How to use metrics to stay focused within a vision.
The secret to stay focused within a vision is to find metrics that make your achievements seem small.
This may seem a little crazy. Often we want to celebrate our and our teams achievements. We don’t want people to lose heart in the goal. So there is a balance to be achieved here.
We can have the various goals that reward and motivate performance along the path but also never lose sight of the vision.
To this end I heard a senior executive of Pandora Radio www.pandora.com stating that despite their magnificent growth figures they still only had about 2% of the total radio hours in the USA. So the metrics of growth, number of new subscribers were motivating metrics along the path but the overall metric of share of radio hours keeps them focused on their long term vision. If there was not the metric of radio hour share then they could be distracted by their achievements. It could lead to complacency.
It is still necessary to celebrate the progress but also staying focused on the vision is important.
What metric do you have to make your achievements seem small and keeps you focused within a vision?
Photo by:- Krisph
The Hospital Debate – Measuring Effectiveness or Efficiency
Health care and management of the hospital system is vexed issue here in Australia as well as the very significant bill in the USA. Recently there was an excellent article in Harvard Business Review titled “Turning Doctors into Leaders” . In this article Dr Thomas Lee states that one of the significant problem of the US Health system is that results are not being measured and people being held accountable to this.
The more I have thought about this the more I agree. In the Australian context there has been a lot of discussion recently regarding the efficiency or lack of efficiency of the State based hospitals. The conversation has focused on dollars spent, waiting lists, number of admin staff to medical staff etc.
What there has not been any meaningful data on is the effectiveness or otherwise of the hospital system. There is no measures on the health outcomes not just the inputs. As Dr Lee states the rising cost of health is a symptom not the cause.
A very important step would be for governments (and other administrators) to start collecting and measuring health outcomes. With this data and the measures then people need to be held accountable. Why is this so hard for our governments to do? Why is their focus only on the inputs?
This measuring of health outcomes is possible. The Cleveland Clinic in the US not only measures health outcomes, it publishes the results on its website for all to see. It compiles and publishes Quality and Patient Experience Measures. The model is here. Accountability is very public. It can be done and we must do it.
Australian Wellbeing Index – A good measure of performance
French President Nicolas Sarkozy is reported to have said at the Group 20 Summit in Pittsburgh in late 2009 that the world could have predicted the economic crisis had it looked at happiness, wellbeing and sustainability.
Governments and intergovernmental organisations have been looking for additional measures to the traditional quantitative measures like GDP (gross domestic product) and GNP (gross national product).
Well here in Australia there is the answer. The Australia Unity Welling Index is a simple but effective index of wellbeing. This index is compiled scientifically and is meaningful. There is the Personal Wellbeing Index and the National Wellbeing Index.
Presently the index has risen to 76.3 on a 100 point scale which show Australians are more satisfied with their future security and standard of living.
There are many interesting stats within the data from the index however the point is that qualitative data collected in a correct manner can add more value to the quantitative data. It completes the picture of the nation or the business.
You can access the index measurement tool on australianunity.com.au/wellbeingindex/
Photo :- Richard
Cash Flow Management – A Useful Metric
There are many financial metrics that can be utilised to look at the working capital and cash flow issues of a business. For the purposes of this post I want to focus on one number that can be a useful tool for a business.
This is a financial metric called days of working capital. To calculate this metric it is:
Working Capital ÷ Sales By Day
Working capital is defined as Accounts Receivable + Inventory – Accounts Payable.
This metric shows how much working capital we have on hand, and we need to cover sales. If the answer comes up as 22, then we have 22 days of working capital on hand to cover sales generation. Whilst this is a historical indicator, it is still a useful number to know to consider sustainable growth ie growth that we can fund from existing working capital.
Too many businesses fall into the trap of growing quickly and not being able to keep up with cash. This number shows a business how many days of working capital they have on hand and thus shows what sales growth is sustainable.
To be able to grow faster it will be necessary to add to working capital. This could be added by taking out a long-term liability, which will add to the current cash position of a business, to ensure that the sustainable sales targets are able to be met. This metric gives an insight into managing the sales and working capital needs of a business.
Photo: Alan Cleaver
Quantitative and Qualitative Measures
Quantitative data never tells the whole story. Quantitative data is easier to collect and analyse and thus we tend to give it a far greater importance in our business. The accounting industry makes it easy for us to get a raft of quantitative data on the performance of the business.
Qualitative data though completes the story. But collecting and analysing qualitative data is a much harder process, and thus often is neglected in the management of the business.
For example to make a good product decision we need to know what is being sold, to whom, at what margin, this is the quantitative data. But we also need to know why some products are selling more than others. This question of answering the why takes a qualitative analysis of our customer’s decision, and often this involves judgment calls. But it is this qualitative data that will complete the story about the reason why a product or service is selling more than another.
The quantitative information may imply, a pricing or a market need, but the qualitative data, ie. actually asking the customer, may indicate that there’s something altogether different that is going on.
We need to have both qualitative and quantitative measures in a business. We need to have the judgment calls as much as we need to have the cold hard factual financial analysis. The blend of qualitative and quantitative data will give us the tools to lead and manage a business.
Photo:- by digitalART2
A Metric to manage inventory & sales growth
Inventory management, or stock management in a business is critical to both the cash flow and sales growth. Too little stock has the issue of effecting sales, and too much stock has the issue of negatively effecting cash flow. It is a fine balance of the stock levels that meet the twin criteria of cash flow and sales growth.
Larger businesses invest in sophisticated systems to manage this balance. They have invested in sophisticated ordering processes and reporting. In all businesses though it is useful to keep an eye on a measure that can give an insight to this balance. This measure is inventory compared with sales.
