September 10, 2020
We live in a world of scoreboard watchers. Go to any sporting event, and you’ll see massive scoreboards displaying all sorts of stats and information. Political junkies love to look at maps of red and blue states and counties. The United Way and other nonprofits proudly display thermometers showing their fundraising goals and accomplishments.
In recent years, businesses have caught on to the way people are wired for keeping score and are displaying more and more information to let their employees know how the company is doing.
Before it closed down, Marty Fox had the opportunity to tour the massive NUMMI plant in Fremont where GM and Toyota were manufacturing vehicles, including the Toyota Tacoma pickup. In the assembly-line area, giant electronic scoreboards continually reminded workers of the goals for their shift and how they were measuring up to those goals. On display in a centralized room, dozens of charts showed employees and teams how they were doing in specific areas and how their performance compared with that of other company teams.
Metrics provide real-time feedback on activities that are critical to your company and can help predict future outcomes. Simply put, metrics (sometimes called key performance indicators, or KPIs) serve as indicators of progress toward specific goals, or critical success factors (CSFs).
|Improve gross profit||Increase gross margin to 35%|
|Increase yield per acre||Increase fertilizer output by 5%|
|Put management succession plan in place||Complete buy-sell agreement by December 31|
|Reduce emissions output from machinery||Measure gas usage each quarter to remain on target to decrease total gallons of gas used in a year|
|Improved experience rating in Workers Compensation||Increase # of days without incidents|
|Increase cash flow||Reduce A/R days outstanding to 30|
Before you design your metrics, lay the groundwork for what you want to achieve. In other words, if you achieve good outcomes against your metrics, will you produce the results you’re looking for? For example, you may have a goal to increase cash flow by 20%. If you select a production target or increased yield per field as your KPI, you better be sure that increasing production or increasing yield per field will produce more cash flow. (HINT: It doesn’t always work out that way.)
So, how should you select the most impactful metrics (KPIs) for your business?
- Establish your company’s vision, strategy, and goals for the future.
- Determine the accomplishments that are critical to achieving those goals (your CSFs).
- Select at least one metric that will have a positive impact on each CSF.
- Assign a target for each KPI.
Here are a few more helpful tips:
- Select only a few metrics to closely monitor.
- Make sure everyone clearly understands the metrics and how they can drive improvement.
- Tie them to actions that people can influence.
- Keep them simple. The data should be easy to collect and communicate.
- Report on them regularly and openly.
Every business owner today has a mountain of information available to them. The hard part is filtering through it all to figure out what has value for your company. At the end of the day, a performance measurement system helps you see issues before they become problems. Whether you would like us to facilitate a full-day strategic planning session, or you just want some guidance on getting started, you can count on us to help you gain greater insight and direction for your business.
For more information about how we can specifically help your business, please don’t hesitate to contact us (firstname.lastname@example.org) or call 209-527-4220.