Four Questions to Improve Your Business – Part 3
4 Questions to Improve Your Business is a 4-part series for business owners. Super short read. Here’s Question Three!
What is Your Scorecard?
Your business needs to run on “one version of the truth”. Your Scorecard (or Key Performance Indicators – KPIs) tell your team what success looks like.
Without a Scorecard, everyone can (and will) work based on what they believe is best, and not in concert with each other. Do you hear things like:
“I got the order; I can’t help it that production is behind schedule”
“These orders at small margins are terrible. Where did that pricing come from? That customer doesn’t even pay on time”
If you do – your team isn’t working with the same facts.
The Scorecard gets information into the hands of middle management and line employees that are actually doing the work. Properly set, the Scorecard leaves upper management time to review and manage the outliers. Your Scorecards should be predictive, and they will not start out precise. If you wait for it to be prefect, you won’t start. I worked with a controller that would only do costing once a year because “it takes 6 weeks to get labor and burden rates down to the penny”. The irony is that the major components of their cost, material and lot size deviations from plan (which were out of the company’s control) significantly impacted those rates within a few months, and the company had to wait until next year to get them “right” again. A more flexible model would have probably worked better.
Your revenue process can be measured too. If you don’t have one, create a Sales funnel, or a timeline of sales activities from prospecting to cash collection. Then document your current results, calls per day, sales dollars per call, etc. Track key behaviors like the number of outbound cold calls and track the performance of all your people. Determine what high performers do well and train the rest of your team to do the same. The Sales Funnel will help you monitor your sales process and drive key behaviors to increase revenue. Like the waiter asking, “would you like fries with your sandwich?”
Examples of simple KPI’s are readily available – Remember, timely information is more important than absolutely precise information as long as it is consistent. In one example a GM discovered that the plant production hours were down by looking on his daily scorecard. When the GM investigated the cause of the drop (a broken machine part), he expedited the part, paying higher freight, but avoiding 3 days of lost production (saving $6K) by getting the part faster than the maintenance department did. Know your costs – granular information is essential if you can get it. It will tell you which products and customers make you the most money.
Simplify your scorecard where you can and change ownership of processes to lower level employees. Drive for consistent incremental change, aka continuous improvement. Never underestimate the power of small incremental improvements. If your company has 100 employees and they each save $0.25 per hour that saves over $52K per year – EVERY year going forward!