Why risk the health of your business by measuring the wrong things?

Monday 07 November 2016

If your business lost major money for three months, one after the other, you’d be stressed. You’d be stressed enough to do something about it. Making a loss prompts a strong emotional reaction. And a strong enough emotional reaction results in corrective action, as it should.

So a key measure in your business – a loss – gets you to do something to improve your b...

In a nutshell: use customer-focused, healthy heartfelt business measures and you’ll take action sooner. Take action sooner and you’ll avoid problems leading to losses in your business. Like most business owners and managers, you are familiar with KPIs Performance Indicators. Most business owners and managers measure what they think is right rather than measure what matters most.

Use cleverer KPIs…

In 1994 Continental Airlines was failing miserably. In the previous decade it had filed for bankruptcy twice. But then Gordon Bethune took over. Bethune simply got every employee focused on three KPIs. Together they delivered a remarkable comeback. Continental became one of the most profitable airlines in the sky in the late 1990’s. In 1994 they had a complex set of measures for their business, mostly focused on cost reduction. So Bethune theatrically burned the employee manual in their car park. The rules had changed. The game changed because Bethune changed the KPIs. He dumped most measures and got every employee focused on three KPIs:

• Less lost luggage

• Fewer complaints

• More on-time arrival

Notice how these three company KPIs matter to the airline’s customers. Profits soared because they focused on KPIs that made a dramatic difference to their customers. Bethune managed to get all Continental employees taking regular action to improve these three customer-focused KPIs.

Less lost luggage – a quality KPI

Fewer complaints – a customer satisfaction KPI

On time arrival – a speed of delivery KPI.

What’s your equivalent to Bethune’s three customer-focused KPIs?

Critical question: what happens to your business results when you start to measure the numbers that matter most to your customers?

Worthwhile answer: you start to predict the future success of your business. If and when you track, measure and, most importantly, act on KPIs that matter to your customers, you stack the odds in favour of your success. Just like Continental Airlines did. They went from worst to first in their industry– what could you achieve?

Canary-like KPIs…

You’ll know why miners used to take canaries down the mine with them? To predict their future survival! Should a canary stop singing and fall off their little perch, the miners knew the air quality was dangerous? But here’s what matters most about this… Just 6 minutes! Or 13 if they were lucky… The emergency breathing-masks the miners used had between six and thirteen minutes of air. So when a canary fell off its perch, miners were fast to put on their breathing masks. Then they legged it, they got out of there fast! Here’s the rub. It’s one thing to have a great health predictor – a canary – it’s another to take action, and take action fast. You want your business to succeed… So start measuring what matters to your customers and your ‘Key Performance Indicators’ become ‘Key Predictive Indicators’. Your KPIs become your business canary! Act fast when these ‘Key Predictive Indicators’ change and your survival is more than likely. Better still, take action because of what your ‘Key Predictive Indicators’ tell you and your business success is more likely.

 Simplicity seals the deal

Continental Airlines started with a long complex set of KPIs. Then Bethune simplified this to three easy-to-understand, customer-focused KPIs. When you work out a handful of KPIs that work for your customers, you too can dramatically improve your business results.

 Get it all on one page…

Long and complex or short and simple? Research by the software company Exact suggests that businesses with a business plan are consistently more profitable (70%) than those without a business plan (52%). But business plans often feel like a waste of time to business owners. Especially when the resulting business plan ends up gathering dust in a drawer somewhere! But what about a short, simple business plan on one page? One page focused on a handful of customer-facing KPIs. One page of KPIs you refer to often because it predicts your future success and steers the actions you take. One page of KPIs you can share with your people so you’re all taking action to improve your results.

Time to disagree

“Business is more complex than reducing what we do to handful of numbers.” It is all too easy to be tempted to focus on accounting numbers. And yet, not one of the three Continental Airlines KPIs would show up in a set of accounts! This is the point of this bitesize business breakthrough. It’s like Ron Baker says in his masterful book on KPIs: “…ultimately the success of any business is a result of loyal customers who return.” As Baker’s book title suggests when you ‘Measure What Matters to Customers’ you measure the few things that can steer you towards your future success. In another landmark study on KPIs – ‘The Balanced Scorecard’ by Kaplan and Norton – the authors argue for a balanced set of KPIs in your business.

