You may have asked yourself, is there a way of quickly determining if changes you have made in your business are really paying off?
This is what Donald, a highly focused man in his late 40’s who owned a mid-size manufacturing company was wrestling with.
He and his company had recently made a change regarding which market they should concentrate on. As a result of this, he and his management team realized that to be successful in the new arena the company needed to drastically alter its systems.
They had identified the systems that needed to be re-configured, but the remaining question was, how would they determine if the new systems were operating correctly?
They could just wait and see if they were obtaining the revenue and profits they were hoping for. But they wanted something that could confirm if the system changes, they had made were working from day one, not a month or quarter later when their financial statements would be available. They needed a mechanism for validating and verifying the modified systems were operating properly from the get-go.
You may be facing a similar dilemma with wanting to make some changes in your business, but asking yourself, how can I tell right off the bat if they are providing the desired results?
The solution for Donald’s organization was the implementation of targeted Metrics that were designed specifically for their new systems, and the personnel that operated the systems.
What is a Metric?
In the realm of business planning, Metrics are scores and internal measurements of how a company’s systems and processes are performing.
In the below diagram from my upcoming book, Work Less, Make More and Have Fun in Your Business, you can see your Metrics are used to measure your System and the Personnel that are operating those Systems.
How do you choose your Metrics?
And once you have established your Metrics, how do you determine what actions need to be taken based on their resulting values?
There are seven business planning steps to successfully employing Metrics in your organization.
Step 1 – Choosing Metrics
The first step in choosing your Metrics is to identify what systems or processes you want to monitor? Secondly, choose a Metric for each system that will produce a measurement that can be used as an indicator for the health of that process. Keep in mind the Metric should be able to be used to evaluate both the System itself and the Personnel who are operating the System.
This involves closely examining the system/process that you are trying to measure and asking yourself, “What is the key measurement that indicates whether the process is operating correctly, and is the desired outcome being achieved?”.
If more than one Metric can be used, choose the measurement that is the most comprehensive gauge of the process.
Step 2 – Calibrating Your Metrics
The second step is to calibrate each of your Metrics. This involves determining the acceptable and unacceptable range of values for each Metric, including identifying the point when you as a business owner need to get personally involved in dealing with systems when your Metric is out of the acceptable range.
Step 3 – Interpreting Your Metrics
The third step is the interpretation of the Metric. This involves gaining a full understanding of the cause-and-effect factors that affect the Metric and then deciding what action must take place based on the various favorable or unfavorable values of each Metric.
With regards to choosing, calibrating and interpreting your Metrics bear in mind there are two types of Metrics:
- System/Process Metrics
- Key Performance Indicators (KPI’s)
Step 4 – System/Process Metrics
With respect to your System/Process Metrics, theoretically, you should have Metrics across your entire company for each System/Process. The benefit of having a Metric for each process is that this enables you to monitor and measure their operation and establish “quality loops” as a corrective function.
However, if you do not want to define that many Metrics, you should at least have a Metric for each of your major systems, and you absolutely need to have Metrics for each one of your crucial Critical Success Factors. To gain a greater understanding of Critical Success Factors please see the articles titled:
An Easy and Effective Way to Develop Your Business Strategy
Effectively Focusing Your Organization’s Innovation Efforts
Step 5 – Key Performance Indicators (KPI’s) Metrics
Key Performance Indicators (KPI’s) are Metrics that provide a measurement of overall areas in your company. For example:
- Gross profit per store
- Market share
- Average amount per sales transaction
- Number of new customers per day
- Total number of customers
- Average fringe benefit expenses per employee
Studies show the maximum number of items a business owner or leader can truly monitor is 12-15.
To answer the question of, “how many Metrics should an owner, leader or their leadership team have?” – it is 12-15 Metrics per person.
An additional goal of establishing your KPI Metrics can be to find one overall Metric or “core score” of how your entire business is doing. In Jim Collins’ book Good to Great, all the companies he examined that transitioned themselves from “good” to “great” developed an easy-to-assess economic denominator Metric, such as profit per customer visit or profit per ton of finished steel. They then used that Metric as the overall defining measurement of how their organization was operating.
Having an overall Metric is a very good tool to use, but not a necessity. If you choose to define an overall Metric, please keep in mind that this is in addition to the detailed system Metrics and KPI Metrics you establish throughout your business.
Step 6 – Who Does What?
The next question is, “Who should review, monitor, and act upon a Metric?” – it depends on the size of your organization. For Metrics related to each of your systems/processes, it should be the person in charge of that area.
For major or crucial system Metrics and KPI ones, it should be the business owner, leader, or management team.
All Metrics should also be provided in real-time to the individual or team executing the process so they can take timely corrective actions or have the assurance and satisfaction that things are operating properly.
Step 7 – Digital Dashboards
The above discussion of Metrics leads us directly to the topic of finding and using a tool that allows for easy monitoring of your key or KPI Metrics. This tool is an item called a Digital Dashboard.
A digital dashboard is a computer program that utilizes things like gauges, charts, and indicators to automate the monitoring of your key Metrics—just like looking at the visual displays on the dashboard of your car. The digital dashboard allows you to very quickly ascertain if you have a problem or if the process is functioning correctly.
A Digital Dashboard quickly communicates whether the Metric is in the acceptable, warning, or problem range, thereby allowing the user of the Digital Dashboard to take the necessary action to address any problems.
Where To Start
To effectively utilize System/Process Metrics and Key Performance Indicator (KPI) Metrics in your company begin by determining what systems and areas you want to monitor and establish a key measurement that indicates whether the process is operating correctly, and the desired outcome is being achieved.
Next, determine the acceptable and unacceptable range of values for each Metric and gain an understanding of the cause-and-effect factors that influence the Metric.
Then identify what actions should be utilized by a person or team in charge of that area in response to either favorable or unfavorable values of the Metric.
Finally, utilize Digital Dashboards throughout your organization for easy monitoring of your Metrics.
If you could use assistance with implementing System/Process Metrics and Key Performance Indicator (KPI) Metrics within your organization, please contact us using the information below so we can be a resource to you in this important area.
Fountainhead Consulting Group, Inc. is an Innovation and Business Planning firm. During the past 21, years we have shown over 1,200 companies how to achieve their goals by using our unique, comprehensive, and systematic FastTrak Innovation Program™, Innovation Academy™, and Structure of Success™ methodologies. Using the components in these methodologies, each month we examine an aspect of how to transform your business or organization into a true 21st Century enterprise.
Office: (770) 642-4220
George.Horrigan@FountainheadConsultingGroup.com
Tags: Business Planning, entrepreneur, front end of innovation, innovation, invention, small business consulting, small business planning, start a business
