Chapter 5: Metrics and Performance Management

Continuing with the chapters of the“10 foundations of business success”, an excellent very practical book by my friend and colleague Guy Hamilton.

If you missed any of the articles in the topic, see links below.

Series Intro – 10 Foundations of Business Success

Chapter 1: Market Segmentation Part 1

Chapter 1: Market Segmentation Part 2 – The Steps

Chapter 2: Customer Needs – You only have a business if a customer wants to buy your products.

Chapter 3: Value Propositions – What a customer perceives as good value is all that matters. A business view of value does not count.

Chapter 4: Customer Experiences – When a customer really engages with a product or service they become a passionate advocate for it. This is at the heart of repeat or referred business.

 

 Today, I bring to you, the 5th Chapter: Metrics and Performance Management – What gets measured gets done. It is as simple as that!

We are progressively moving on from defining our business and how we wish to serve our customers into the “make it happen” phase! As a wise colleague of mine once said, “At some stage, strategy has to degenerate into activity!”

There are many examples in both big and small businesses where moving from an articulated business plan to a defined set of executable actions seems to be an inordinate struggle.

Business plans are just that: plans! A good business plan is a focused summary of strategic business issues and ideas prioritised through disciplined analysis of market opportunities and threats. There should be a simple, four-step check process:

1. What is happening?
2. Is this what we thought would happen?
3. If not, why not?
4. What do we need to do to get on track?

These are simple questions, but they are hard to answer with any certainty in the absence of data or points of measurement.

During the early days of a business plan rollout, you need monthly checkpoints. As you become satisfied that the required changes are happening and becoming embedded in the business model, these checkpoints can be progressively widened to quarterly. These is a simple truism in business: “what gets measured gets done”. The mark of a good business plan is its ability to clearly define a small number of tangible objectives and the actions required to deliver them. The trick is to have objectives that ca be measured and tracked.

Now, let’s reflect on the meaning of performance management. It is all about tracking the “run rates” of key business objectives. The sooner you identify a part of your business that is not performing well, the quicker you can take a close look at it, find the problem and resolve it. In other words, performance management is a means to shine a spotlight on possible problem areas in a business and fix them!

There is a simple “five on five” discipline. What are the top 5 metrics a management team will focus on to give confidence that the business is on track to meet objectives? For each of those five primary metrics, what are the five subset metrics that will give a suitable level of insight as to what is happening? Essentially, you manage direction by the five primary metrics, and secondary metrics to provide confidence that the right changes, behaviours and trends are happening.

RULE 1. Set five top measurable business objectives, and for each define five subset metrics.

RULE 2. Set tangible measures based on activities that can be tracked simply.

RULE 3. Use metrics that help highlight emerging trends.

RULE 4. Do not bury a business in measurements.

RULE 5. Do not create metrics where data is not available or is hard to capture.

RULE 6. Make sure you have a balance of financial, volume/capacity, customer and staff-related measures.

The Steps

These are the actions that a small business can take to establish this important business discipline:

1. Form a clear view of what “good” looks like for your business in five years’ time and set a tangible outcome for each objective.
2. Identify the key activities that will drive achievement of each objective.
3. Define what measure will best indicate how well each priority business driver us working. Make sure you can easily capture the data required for a measure.
4. Trial-run preferred measures for two to three months to make sure data capture is complete and the measure is providing the insights required.
5. Consider your business and management structure to determine who will be the primary owner of each measure. Make sure they understand why the measure is important and what insights they are expected to bring to the business.
6. Establish a team, management or staff meeting that reviews key measurements and trends regularly. Monthly reviews are recommended by Guy initially.
7. Make sure all staff in a business understand the core business drivers and why the primary metrics have been chosen. Also, encourage them to contribute with their insights based on their experience and knowledge of different areas of the business.
8. Do not allow paralysis by analysis or data fog to descend on your business. Don’t get distracted from what matters with bringing information and metrics that are not relevant.
9. Make sure time is spent, at least annually, to reconfirm or refresh core measures.

Everyone likes to be part of something that is successful and there is nothing like good metrics to confirm what was planned is now happening. Finally… keep it simple!