Measures at strategic and operational levels
Companies that are really successful ensure that they develop clear and concise descriptions of outcomes and measures at three levels:
- Mission (strategic) - how should your company be and function five years from now? Think big. Describe this as an outcome and attach measures which contain clear targets. Many Mission statements are so fuzzy as to be meaningless. See strategic plan for details. In fact, each team member could develop a personal mission statement. What are you personally responsible for achieving? Let you own mission, aligned to the company's mission, guide you instead of your manager or the MD. See this post on my blog... self-management
- Vision (strategic) - what tangible outcomes need to be achieved in the first six months to a year? Define clear measures which contain targets in their descriptions. A Strategy Canvas, a BSC Strategy Map supported by three WIGs (Wildly Important Goals) will show exactly what need to be realized. The entire team has to know what the WIG outcomes have to be.
- Operational Balanced Scorecard objectives - The three WIGs and their 10 or so linked objectives indicate what outcomes you wish to achieve at the operational level. Again, formulate measures in a tangible manner. They are mini outcomes on the way to achieving their objectives.
Ensure that you have systems and procedures of verification in place e.g. monthly Balanced Scorecards, budgets, financial statements, etc., described under the next heading.
MDs should take care to ensure that your assumptions are based on solid data about current and possible PESTEL trends (political, economic, social, technological, environmental and legal) within your country and industry. Build global, country and industry scenarios. Revisit your company's scenario gameboard and your Strategy Canvas from time to time and update your PESTEL reading.
Know whether you present initiatives are building your business. Are they aligned to your mission and vision?
You should have three financial statements at management meetings:
- An Income Statement re gross sales minus cost of goods to arrive at a gross profit. This statement also shows the operating expenses. You would want to know net income before taxes and net profit after taxes. This statement should be kept up to date each month.
- A Cash-Flow Projection which is all about how much money you have in the bank. Plan for the lag time between buying stock or materials, making sales, and actually receiving cash. This delay presents a tricky problem for many companies - who resort to expensive lines of credit to manage their cash-flow needs.
- Data concerning sales team or Business Unit performance: A sales team or a BU should have an analysis of the income generated by each BU and each team member. Prepare a bar chart display. Visible displays are motivating.
Free cash flow
When analyzing cash flow, identify the proportion of cash that is "free" cash flow. This means cash available for use by your company rather than already dedicated to a specific use.
Your cash-flow statement is very important. Many young companies with excellent products go under as incoming revenues do not cover their monthly overheads and especially not their debt repayments.
Balanced Scorecard measures
We can assist you in building a measurement framework that speaks to you. The framework will contain a limited number of main measures under each of the four perspectives of the Balanced Scorecard. They become key success indicators. A few examples from a hundred or more available measures:
- Revenue/Turnover Growth
- Profit Analysis
- Cash Flow Analysis - cash inflow vs. cash outflow
- Client Satisfaction Questionnaires
- Client/Customer delivery - lapsed time from receipt of client/customer order to the delivery of the product or service
- Supplier satisfaction norms - how do they rate you and you them?
- Major objectives/mileposts/strategic themes achieved vs. planned
- Projects achieved vs. projects accepted
- Number of systems fine tuned vs. existing systems
- Employee improvement suggestions per employee vs implemented
- Employee productivity
- Average sales turnover per employee
- Average profit per employee
- Value added per employee
Learning and Growth
- Mission, vision and core values awareness
- Employees aligned to corporate objectives
- Percent of employees who fully understand the organisation's mission and vision
- Percent of employees whose actions are consistent with the organisation's mission and vision
- Employee satisfaction - measuring conditions and climate in the work place
- Corporate culture survey: autocratic vs participative practices
- Corporate culture spend per employee
Measures - simple and understandable
"If it is difficult to understand or visualize what the data implies, then people are less likely to relate to and apply the information." (Prof Andy Neely and colleagues - see the box below.) Use any form of display that speaks to you. Create "dashboards" which display results on noticeboards. It is important that all team members can see progress made in relation to the objectives they are pursuing. Broad communication is vital. Use graphs, pie charts and pictures - and mind maps. Make results visible and provide comparisons e.g. this month against previous months.
Select measures that suit you. Start with the measures that you are already using informally and hone them. Add a few that will provide the information needed to track how your business is doing. Are you on track in relation to your strategy? What should be measured to indicate movement forward or a lack thereof? These measurements motivate new action.
A measure for every Balanced Scorecard objective
How would you as MD, as the person responsible for the growth of your company, know if there has been progress? How would progress be accurately reported at the weekly and monthly meetings? Many companies are weak at measuring and in holding people accountable. How would you rate your company in holding people accountable?
ABPLAN could assist you in defining a limited number of highly relevant measures.
For an authoritative publication on performance measurement see "The Performance Prism - The Scorecard for Measuring and Managing Business Success" by Andy Neely, Chris Adams & Mike Kennerley, under worth reading.
Last modified: 22-12-2011