It’s difficult to manage something that you can’t measure. After all, how can your business achieve its goals if you haven’t defined the criteria necessary to success? Not enough small business owners implement measurable outcomes to determine if and when they’ve reached their goals. Additionally, many businesses measure too many disparate items not associated with strategies, only to muddy the waters and make it more difficult to define success.
Implementing a performance measurement system is not overly complicated, and can be a catalyst for much positive change leading to a better business overall. Business owners need to decide what the measurements should be and how they will be used in a meaningful and productive way. Consider the following guidelines when instituting a performance measurement system:
If your business has a strategic plan, review it. Otherwise, list two to five macro-level goals for major operations, such as sales, design, production, human resources, information systems and customer service. These goals should be as quantifiable as possible. A business might strive to reduce production time by 10 percent and increase sales revenue by 15 percent, for example. Other goals might be less specific, such as targeting marketing efforts among a certain niche of customers, or working to align efforts to push one particular product.
The process might seem overwhelming at first, but a simple approach can help create an executable plan. Brainstorming either alone or with employees, is a great method to quickly hone in on significant matters to the company and locate key areas to generate goals.
Revisiting the old
Now that you’ve identified goals, review existing measures to ensure they fit the stated objectives. Do you have a primary objective of boosting sales in one particular area, but only track total sales each month, for example? Find the gaps like this, between what is already being measured and what else needs be, to make adjustments and initiate change. Measurements need to align in proportion with your goals.
Establishing new measures
After reviewing existing measures, you can create new measures to hone in on what specifically matters. Most companies continue using half to three-quarters of their current measurements and only have to make minor adjustments, so this step is not as big of a job as it seems. If sales goals are to increase revenue and increase buyer retention, then track customer turnover and sales revenue. Likewise, if you’re trying to cut production costs then monitor items like supply costs and shipping service fees.
Developing new use
With new measurements in place, it is also critical to create a strategy to execute if your company falls short. How do you find the root of the issue, and correct it to get back on the right path? Have a plan on not just implementing the new measurements, but what comes after, too.
Creating a functioning system
It’s crucial that the system is designed so that key measurements are performed as often as needed. Determine how the measurements will be reported and who needs the data. What information should be collected, how will it be collected, and how often? Who does the work? Specific guidelines will keep things on track, but remember to be flexible in the initial stages of implementing the measurements until you find the sweet spot for everything to work in tandem.
Execution of new measurements
Once you and the team are comfortable and agree that the new system it’s achieving its intended purpose, permanently add it to your management approach. There’s no sense in collecting data if the information is never used. To be effective, employees need to have accountability for their responsibilities. The employees should understand the performance results and have clear knowledge of your expectations.
Over time, the company’s goals and strategies will evolve, as will the measurement system. One of the most critical components of creating or modifying a measurement system — whether today or a decade from now — is ensuring that it’s driven by the business’s strategic plan and is designed to encourage and create change in the direction the business wants to move.