We have heard it so many times, “What gets measured, gets managed!”. Yet, many business leaders today often overlook this simple rule and neglect to implement an effective metrics system that drives performance, monitors result and creates enduring shareholder value.
Why is this? I believe many managers either think it is too complicated, not effective, and/or time-consuming with little impact on the bottom line. Nothing can be further from the truth. An effective metrics system is easy to implement and maintain, has an incredible impact on the health of the business and is one of the most critical levers that can be applied to accelerate the growth of your business. Properly designed and implemented, a metrics system can be the one, truly objective voice that speaks to you on the current health and future viability of the business.
If you are interested in setting up a simple system to truly measure effectiveness, do the following:
Keep It Simple
Strive to keep the entire system as simple and easy as possible. This can be done by minimizing the number of corporate metrics to be measured, reported and actioned. It should be between 3 and 6 key performance indicators. I successfully ran and grew a $75 million per year business with 6 key performance indicators, reportedly monthly on a single sheet of paper, including graphs. While there are many great software solutions to manage key performance indicators, I would proceed with caution and focus on a very simple system that truly measures what is most important in an easy, low-cost and effective manner.
Focus on the Critical Few, Not the Trivial Many
Pick the few critical indicators that will have the biggest impact on your customer, shareholders and employees. Determine what is most important to those three groups and determine one or two metrics per group that will have the biggest impact, for the least amount of effort. Avoid the trap of trying to measure too many items because ‘everything is a priority’, by setting the right tone for the organization, and showing courage as a leader.
Pick Both Leading and Lagging Indicators
Not all metrics are created equally! By understanding the linkage between cause and effect you can determine which measures are leading indicators of business growth (ie. sales funnel health) and which are lagging indicators (i.e. revenue, EBITDA). By picking a balance between the two you can continue to monitor not only the current state of business, but its trajectory and likely future state.
Delegate to One Person
Make a single person in the organization responsible for implementing, maintaining, and reporting on the key performance indicators. Without question, that person will rely on the assistance of many other people to make an effective system: however, you must have the ability to turn to only one person to ensure the system is effective. Once the system is up and running, it should only take a few hours a week to maintain.
Think in Terms of A “Commit, Plan, Do, Measure, Act” Cycle
Set up a simple system based on the following actions: COMMIT to measuring to an objective system of measuring the effectiveness of your leadership and the health of your business. PLAN a metrics system that works for you. DO implement the system as described here. MEASURE the key performance indicators of your business. ACT by implementing the necessary actions to achieve ongoing growth and continuous improvement. Repeat the cycle and reap the rewards.
Action, Action, Action
Focus on action by reviewing the metrics with the entire management team on a regular (ie. monthly) basis. Make this review the highest priority, encourage a no-blame discussion of the results attained and focus on determining and implementing the actions necessary to achieve better results in the future. The management team should approach this task as a team with collective responsibility, however, the actions must be assigned solely.
The implementation and management of an effective metrics system can be a very powerful tool in accelerating the growth of your business. By developing numerical evidence of the state of the business, the discussion on improvement can be moved from the realm of opinion to the arena of hard facts. Accurate thinking requires hard facts, and this is the best way to get them. The long term creation of shareholder value can be achieved by implementing this simple system and monitoring results over a long period of time, making adjustments and improvements in the interim.
Eamonn has a B. Eng. (Electrical) from Lakehead University, MBA (Finance) from University of Toronto, and has completed Executive Education at Stanford University Graduate School of Business. He lives in Vancouver, Canada. Follow him on twitter @EamonnPercy