Wednesday, August 10, 2005

T.I.P.S. 101** Scoreboard

By Gil C. Schmidt

I love sports. And like many sports fans, I love sports statistics. Although numbers can never convey the myriad thrills and action of the actual sport, they serve as benchmarks, shorthand descriptions that frame a player or team in context.

For example, a baseball player with a batting average of .325 is considered quite good. A football team that averages 400 yards of offense per game is very good, as well as a basketball team that scores 105 points a game.

But by themselves, statistics give you only part of the picture. In the examples above, a .325 average in a league that averages .330 is sub-par; a football team that gains 400 yards may be a loser if it allows the opponent an average of 500 yards and a basketball team scoring 105 points a night might just break even if it allows the other team to score 105, too. Statistics without context are not enough.

We often make the same contextual mistake with employees, especially those in service positions. Because service is often considered “the absence of negatives”—no complaints, no errors, no returns, etc.—the numbers created are taken out of context. I know of businesses that never received complaints and had employees with “zero mistakes,” but had to close anyway.

And by focusing numbers on service personnel, such as salespeople, without an overall set of numbers to measure the entire company puts a huge burden on those thus measured. So when times get tough, people look at the sales numbers and criticize that department, when in fact, the entire company is involved in the downturn, but we choose to focus only on a few numbers.

So how do we get a “statistical overview” for a business? The method I suggest has to be generic, but with a little imagination and a good grasp of your business procedures, you can come up with your own simple to understand and use “Scoreboard”:

1) Start with the basics: income, expenses, cash flow and profits. You have to know what’s happening, at least in general terms, with the money that moves through your business. This exercise alone could give you a snapshot of your business that is very different from what you think your business is.
2) Link processes to each area listed in #1. A process is a series of tasks that lead to a specific result. Identify processes that take different paths to achieve a result. For example, in a flower shop, selling flowers for weddings is a separate process from selling flower arrangements and fruit baskets. What you are doing here is determining what you do that leads to income and profits and how different each process is within the business.
3) Identify key elements within each process. For the flower shop, key elements for wedding flowers could be seasonality, quantity and delivery logistics. Note that key elements are often groups of tasks and almost always “hidden” from the customer in the sense that s/he never sees the work involved, only the result. One should focus on results (like wins in sports), but also keep on eye on the steps needed to achieve those results (like hits, yards gained and points.)
4) Now link key elements to income, expenses, cash flow and profits. Don’t worry about overlap: focus instead on the impact each key element has on these aspects of your business. In the flower shop example, seasonality is very important (June and December are big wedding months), while delivery logistics, though important, have less of an overall impact. In your case, determine the impact of key elements according to your vision of the business.
5) Final step: Share the analysis with your employees and let them determine how to measure success within their jobs. (Surprised you, didn’t I?) Here’s the reason: Employees need to know not only how they are being measured, but why (as related to the company’s vision.) The more they know of the why, the easier it is for them to do their job well. And you’ll be surprised at how much your employees will contribute to this process.

Take the time to create this “Scoreboard” for your company. Success is built on consistency and knowing how well one is doing every day is a great step to take. Don’t delay: begin today.


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