6 Key Areas of Business Advice in 21st Century Part Five – What You Can Measure You Can Manage


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We are committed to helping each of our clients succeed. For this reason our employees attend specialized classes and conferences to keep up-to-date with the latest audit, accounting, and tax requirements.

We believe that 80% of straightforward, no nonsense, strategic advice can be summed up in just 6 Key Areas of Business Advice.

In Part 5 of this 6 part series of blogs – we are concentrating on driving the right behavior inside your business and consequently driving profits. Remember – what you can measure you can manage.

We are talking about creating “elastic bands” (or “rubber bands”) inside your business.  These are the processes that drive consistent and profitable team behavior. The key component of those “elastic bands” are key performance indicators (KPIs) – the measurements used by a business to ensure that a particular process has been followed / is working properly.

Ultimately those key measurements should lead the business owner towards being able to evaluate the business (or individual) performance. That means they need to agree to the measurable “definitions of success”.

Let’s look more carefully at “elastic bands” using the illustration below.

Most businesses owners measure things (often for long forgotten historical reasons). However, they often don’t appreciate that whatever they measure will influence team behavior (both for good or bad consequences).  This is the flip side of “what you measure you can manage”.

In the example illustrated, the business has, for many years, measured activities “X” and “Y”. The team understands that these activities are measured (by the business owner) – and they recognize they must be “important” to the business. They don’t question them – they just “do” them automatically.

Consequently, activity “X” and activity “Y” strongly influence team behavior. They create a “line of tension” (just like an “elastic band”). They shape team behavior.

Now – as an example – let’s say the business owner decides to also concentrate on activity “Z” (again shown on the illustration). Unlike “X” or “Y” activity “Z” is not measured – because it’s something considered to be “too difficult to measure” (e.g. “establish customer needs” before we do anything else).

What will typically happen inside the business is that – while the business owner is watching the team perform “Z” – the team will do activity “Z”. They stretch the line of tension into a “new shape” to include activity “Z” (see red dotted line in illustration).

However, sooner or later the business owner stops looking (their attention is diverted). Unless activity “Z” is measured properly (as a KPI) what normally happens is that team behavior will revert to the norm (the “X” – “Y” line of tension) and “Z” will not happen (consistently or properly).

To overcome this, business owners must decide what activities really matter inside their business (their definitions of success). They need to be clear about what activities team members should be concentrating on – and find a way to measure them as a KPI – regardless of the difficulty. If the activity matters the business owner must find a way to measure it.

In this way business owners create new “elastic bands” that will dictate the profitable or appropriate behavior they want. Perhaps activities “X” and “Y” are no longer relevant to the way we do business today? Perhaps the business should be measuring something completely different, for example,  “A” – “G” in the illustration below.

In this case “A” through “G” are the business KPIs. These measurements point the team in the right direction – towards their definitions of success.  In this case – activities “A” – “G” help the business owner point the team towards:

  • Follow the standard process
  • Generate revenues
  • Delight the customer

Also the business owner is reinforcing the measurement with a bonus reward.

Business owners need to really think about the existing “elastic bands” inside their business. They need to be clear about their definitions of success and use the right KPIs to point the team in the right direction – and reward performance appropriately.

Are you following the guiding principles of what you can measure you can manage? It’s a key question if you want to drive the right behavior and business profits – and will dramatically increase your chances of Maximizing Business Potential.

 

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