Management guru, Peter Drucker famously said “what gets measured gets managed.” I’m a great fan of managing your business by key numbers. It gave me a clear pulse of the business and gave me clarity on what I needed to focus on before it’s too late. The challenge is that many times entrepreneurs don’t measure these important numbers or they end up tracking the wrong numbers. In this blog I’d like to share four key learnings in this matter:
- Leading vs. lagging indicators – My biggest “AHA” moment came when I learned this distinction. I will give you a simple example of weight to illustrate the point.If you want to manage your weight then getting on the weighing scale will only tell you the current situation. No change will happen by getting on the weighing scale daily. This is a lagging indicator. It is the result of all your previous decisions and actions.If you want to change your weight then you need to focus on monitoring and measuring 2 key numbers that can proactively help the end result of managing your weight. These would be considered leading indicators. Take for example you can focus on:(a) your calorie intake – you could limit your daily intake to below 2000 calories per day.
(b) amount of time you exercise in a week – you could decide to jog for half an hour three times a week.You could set goals here on the amount of calories you burn. It’s easy to measure these days with various watches in the market.
Both are measurable and both are actions that you can proactively take in the future. If you focus on taking actions on these two indicators daily or weekly, then over time they will impact your weight (lagging indicator).
For example in a business context, one of your goals this quarter could be to generate 1 crore of new revenue. This is the Lag measure.
The lead measures or Income Producing Activities (IPA’s) that can impact the business generation are:
(i) Number of Qualified New Prospects that you have contacted.
(ii) Number of existing customers you have met or called today to upsell.
(iii) Number of people on your database or social media channels.
In one of my earlier blogs I shared a slidedeck on how to get teams to execute key goals in more detail. Have a look at how to lead and manage winning teams.
- Have a visible scoreboard – Having a weekly score board of these 3 measures and focussing activities to move these 3 will start to move the lag indicator in time.Let you and your team plan daily action that move your leading indicators. Keep things simple. Don’t have too many numbers that you track. It is a simple strategy of do, measure and adjust.I used to get my team to update our scoreboard daily and it was visible to not only my staff and I, but also to visitors who came to my office (see photo at the beginning of this blog).
- Let each department have their own indicators – The executive team can have its own set of leading indicators and so should each department. Begin with the end in mind. What are the key goals of the company in the next year and what is the Big Hairy Audacious Goal? Choose lag and leading indicators that help you make progress on these goals. Have one key goal and initiative for the quarter that every team focuses on. I suggest you conduct a strategy meeting at the beginning of each quarter with the question: What would we have to accomplish in the next three months to meet our 1-year vision?
This is where you set with your team you “Wildly Important Goal” – projects or massive items with a clear target that takes several months to complete.
- Measure your revenue & profit – There is a wonderful saying that sums it all up for me: “Revenue is vanity and profit is sanity.” While some get fixated by revenues we need to keep our eye on the bottom line. It is profit that matters and will determine the success of your business.I would suggest that you measure profit per employee and look to maximise this. Profits and positive cashflow allow you to invest in better people, research and development infrastructure, training and better customer and employee confidence.
Leave a comment below with what key numbers do you measure on a regular basis?