Measure the KPIs that matter to your customers AS WELL AS your cost, sales and marketing KPIs. But keep a ‘business one-page plan’ approach. Long and complex is to be avoided – keep it simple and short, on one page. NB If you want any help on nailing down your business KPIs in this way please get in touch.

“It’s almost impossible to get our people to take KPIs seriously.”

You could argue it was easier to get buy-into new KPIs at Continental Airlines because they’d nearly gone bust twice, so fear played a role. You could also argue having a new CEO helped too. However, the logic, simplicity and common sense of the three KPIs used – less lost luggage, fewer customer complaints, more on-time arrivals – did the following…

“…help pilots, flight crews, baggage handlers, or food service caterers fulfil the goals and objectives of the airline on an hour by hour timeline.”

- Ron Baker, ‘Measure What Matters to Customers ‘Involve your team in a discussion about Key Predictive Indicators – the numbers that matter to your customers – and you’ll stand a good chance of getting their support.

Like Michael Basch (co-founder of FedEx) suggests:

“People don’t mind change. They mind being changed.”

“Some things are hard to measure. Wouldn’t we better off measuring the easier stuff?”

 Yes, it is difficult to get an exact measure of customer satisfaction. And it is easy to get the exact cost of for example fuel consumption. But as Ron Baker suggests: “Exact measurements of the wrong things can drive out good judgements of the right things.” If you like the idea of greater certainty over your future business success, then you’ll be willing to do the work of measuring the ‘less exact’ customer-focused KPIs.

Tell me more…

If you need further convincing about the power of measuring what matters to your customers, check out Ron Baker’s power-packed book. It’s well-worth your attention if you are committed to growing your business.

 Here’s your bitesize, customer-facing, business one-page plan KPI checklist. This will help you identify your Key Predictive Indicators and put them to work in your business.

Start by working with your people: your people are the ones who do the work that delivers you satisfied or delighted customers. They must be involved in deciding which KPIs will best serve your customers, and serve your business too. By getting your people involved you are more likely to have them support your efforts and make it happen.

Here’s a proven solution for you: measure what matters to your customers and the health of your business will be safe and sound.

Here’s how you create a Business One Page Plan of Key Predictive Indicators for your business:

1. Get clear on the goals for your business. Continental Airlines goal was to climb away from being the worst ranked airline in 1994 and avoid bankruptcy. Their goals changed as they made progress but they used clear SMART goals. Find out how you can create SMART goals for your business in the Business Bitesize support tools – you’ll get to these from our Business Bitesize library page (see the box below).

2. Work out, with your people, your customer-facing predictors What’s your equivalent of Less Lost Luggage? A quality KPI. What’s your equivalent of On Time Arrival? A speed of delivery KPI. And what about a customer care KPI? And you might opt for tracking an overall customer satisfaction KPI. For more guidance on these please see the Business Bitesize support tools.

3. Work out your sales and marketing predictors.The growth of your business means you must generate enquiries from new prospective clients (marketing). What are your best marketing KPIs? You must also convert these enquiries to paying customers (sales). Which KPIs show you how well your business does this?

4. Work out your cost and cash predictors.You are likely to have one, two or three costs that dominate the money you spend to run your business. It could be salaries or staff turnover. It could be fuel or other raw materials. It could be capital investment costs. What are yours? And because cash is king in every business you’ll want to know every day, every week or every month how well your cash collection is working. What KPIs show you this?

5. Add in your key financials. You know these already but it makes sense to show these on your business one page plan too. But it’s good to have confirmation on the hard facts about the three numbers that tell you how well you did historically – turnover, cash in bank and profitability.

6. Track your KPIs every month (at least) and take action to improve them. Predictive Measurement is not enough. Take action to improve your numbers.