My School Website – Measuring Output vs Input.
Here in Australia the Federal Government has recently started a new website called My School This website provides profile information about all of the schools in Australia (government and private).
The information detailed is various educational results from National testing that all students undertake in Years 3, 5, 7, & 9. Also the final year results are also included. The results for each school are compared to the national average and to statically similar schools.
The website has created some considerable controversy. The teachers unions are unhappy. A number of the school Principal’s are also unhappy. Their arguments is that these results are not reflective of the schools performance.
I am not an expert in assessing the educational results of a school, I am just a parent with a keen interest in measurement.
The metrics may not be perfect but they are better than what we had prior : – nothing. One measure that I would like to see is to track the results of a cohort of students through the schools. This would show the impact of the school. Given we are testing each student and then compiling them, it would relatively easy to track the students results throughout their time at the school.
The focus in the pass in education has been measuring the input. The politicians, teachers union, and schools themselves would talk about :-
- how many new teachers are employed
- class sizes
- dollars being spent nationally, state and school level.
The output though is a much more accurate reflection whether the money has been well spent. The My School website had least is moving towards measuring the output ie the educational results. So why the objections. Could it be that this start to reveal where the money is being wasted. Could it be that finally the focus on output will mean that people will be shown up.
This lesson is just as applicable to business. Be careful of measures that focus on the input. It is the output that is important. In business the output is measured by looking at what our customers think and do. Our measures must focus on what is important to the customer.
Focus on the essential – Leica
It is imperative that businesses determine exactly who they want to serve, exactly what products or service they want to deliver. They must not try to be all things to all people. Previously on this post I gave the example of a niche product being the Savile Row Tailors. In this post I pass on some lessons from a company who has got it right. ( I have no inside information just a keen interest).
The company is Leica Camera AG.
Leica make beautiful cameras and if anyone wants to be generous I would love the new M9.
Lieca cameras are very expensive but they create an experience for enthusiast, artistic or professional photographers. They are made in Soims Germany and also a second location in Portugal.
They have focused on building the best lenses, the essential camera that serves a market. They employ about 100 people and last year turned over 156 million Euro. They are not an insignificant business that is focused on serving a particular customer with a specfic product. They are not trying to take on Canon & Nikon etc but rather they are creating a different product and charging a premium price. There are forums, user groups both online and offline the world over. These people get together to talk about the products and what they have been able to create with the product. This just reinforces the word of mouth marketing of the brand which adds to the premium price that can be charged for the products.
On Leica’s website they say the brand speaks for visual enjoyment and lasting value. Also state that their values are building the best lenses and focusing on the essential. It is this point of “focus on the essential” which I wish to cover a little more.
To quote from their website
“In today’s market, many products attempt to attract buyers with countless features and unusual forms. Almost anything is possible. But it is often the things that appear simple which prove to be the most difficult to attain. For Leica, the focus is first and foremost on the needs of the user. Innovations are never ends in themselves but are always the result of countless discussions with and feedback from users. Leica products are designed from the ground up as tools for creating completely unique visual experiences – nothing more and nothing less. For this reason since the very first Leica, the focus during mechanical and optical development of mechanics and lenses has been on providing truly relevant functions. It is this focus on the essential that lies at the heart of the fascination inspired by the Leica brand. “
If only this was the focus of all businesses. Leica not only say this but deliver. They have the focus of their customers. Their customers are not all photographers. They are not trying to be everything to everybody. Focus on the needs of the customers you want to deal with. How can you focus on the essential in your business, with your product or service.
The 5 C’s of Value
In my previous post I discussed that pricing is a marketing strategy. In this post I discuss the need to look at the value being delivered to the customer.
So let’s look at the 5 C’s of value:
1. Comprehend the value being delivered to the customer.
2. Create value for customers.
3. Communicate the value you create.
4. Convince customers they must pay for value.
5. Capture value with strategic pricing based on value, not costs and effort.
So many businesses look at the services and products that they offer from their perspective. But to be able to determine the appropriate price, you need to firstly comprehend the value to the customer. Why are they buying that service, what problem is it solving, what pleasure is it obtaining or pain is it avoiding and then what is that worth to them?
