Most small business owners have goals. They are usually vague, like to make a good profit, or grow sales. They are rarely:
put down on paper and are in the owners head
objective and quantifiable
effectively shared with employees
established for each key employee
utilized in employees performance appraisals
utilized to hold employees accountable for results
A measurement is operational in nature. It quantifies and outcome or a result. Your balance sheet in of itself is not a measurement. Your percent return on investment (ROI) is a measurement. The specific percent return on investment you want to achieve is a goal.
The vast majority of small businesses do not effectively manage their business with operational measurements or goals. One of my retail clients kept track of the number of sales they made each day (a good operational measurement). When I asked how many sales a day they wanted to achieve (their goal), they had no idea.
To be effective, a business must identify the key result areas they need to measure. For example, a retail store, among other things, needs to track its daily sales. A manufacturing company needs to track, among other things, its daily production.
This data needs to be graphed and trended in order to determine the direction in which it is moving. A measurement, without a goal, is not very useful. If for example, a retail shop sold $2 thousand in a day. The owner would know whether that was more of less than what they have been selling. Without a goal, however, the owner would not know whether that is what they need to sell.
First of all, it is critical to be measuring the right stuff. More importantly, they didn’t have effective action plans to improve the results of the things they weren’t measuring. The moral of the story here is that you don’t know what you don’t know! If you’re not measuring the right stuff, you can bet that it isn’t improving!
Spend time figuring out what needs to be measured. Some of the common measurements that need to be measured and are not necessarily always focused on are:
manufacturing cost per unit of output
waste (per job for custom businesses, per SKU for standard products)
sales dollars versus budget
margin percents by business segment or customer or product line or SKU
% R.O.S. or R.O.I. by business segment, product line or SKU
Some of the more subtle, but significant measurements that need to be focused on are:
On time deliveries
- I took over a custom products business doing quite well, or so they thought. They never measured on time deliveries. They were shocked to find out that 1/3 of their shipments were habitually late.
new business development
- Even though most failing business need more sales, not one I took over formally tracked new business or had targets for number of new customers, dollar amount targets for new business, number of appointments per week, etc.
- how customers rate our service, things like flexibility, responsiveness, and reliability versus competitors
- how professional and helpful our sales reps are versus competition
The key here is to step back and ask yourself what things we have to do really well in order to be successful. Some are not obvious. This is where a brainstorming session with your leadership team can really help. Once you decide what they are, measure the heck out of them!
So many small business owners tell their employees to do a “good job”. What normally happens is that the employee’s perception of what constitutes a good job and the owner’s expectations are not on the same page. In short, the employee must know in detail what a good job looks like.
The only effective way to accomplish this is by giving the employee objective, quantifiable, measurable goals to achieve. If the employee knows they need to sell X
amount of dollars or produce X amount of production, then they have a very good idea of what a “good job” looks like. Note that not all goals should be weighted the same. Some goals are more important than others. By differentiating the weighting of goals, the owner is telling his employee what goals are the most important to achieve. Make sure you differentiate the weighting of your employee’s goals. This is the foundation of achieving accountability.
You need measurements of your key operating processes
You need to know what a measurement is
You must have quantitative goals for your key measurements
Without measurements and goals, you cannot effectively hold people accountable for results