Fear of the cashflow hampers business.

August 10, 2009 · Filed Under Business · Comment 

Business owners particularly in these uncertain times get very concerned about the cashflow that I believe affects their decision making.  We need to be on top of cashflow, it needs to be properly managed but by focusing on this alone we affect the long term performance of the business.

This short term focus makes us assume all clients are good if they have a cheque book. But we can’t be all things to all people and if we take on unprofitable clients or try to provide services to people that whilst profitable but not to the level of our main services then all we have done s added to the management drama of the business.

This short term focus can make us not devote the time and resources necessary to improve systems, services etc. But it is only by investing in these areas will we have a more enjoyable and more profitable business.

This short term focus can lead to poor customer service. By trying to do everything, serve as many as possible and manage the team the result will be a decrease in the priority given to making the customer service fantastic.

So remember the focus on the systems, client selection and client service are not urgent but they are extremely important to the long term development of an enjoyable business. Stop chasing the profits and todays cashflow, focus on the customer and deliver a great experience.

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Five Steps to Make KPI’s work.

May 11, 2009 · Filed Under Key Performance Indicators, Small & Medium Businesses · Comment 

There has been considerable effort and attention given to all manner of indicators. Unfortunately three things end up happening :-

1.      Too many indicators are created

2.      Once created the information provided by the indicator is ignored (or not understood)

3.      The indicators focus only on the internal performance of the business.

So should we be concerned about this?  Yes absolutely yes.  But why?

Because what you measure and reward is what you get. Recently the Australian Financial Review asked a number of successful business people for top 5 things that help business succeed and one of items that they stated was – know your numbers. Numbers can tell a story of the business.

But there are 5 key steps before KPI’s  work :-

1. Decide what constitutes success

This sounds obvious but the success I am referring to is not your bank balance but what will make the business grow. Success must be defined the way your customer defines it. How the customer defines success or value will often include aspects that you may consider trivial. But it is these little things that the customer values. Often time the focus of measurement is on the cost or production. This is not where success lies. All it will bring is reduced costs or increased production efficiency but not necessarily customer delight.  It is imperative to look at your business the way your customer does. What is important or valuable to your customer?

2. Measure the right things

Businesses fail because they want the right things but measure the wrong things. People are smart so even if you define success right but still measure and reward the wrong thing your team is going to give you what you measure eg if you were to measure employee adherence to an employee manual then you will have employees who abided by the letter of the internal rulebook but probably give lousy customer service.

When measuring the right things don’t go overboard.  It is usually only necessary to have 1-5 items that are measured right across the business and that everybody knows and follows. There may be other measures for separate sections of the business but there will only a couple of headline measures.  Too many measures lead to people losing focus.

3. Make sure everybody understands the goals and measurements.

If people either don’t know or understand the goals and metrics they will create their own which are probably nothing like what you want. The goals need to be communicated to everybody regularly. The team must understand what the goal is and how they form part of it. Every decision then needs to be made in the context of the goals. If an idea is brought up, before effort is wasted it needs to be determined whether it helps achieve the goals. The goals and the measure need to be presented in such a way so that it is easily understood. Numbers are not appealing to everybody so make it fun. Numbers can be expressed in many creative ways that everybody then understands. We need to keep the score in a manner that everybody can determine how we are going. The scoreboard must be available constantly. When we attend a game of sport we want to know at all times how our team is going and the scoreboard is always plain to see for everybody. Lastly the goals and measurements must be reasonable. An unachievable goal is no goal at all. It will only lead to dispirited and cynical team.

4. Reward

For behaviours to change the measurements need to be coupled with rewards. We only get what we reward. Gordon Bethune in his recount of turning Continental Airlines around states that this was one of the most important things he did. Each employee got a monthly bonus if they reached the onetime arrival target. The behaviours changed to meet the target.Once rewards are promised then they must be delivered if the target has been achieved. Keep your word. When people are given clear direction and clear rewards they will achieve. This is applicable to all levels of the team.When the rewards are given make it certain that they know they have got the rewards. For instance if there is a monetary bonus then instead of the funds going in with the normal wages then it should be a separate payment. This has more impact. Anything that can be done to intensify the experience of the reward makes the message stick. Don’t reward the wrong people. If a company wide goal that has been achieved then everybody gets the reward not just senior management. Everybody is necessary for the success therefore reward everybody.

5. Never stop

When driving a car we rely on a number of measurements which we are constantly referring to e.g. speed, fuel. If we decide that everything is fine or that we are too busy to look at the dashboard then this will only lead to disaster. We could run out of fuel, be caught speeding, have an accident through speed.  We must refer to the dashboard to know what is going on.Never, never, never stop measuring what matters. The dashboard of the business will have a couple of important measures that must be constantly measured. There will be a number of other measures in the business just like the car e.g. km’s travelled, tyre pressure, coolant level, oil level etc. However the headline metrics (ie the dashboard) gives us a good indication of how everything is going. If you do keep an eye on the measurements, as soon as a problem shows up you’ll know about it and you can take action to fix it. It is necessary to ensure the accuracy of the measurements. If the speedo is out then this can give us a false sense of comfort. Over time the measurements in a business must be constantly refined and made accurate.  Measure more and measure better. Measure everything that matters.

Conclusion

These five steps will ensure that measures work in your business and not just become despised numbers. To achieve success you must know your numbers.  That is the numbers that matter. So in conclusion – MEASURE WHAT MATTERS.

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