The Power of Metrics

When we played street hockey as kids, freezing our toes and ignoring Mom’s calls to come in out of the cold, we kept score. Winning was important then, and it is now.

All athletes watch the scoreboard. The symphony conductor monitors the tempo. Race car drivers, thoroughbred horses and swimmers race against the clock.

Everyone wants to play for a winning team. That’s why keeping score is important.

There are a few secrets to peak business performance. And metrics are one of the best ways to monitor and improve your performance. Others include a clear vision from a strong leadership team, and the discipline to focus on what you are really good at.

Financial statements are only one metric, and hopefully not the only one you’re using in your business. They are a lag indicator, and often constrained to GAAP and assumptions and standards that distort or hide real information. Metrics for financial statements are how fast you get them and how you use them to manage. They’re your statements – make sure they’re useful for you.

In most businesses, quality is important, of course. Despite quality being an overused euphemism, it’s how you, and, more importantly, your customer define quality that counts.

Quality might mean speed when it minimizes downtime caused by a breakdown. It might be represented by ‘mean time between failure’ for critical components. Or, it might mean active listening and responsiveness in just about any sales or service conversation.

Here are some industry-specific metrics. Feel free to suggest more in the comments section.

Construction: safety, percentage complete, productivity, coordination with other trades or subcontractors, minimizing rework, and speed in getting paid.

Service: responsiveness, new service offerings, margins, moving up the food chain from commodity to sole provider, value pricing vs. time billing, revenue per labour cost, being proactive vs. reactive.

Manufacturing: utilization vs. capacity, overhead rate, waste, speed, production volume vs. capacity, labour vs. equipment productivity, revenue and profit by customer and product line.

Professional services: billable vs. non-billable time (if you charge by the hour), speed (more common in value pricing), margins, client results (taxes saved, lawsuit avoided or won, cool new brand, increased profits), leverage (the right skill set doing the right task), days to cash, doing compliance vs. project work.

Retail: average transaction value, repeat customers, inventory turnover, gross profit by product or customer, revenue per employee.

Distribution: revenue and profit by customer and segment, inventory turnover, days to cash, market share, supplier relationships and terms.

Software development: speed to develop new versions, outstanding and unresolved bugs, responsiveness to customer comments, revenue and profit growth, teamwork.

Relevant for most, if not all, industries: leadership (yes, that’s you!), talent acquisition and retention, employee satisfaction (a happy employee will create a happy customer), customer satisfaction (a happy customer will refer other customers), return on investment, cash flow (profitable growth companies can easily run out of cash), and valuation.

And, just for you, the business owner: weeks of vacation in the last year (can include some work time – hey, I’d rather spend an hour on the phone and email and then go to the beach), new ideas implemented, are employees taking risks and celebrating failures or being punished for failure, revenue and profit growth, business valuation, work hours decreasing, talent and succession, increased personal wealth, having more fun. Personal metrics: your health, exercise, family time, hobbies, personal growth and development.

The best metrics align your front line people in their daily interactions with your business strategy. Recording the metric and sharing it daily with your team can be highly rewarding and motivating, especially when they want to beat yesterday’s number.

What’s your score?

Copyright 2011. All Rights Reserved. Phil Symchych