In business, we need to be able to create the value. We need to be able to create this value so that we are actually delivering the value to the customer. We could create value by the experience in dealing with you. It could be by the result of using or delivering the product or service. Value must be created.
The customers don’t always comprehend exactly the value that is being delivered to them and accordingly an important part of any service strategy of a business is educating the clients of the value being delivered. Often time the customer may think of an aspect of the value but have not thought through every aspect of the value. Alternatively it may be that they have not quantified the real value being delivered. Never assume – educate your customers on the value being delivered.
The fourth aspect of convincing people that they must pay for value is also very much tied up with the education of the customers. Now remember that not all customers are going to want to pay full value. Those customers, you don’t want to deal with. We only want the good customers who are willing to pay for the value. There are plenty of these paying customers once they have been educated because these are the ones that we can earn a profit from and have a far more enjoyable business.
Finally, once we have understood the value equation, we then can determine the pricing strategy.
You can’t measure everything
“In mid-18th century London a mathematical prodigy called Jedediah Buxton was taken to see David Garrick perform Shakespeare’s Richard III at the Drury Lane theatre. When asked whether he had enjoyed the play, his reply was that it contained 12,445 words. His analysis did seem to miss some significant things. ”
This is the opening paragraph of speech given in September 2006 at the Annual Conference of the Australian Institute of Judicial Administration by New South Wales Chief Justice James Spigelman.
He then goes on to say “The purpose of my address is not to deny the beauty of numbers. Nor their utility. My purpose is to emphasis, as Jedediah Buxtons’s reaction manifested, the inability of numbers to always identify what matters.”
As the Chief Justice so aptly put numbers are not everything. So many businesses measure everything. Many accountants continue this with numerous measures focusing on everything that they can put a measure around. This focus is usually the traditional accounting focus and particularly orientated towards costs. But often many of these measures just create unnecessarily administration and do nothing to get to what matters.
What should be measured?
The Chief Justice was railing against the use of numbers to find some “quality indicator” of the Justice System. Unfortunately many businesses fall in the trap of measuring everything in the pursuit of a quality indicator.
A significant problem with the measures being using in business is that they are based on the traditional accounting practices. The accounting standards were developed in the industrial age when everything was focused on the efficiency of the factory. The assets were the machines, equipment etc. However we moved from this to the information or knowledge age where the assets are the people and the information that they have in their heads. However in the profit and loss statements the money spent on people is an expense.
Whilst the financial statements are often misunderstood they serve a purpose. The purpose of these statements is not to manage the business. The profit and loss statement is best said to be a history statement. Any measures that are based on aspects of the profit and loss statement are looking at history.
There is a place for some measures orientated on the financial statements or costs because it is imperative that costs are kept under control. A business will not achieve true success with only these measures in place. Success is defined by the customer / client. It is necessary to measure that which the customers views as important. We need to find the drivers of the customer behavior and measure those.
But remember not everything can be measured. How can we measure the lawyer / accountants ability (or lack of ability) to communicate. A criticism made of lawyers and accountants is that don’t return calls quickly, not speaking in layman’s terms. How can the lawyers / accountants professionalism be measured. These are judged not measured.
Thus we need to focus on measuring what matters and have measures that matter. These are measures aimed at what is important to customers / clients. There is still a lot of work to be done on designing effective measures that are not just focused on various elements of the profit and loss or balance sheet. It is necessary to have a change of mindset from the industrial age to the knowledge age. Nowhere presently on the balance sheet is the huge asset that the loyal committed clients are. Nowhere in the financial statements is any information about customers found eg repurchase rate, referral rate etc
With the right approach it is possible to design a quality indicator that will reflect what is important to customers. There are difficulties and it will take a fresh approach to measures. Some businesses have already devised interesting measures aimed at getting to what customers see as important.