We measure this by: -
Sales ÷ Average Inventory
We can look at this on a monthly, quarterly or annual basis. This shows how much inventory we have as a percentage of sales.
The important issue with this metric is to measure it on a trend-line. A one off snapshot does not give a lot of an insight into the management of inventory. The trend of this metric though can give an insight as to whether our inventory policies are better managing or are negatively managing our stock levels.
It is not the metric that’s going to provide all insights into the business, but it is a useful measure, particularly looking at it from the trend-line.
Closely related to this is the average inventory turnover. This is having a look at how many times the inventory turns over in a year. The greater the turnover the better, because it is the velocity of the inventory through a business that determines both the sales and cash flow growth.
These measures can provide a useful insight into the management of an important area of the business, being inventory.
Photo: Molajen
Megapixels – The Story of One Number
Camera manufacturers have raced to to add more mega-pixels to each of their new models. Retailers will now tell customers how many mega-pixels each camera is. It has made comparisons easy. It has made selling the cameras easier. It made sense.
Now customers are educated to believe in this number. I have heard many times the conversation about the mega pixels of the iphone camera and how people are waiting for the new model with more mega-pixels.
Camera manufacturers and retailers have used the story of this one number to great effect.
But what are mega-pixels for?
The mega-pixels will tell (subject to some technical things) the size you can print the photo. An 8 mega-pixel camera will be very good at printing 12 x 16 inches / 30cm x 40cm photos. But how many people will ever do this. Often a 4 mega-pixel camera will suffice.
But the story of one number has taken over.
But there is more to this story. The number of mega-pixels does not really indicate the quality of the camera. Other aspects are relevant eg – size and quality of sensor, ISO levels, noise, image stabilisation etc
So there are a couple of lessons here. One number can be a very useful marketing tool has it has been for the camera manufacturers. But from a business viewpoint we need to be careful in the one number we focus on to ensure that it is the correct one.
Customer Service is more important than Price.
Recently a Acenture Report into customer experience was released. One of the interesting things that this survey of over 120,000 people showed was that 69% of people left at least one supplier because of poor customer service in the preceding 12 months. This was up from 59% when the survey was conducted last in 2007. Also another aspect of their survey was the fact that more people changed suppliers because of customer service than because of price.
I’ve always believed that customer experience is what really matters in a relationship with the customer, rather than price and this survey reiterates this point. But this survey is during the midst the toughest recession that the Western world has seen since the great depression. United Kingdom and the United States where this survey is principally based have had an extremely tough economic climate.
Despite this the survey results still show that customer experience and customer service is still far more important than price.
This highlights the fatal assumption often held is that price is what drives the sale. If a customer has nothing else to compare to between two particular suppliers then price will drive the product sale. It is the little things that surround the product or service that make the customer experience difference.
Businesses focus on price and ignore the evidence from this and previous surveys. Therefore they enter in price orientated competition.
Be careful of the assumptions you are making in what attracts people to your service or product, and realise that every survey, even those done in the midst of some of the hardest economic times we’ve had, continue to highlight the fact that customer service is more important than price.
Focus on the Wins – Collect Data on why.
Recently I was listening to a podcast by John Jantsch where he was interviewing Chip Heath on his new book, ‘Change’.
Chip and his brother Dan wrote a fantastic book previously called ‘Made to Stick’ which was about how to make ideas stick. It is a fantastic book and I would recommend it to anybody.
During this podcast they bought up a point that people need to focus on their wins if they wish to make change stick. This is an excellent point and I want to develop it a little further.
To often business owners / manager want to strive to obtain new business with a new product, a new service, a new market or sub-market. But this not always successful and there is a constant effort to look at what they are doing to improve their success on this front.
Developing Chip’s point further it may be more important to focus on the products and services markets that are successful, determine what it is that is creating that success and develop that further. So don’t get hung up about collecting data and analysing data on the areas on the products or services or markets where the business is not successful, but rather look at the areas where the customers are more than happy to pay for the goods and services and analyse why this is the case, what value is being provided here and what is it that is leading to this success. It is with the insights from this data that can lead to business growth.
For instance, my father had a commercial cleaning business for about 30 years, so I grew up in the game. My father shied away from the big office tower buildings and the large commercial shopping centres. His focus was always on the smaller centres, small office buildings, because he could develop a service that was valuable to these type of clients. He felt that if he tried to get business in these other areas it would take away from his focus and he may not be able to deliver a quality service. In these other markets there was far greater competition, but dad continued to focus on the type of client, and type of commerical cleaning to which he had developed a competitive advantage.
So to extrapolate from Chips’s point, concentrate on your wins, collect data to give you an insight on why the business is winning in these areas, and use that to develop your business.
Photo: – by Wonderlane
Are We Asking the Right Questions?
Often in business we are questioning how we undertake the operations of the business, we question the available financial data, we put questions around the efficiency of the team and the processes, but are these the right questions?
The questions that we need to be asking are those that are focused on the value being provided to the customer.
We need to be determining what the customer see’s as important, how the customer defines success, what the customer thinks of our business. From this information we can then ask the questions of what data or metrics do we need to have to ensure that we are able to provide this value to the customer.
Just because the data is available, just because the financial information is being compiled on a regular basis, does not mean that that is useful information. We need to have the one focus measure and the various support measures that are answering the questions about what value is being provided to the customer.
This usually means that the financial data that we are compiling for monthly accounts etc is not the main focus area. This is useful information, but it’s telling us what has gone on in the past. We need to be asking the questions about what the customer is doing in the future, and having the data that gives us an insight into this.
Are you asking the right questions? Do you have the one measure clearly identified that will drive the future value of the business.
Photo: – by fontplay.com
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