Sunday, July 31, 2011

Measure What You Expect!!

“Common sense is the collection of prejudices acquired by age eighteen.” ~Albert Einstein

Being an effective leader requires that you measure your expectations, otherwise there will be no way of evaluating your success or that of your business. In addition, things that are not measured typically get relegated to a low priority by staff. Finally, if you are not measuring all aspects of your business, you can make grievous errors in your decision-making, which can be so costly.

One way to measure outcomes or expectations is by using profit centers. Identifying profit centers helps you evaluate how effective each part of your organization is.

We were helping an aircraft servicing company develop a strategic plan. During these planning sessions, we discovered that 50 percent of the firm’s profits came from airplane sales, yet they had no one assigned to this activity full time.
When they saw the hard numbers, they redistributed their personnel to better support their sales efforts. Once they had employees devoted to selling, their sales soared. If they had profit centers or some other method of measurement in place, they could have acted on this much earlier.

For another example, a service company was struggling with sales that were falling at a rate of 15 percent a year. They just did not know how to stop the red ink from flowing. Part of the problem was that they had gotten so used to business coming to them they just did not know how to respond when this changed.

During a strategic planning session with the staff, it became apparent that they were drowning in red ink. Sessions also showed that they were currently devoting less than 1 percent of their total revenue to sales. Once they were able to see how the lack of support for their sales efforts was sinking their business, they decided to implement a very aggressive sales program.

One caveat with measurement is that you must make sure you are measuring the right thing. Quantifying operations is so important, but they must be tied to the mission of the organization. For instance, one firm spent so much time trying to quantify its bad debts that they missed the important fact that bad debts would naturally increase as their sales did. By focusing only on minimizing bad debts, they were greatly restricting sales by making credit standards too tight.

The Florida Sterling Council, with which I serve as a member of the board, offers great training on measurement and process improvement. I encourage you to look into these resources.

Now go out and make sure that you are measuring as much as you can without getting too deep in the details. The more you measure the effectiveness of activities congruent with your mission, the more successful your organization will be.

You can do this.

No comments:

Post a Comment