Grow Bigger Faster Stronger with Metrics
Metrics or Key Performance Indicators (KPI’s) are data driven measures of business operations. Metrics can be devised to measure anything from customer satisfaction to how long it takes to collect accounts receivable. Metrics can be incorporated into management Dashboards that provide a summary of the data collected.
Successful business owners manage by the numbers. They collect and use data to benchmark performance, set goals, reward performance, and make tactical decisions.
I recall an Association for Corporate Growth presentation featuring Jerry South, founder of Towne Park Ltd., a $100M+ revenue operator of parking garages. Mr. South described how he started and grew the firm with $600 and one opportunity to a nationwide business platform. With no previous business experience, his strong focus on data driven decisions has been, and continues to be, a significant factor in his success. Mr. South emphasized data and metrics to such an extent that I was beginning to think he was paid by one of my partners to “talk it up”. Seriously though, if you want to become more successful in running your business, you simply MUST have a system of data collection and analysis. Here’s why:
Achieve better control of operations
The simplest form of data collection is your accounting system. When coupled with a budget or forecast, you can use variance analysis to find items that are over budget, investigate the cause(s) and affect a remedy.
More advanced systems can help you understand things such as who are your most effective salespersons and why. You can measure customer satisfaction, employee productivity, and much more.
As you develop a system of metrics, you will be able to find effective means to reward employees for performance and at the same time move more dollars to your bottom line.
Compare your monthly data to industry norms and your “baseline” to measure your performance
Gain Competitive Advantage
Wring more efficiency out of every facet of your operations. As your organization becomes more profitable, it can invest more in those key areas that drive further success.
Get a better handle on your customers - how much they are willing to pay, what services you need to add, and what new revenue streams you can develop.
Implementing a data driven culture
Transforming a business from a “seat of your pants” management style to a data driven culture is not for the faint hearted. It is a serious undertaking that must involve your entire management team in planning and execution. It requires getting your key managers on board with the concept by helping them understand “what’s in it for them”, what they will need to do, and how they should communicate the program and process to their employees. Implementation requires a dramatic shift in corporate culture where all employees become more focused on success. Such a tectonic shift in culture is not something that takes place overnight. Thus, it makes sense to start with a few simple objectives and gradually increase the complexity of data gathering. There are four benefits to a go slow approach:
Gives personnel time to adapt to a new paradigm
Makes the learning curve less steep
Less likely to have negative impact on operations
Distributes the cost of implementation across a wider time frame
As an example of how and where to start, consider a company with a multi-member sales department. It is a well-known fact that in every company there are sales “stars” that bring in results far above the norm. One way to improve the performance of all individuals is to benchmark their performance and compare them to the star performers. The goal is not to punish the laggards, but to find out why the stars are shining and let the others see how to shine also. This is done by understanding what makes the “stars” shine. Data driven knowledge leads to this understanding. Therefore, the company begins by gathering data such as:
How many cold calls does each sales person make?
How many warm calls does each sales person make?
How are leads developed?
How often does each sales person call on existing customers?
What kinds of questions are the sales persons asking of their customers?
How successful is the sales person in introducing new products or services to existing customers?
Later the company might use more sophisticated data collection:
What is the company’s profitability by sales person?
What is the company’s sales volume by product (or service) for each sales person?
What is the company’s profitability by product or service?
In this example, each sales person is responsible for gathering data to report to his sales manager. The sales manager is responsible for compiling results, finding trends, and disseminating the results both to upper management and back to the sales persons. The object is to let everyone know what behaviors are causing the stars to shine so the others can learn from their behavior.
Instituting a system of metrics should start with the basics and can utilize spreadsheets to capture and analyze data. However, as the systems become more advanced and complex, the purchase of Business Intelligence Software makes sense. If you would like help instituting a system of metrics to become more efficient and competitive contact us.
Doug Zeisel, TCV Partners