Are your business metrics on Par?

I recall a story that a client once relayed to me. A manager from his business was asked to deliver a business performance presentation to his Asia Pacific head. He spent an hour relaying and quoting his revenue to date, explaining how confident he was in his team’s ability and how buoyant the market was. He felt confident it was a good presentation. His superior asked one simple question in response, ‘What is your golf handicap?’ The manager proudly replied ‘Eighteen’. To which his superior responded ‘I am glad you know your golf handicap, because you know nothing about your business’. The Asia Pacific head’s point was simple; the manager’s assessment of the business and its performance was superficial at best and irrelevant at worst.

Throughout my career I have had the opportunity to visit many growing businesses and am constantly reminded of this story as I consult with them about their business performance.

Set your metrics

Whilst setting business metrics is often done by businesses themselves, it is seldom done well and in some cases is overlooked altogether. Historically, businesses have taken a traditional approach to the development of performance measurement, which focuses entirely on narrow and generally financial metrics. The modern business understands a broader approach must be taken and a set of ‘Global’, and more holistically focused business metrics are required. There is a growing recognition that business metrics need to encompass and align all the contributors to effectiveness within the organisation including measurement of people, processes and performance (internal and external). The ‘how and why’ has become equally as important as the ‘what’ and pressure is now being placed on businesses to ensure that the corporate culture, values and behaviours underpin decision making and business performance management.

Moreover, there is a growing recognition that the traditional return on investment model needs to include these metrics. A + B does not automatically equal C, the outcome can have a great and wide reaching impact and time spent managing resulting issues with customers and staff can be costly and time consuming
and ultimately lead to the downfall of many growing businesses.

So what are the common mistakes?

Start with the end in mind The implementation of a global set of metrics cannot occur without an established vision and mission or a clear and well-understood set of corporate values. These simple tools act like a lighthouse keeping your business and staff on course and clear of danger. Amidst constant market forces it is easy to float aimlessly in open water, at the mercy of the elements.

What you measure is what you get We only need to look at recent business downfalls to see clear examples of this common mistake. One.Tel for example; Directors were paid bonuses based solely on revenue, and the business was void of profit and cash flow due to poor pricing strategies, despite meeting revenue targets.

Metrics manage behaviours Although poor alignment of metrics and performance indicators with the organisation’s purpose and values may lead to desired financial outcomes, these may also lead to undesired behaviours. This is frequently seen in sales where the focus for the sales person is on the outcome not on the need or experience of the customer.

Short term approach to a long term problem I frequently come across businesses that are in a rush to deliver results focused on the short outcomes rather than the long term sustainability of the business. A common mistake is businesses focusing heavily on sales, but ignoring retention and the untapped potential of their current customers. Retention, current customer revenue and average customer life span should all be key measures.

In summary, like our friend’s golf game you won’t have a good round or create success unless you take all the metric elements into account. Nor will that elusive hole in one ever be achieved unless you know the direction to aim for. Most importantly, you will never know if you have achieved your desired result nor will you be able to improve performance unless a par score and the associated ‘rules’ were determined beforehand. So my advice to my client, who was to meet with the same Asia Pacific head, “know your numbers in a way that means you truly know your business and all aspects of what it has achieved.”

Written by:

Trent Brown is CEO at Ezypay , Australia ’s leading outsourced billing management service. www.ezypay.com.au

Australian business magazines and courses: shares, investment, business and property
Call (03) 8616 0270 to enquire about our services Conditions of use | About Wealth Creator - Australian business and investment magazine | Contact us | Custom Publishing | Wealth Creator: Australia's leading shares, property, business, franchising and investment magazine | Investment Shop | Wealth Creator Magazine | Advertise | Affiliates | Articles about wealth creation from Australia's premium wealth creation magazine | Australian Email Newsletter featuring infomation on entrepreneurs and investments | Subscription | Seminars