If you were allowed to measure only 8 aspects of your business...
Recently someone who I was discussing metrics with posed a thought provoking question, “If you could only have a few metrics to manage and monitor your business, which ones would you choose?" After thinking long and hard, here are my must-have key performance indicators.
1. Financial Standing: EBITDA
Earnings before Interest, Taxes, Depreciation and Amortization provides an approximate measure of the company’s cash-flow based on the income statement. This is a standard financial measure that is tracked by most companies and investors.
2. Customer Satisfaction Index
Customers are at the heart of every business (or they should be). Therefore, it is essential to continually check that customers are satisfied with products and services and that they are happy with the experience of dealing with us. The scope of Customer Satisfaction will, by necessity, embrace many different facets of interaction with the business so these individual measures would roll up to a composite index (with a facility to drill up and down).
3. Cultural Satisfaction Index
This measure is subtle and culture can be difficult to measure. Its purpose is to measure stakeholder1 satisfaction with the company culture.
Traditionally, this type of survey was limited to Employees. Today, in an environment where outsourcing is extensive and companies are nearly as dependent on or sometimes even more dependent on external parties as employees, extending satisfaction surveys beyond customers and employees makes good business sense.
What does Cultural Satisfaction mean?
1. Cultural Satisfaction checks adherence to the organisation’s stated values e.g. integrity, easy to do business with, fair, equal opportunity employer, inclusive, invests in its people, etc. as perceived by the stakeholder (See Q.26 on our FAQs) and is often measured by the use of survey tools and facilitated workshops.
2. The state of an organisation’s culture is intrinsically linked to leadership within the organisation and measuring it provides independent data to show whether Management and Employees “talk the talk” or “walk the walk”.
Again, Cultural Satisfaction will, by necessity, embrace many different facets of interaction with the business so these individual measures would roll up to a composite index (with a facility to drill up and down).
4. Competitiveness: Market Share
Market Share is the percentage of an industry or market's total sales, earned by a particular company over a specified time period. Market shares can be measured based on value or volume. Value market share is based on the total share of a company out of total segment sales. Volumes refer to the actual numbers of units that a company sells out of total units sold in the market. I would want to track both share and volume.
5. The Learning Organisation: Number of Implemented suggestions and innovations
Whilst success and longevity is not guaranteed to any business, an organisation that is learning is better prepared for change as it continually invests in its future: by implementing improvements to products, services and internal efficiencies, and by designing and introducing new products and services.
Suggestions may arrive through many different channels: via employee suggestion programmes, via voice of the customer initiatives, social-media monitoring, supplier introduced improvements, or by soliciting contributions from a large group of people through structured initiatives such as Crowdsourcing.
A good indicator of whether the organisation is learning, or not, is to track the number of suggestions, which indicates the level of engagement, and the number of implemented suggestions which indicates quality of suggestions.
6. Internal Efficiency and Effectiveness: Business Process Maturity, Cost of Quality, Customer Satisfaction
Together, these measures provide an indicator of the efficiency and effectiveness of the organisation's operations. Including Customer satisfaction in this set of measures may seem unusual but it provides a useful independent cross-check of internal results. Clearly, if we think we are great and the customer doesn’t agree, further investigation is needed.
Business Process Capability Maturity provides a benchmark as to the organisation's current business process maturity on a scale of 1 to 5, with level 1 having few, if any, standardised business processes and level 5 being standardised and optimised to achieve world-class performance.
Cost of Quality is composed of the costs of Poor Quality and the costs of Good Quality.
Cost of Poor Quality (CoPQ) measures the cost of internal failure costs and external failure costs (IF+EF). This arises from a failure to meet requirements e.g. rework, re-design, re-servicing, product recalls etc.
Cost of Good Quality measures the cost of Appraisal cost and Preventive Cost (AC+PC). Essentially both of these costs are associated with avoiding internal and external failures and include activities such as training, calibrating, prototyping, pre-inspection etc.
Whilst challenging to track and place a value on some of these costs, the benefits of doing so are very worthwhile. Tracking Cost of Quality provides a focus on the bottom line and also helps to shift responsibility for quality to where it rightly belongs i.e. operational managers.
7. Environmental P & L
Invented by PUMA, the Environmental P & L measures the true costs of a business’s impacts on nature by placing a monetary value on them along the entire value chain. (See Q.25 on our FAQs for an explanation of Environmental Profit and Loss)
8. Enterprise Risk and Opportunity Profile
Business is inherently risky and risks need to be identified and managed so they don’t become issues that impact on the successful operation of the business. On the other hand, new business opportunities are emerging all the time. Therefore, one of the activities of senior management is to continually scan the environment – internally and externally, to identify existing and emerging risks and opportunities. Once identified, they are assigned a score based on Probability x Impact, prioritised, and managed.
This list puts the “Key” back into Key Performance Indicators and the “Balance” back into Balanced Scorecard. If the reported results were within pre-agreed targets, I think I’d sleep well at night.