One of these is Fedex with the SQI (service quality index) which came from the hierarchy of horrors (a list of things that upset their customers). From this they assigned importance to each item on horror and from this they then created an index. This index thus showed how often or how little they were upsetting customers. Since implementing this quality index they have taken the taken the ontime delivery from 95% to 99.7%.
Another company is Enterprise Rent a Car (USA) and their ESQi which is similar to Fedex but is from a simple customer survey. There are other successful companies who do not rely solely on the traditional accounting measures but are focused on the customer.
Be careful though. I am not recommending the plethora of customer satisfaction surveys. These abound and usually are useless. In short these don’t work because they ask to many questions, the wrong people respond, are used for marketing purposes and probably the most importantly are not linked directly to what matters.
It is possible to develop a quality indicator but not using traditional accounting measures. A fresh look at the business is necessary. What the customer values in your product or service must be ascertained. Once this is understood then we need to devise a measure around this.
In conclusion what are you measuring? Measure what matters and have measures that matter. Remember not everything can be measured.
Not all clients are good clients even in tough times.
In these times there is a massive temptation for some businesses to chase after all types of clients. Most service businesses feel the need to take on all potential clients when times are tougher. But this is wrong at the best of times but in a harder economic climate it can be the deathknell for a business.
The temptation is because it seems like all revenue is good revenue. If you couple this temptation with the urge to discount prices it will ensure trouble for business. Don’t sacrifice your long term brand for short term revenue.
Let me explain…
In a service business we can not be all things to all people. We must determine exactly what services we want to provide, to what specific client do we want to serve. Other clients than those we have specifically identified e not good clients becasue one or more of the following reasons:- less profit, more hassle, upset the existing systems. So in the tougher times the lure of the extra revenue is high but that will lead to having to deal with clients that the systems are not set up, dealing with low profit client, dealing with hger maintenance clients, having your team on a treadmill dealing with these marginal clients.
The worst possible outcome is that by taking on some of these marginal clients your service to the good clients is affected negatively to the point that you may lose some of these good clients.
So please remember that your long term brand (profit / business) is worth more than any short term revenue.
Focus is the key to longevity
I have just read a great story on Buffalo News of a law firm that believes in maintaining focus. Below is a quote from the article that is particularly relevant.
“Over the years, we have faced enormous challenges. We weren’t always a 200-year-old firm with a solid book of well-respected, well-regarded clients with a brand name that everyone knows in the marketplace,” said Gary Schober, CEO of Hodgson Russ LLP, Buffalo’s largest and oldest law firm, which this year is 191 years old. “We were fledgling at one time, just like every other business.”
Now, as the nation faces a severe recession and economic crisis not seen in more than 70 years, their current leaders have found that the same traits that got their companies through past trials are helping them survive the current downturn.
“We found if you narrow the things that you think are important and execute them consistently, then you can stay relevant [to your customers],” said Mark Czarnecki, president of M&T Bank Corp., which was founded in 1856 as Manufacturers & Traders Trust Co. by a handful of Buffalo business leaders. “That doesn’t mean you don’t change. But if you understand the things that are important to you, your customers and your employees, and you stay focused on them, you’re going to be moving in the right direction.”
The full story can be found at :
http://www.buffalonews.com/145/story/593706.html
I strongly recommend you to this article.
Customer Focus – there needs to be something in it for the customer
I have just read a line in a great book – Trust Based Selling by Charles Green. The line included the following words “…customer focus – must actually have something in it for the customer”. I could not agree more as it frustrates me as well to hear or read business people say that their business is focused on the customer when all they are saying is that they are working on the best way to sell more. Customer focus is delivering value to the customer. The customers interests must be considered first and foremost.
This issue has been particularly highlighted with the 2008 sharemarket collapse and the financial planning and advising industry. Have they always made decisions with the clients best interest in mind. Those who are commission based would have had a challenge in 2008. The argument of fees vs commission raises it head. Look at it from the clients viewpoint.
So in your business what is in it for the customer?
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