Vol. 3 — No. 2 The Right Measures Improve Business Performance We have all heard the old adage, “you get what you measure.” But, do we really understand how to measure the right things? One of the best known strategic measurement systems is the Balanced Scorecard. It encourages a business to develop measures in four key categories that are linked to strategic objectives. The system can work, but like any other, it is only as good as the measures selected, the communication system around the measures, and the personal accountability of those required to produce the measured outcomes. So, let’s talk about how to select and implement the right measures, so that you can use them to drive business performance. You start with your overall strategy. Ask yourself, “What actions are most critical to perform if your company is to accomplish its strategy?” If you run Nike, how often the company is able to introduce a hot new shoe style is key. So, an important measure might be % of revenue from new shoe styles. If you run a manufacturer with a fairly stable line of product, you may need to ensure growth by driving volume with new customers – so, you choose to measure % of revenue from new customers. Measures are not limited to top-line drivers. You will likely have strategic measures for expense control, too. An across-the-board expense reduction, while possibly necessary, is not usually strategic. Rather, you may want to look at certain aspects of production that can be an enabler of your strategy. For example, improving inventory turn by converting to a just-in-time inventory approach may be of strategic benefit to your customer and an improvement to your business practice that yields important bottom-line benefits. That is a strategic measure. Generally, the best way to select key measures is to examine the most recent strategic plan and ask what must be accomplished if it is to be achieved and develop measures that capture progress on those critical activities. It is not uncommon to see measures that correspond to making a new product, completing an acquisition, improving efficiencies, enhancing customer loyalty, transitioning skill sets, implementing new technologies, or penetrating new markets. Here are a few rules of thumb for setting measures: Limit the number of strategic measures to a dozen. These measures are intended to be “owned” by the company. They have to keep the company focused on what really matters. There is room for a lot of other measures at the departmental level, such as budget management or production performance. But, not all of these measures are strategic measures that have the ability to change your business. Develop a well-rounded list of measures. Although tempting, don’t make them all sales measures. Balance them across financial measures, internal measures (like production, new products, management development) and external measures (like customer satisfaction, market share, or other market factors). Once you select a measure, be sure you assign a target performance number. If you have a five year plan, you might assign a five year number, but also break it down to annual numbers to give a specific target to be achieved in the near term as well as a sense of rate of change. Manage these numbers actively. Review these numbers as often as practical given the type of measures you select. We usually recommend quarterly. Report on them at the management level, understand the current status, and develop action plans for improvement, if needed. Share results with all constituencies. It is important that everyone throughout the organization who is responsible for contributing to performance is aware of results. Given the strategic nature of the measures, they are rarely accomplished by one person or one department. So, share the results as broadly as possible. It reinforces your strategy, it underscores that you mean it, and it gives people a sense of direction and accountability. For more information on how to improve the business performance of your company, contact Margaret Reynolds, Managing Principal of Reynolds Consulting, LLC at mreynolds@reynolds-consulting.com or 816-350-7680.		Did You Know? Strategic Planning: According to a recent McKinsey survey, 45% of companies report doing a strategic plan every 2-3 years while 36% do 4-5 year plans. Marketing: Green is becoming the newest marketing trend. 18% of shoppers say they are interested in buying green, organic or eco-friendly compared to 5% in 2000. (NPD Group) Branding: What does Coca-Cola know about brand longevity that the rest of us don’t? Some keys to long-term brand success are: Leverage scale, the ability to re-invent, maintaining brand consistency—especially of quality, delivering well-honed messages, ongoing integrity, and spend in recession markets to win share! Customer Experience: The Service Index, compiled by J. D. Powers, is a weighted score of people and process, with a bonus score for industry leadership. The top 25 were just released. Number 1 is USAA with A+ in both people and process and over 96% of home and 98% of auto policy holders reporting they meet their commitment to call back regarding claims on time. Seventy-nine percent say they would definitely recommend the brand. Others in the top ten are: Four Seasons Hotels and Resorts, Cadillac, Nordstrom, Wegmans Food Markets, Edward Jones, Lexus, UPS, Enterprise Rent-a-Car, and Starbucks.
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