample evidence to suggest that 3 to 5 customer KPI’s are sufficient. Keep it simple. Any more will make it burdensome and confusing . At the same time do not over intellectualise them . It should not become an academic exercise . Communication and buying into the purpose of the KPI’s is key to their success. This becomes more difficult the more there are and the more unintelligible they become .
Finally when you are happy with your measures, get the message out as to why they have been chosen, what they will show and how they will help the success of the business. The indicators are key to how you will run and adjust the business , how you will make management decisions so make sure everyone knows about them and why they are so important to you. Make sure that your passion for them comes across. Include an analysis of the indicators in your employee updates and your one to ones. Know them off by heart and let everyone know it. Keep the message simple but let everyone know in no uncertain terms just how important you think they are. Consider aligning your bonus systems to the measures and as a minimum celebrate success when you find it. KPI’s can be a burden or the key to your success. Your choice.
By Darryl Cooke