10Jul

The ability to simplify means to eliminate the unnecessary so that the necessary may speak ~ Hans Hofmann (1880 –1966)

  • Data Availability today – Infinite possibilities
  • Sources of Data – Myriad
  • Reports and Dashboards – Every possible permutation and combination of detail
  • Results from Data Reporting – Further and Further away from Outcome based Decision Making

Tracking and making sense of data to arrive at a meaningful conclusion and an action plan is not exactly an easy job. But then, running a business successfully was never supposed to be easy. This week’s post is focused on performance metrics that act as leading indicators and as pointers to changes needed in strategic direction specially when monitored or tracked over a period of time.

We tend to focus on those things which are easy to measure, simply because they’re easy to measure – metrics based on revenue and margins for example. Performance targets are usually set on these metrics and they are met or exceeded by hook or crook (I have always believed in the maxim – torture data enough and you can get it to admit almost anything). And if they are not achieved, it is often too late at that stage for corrective measures.

This is where it becomes very important for business operations to keep an eagle’s eye on a few key metrics that can give the pulse of the business to allow for course corrections. Here are five that I have seen serve the purpose very well in the services business:

Key Metric #1 – Customer Satisfaction Score: There are many metrics that can be used to measure this – VOC (Voice Of Customer), CSAT (Customer satisfaction), NPS (Net Promoter Score) etc. It is important to measure customer satisfaction for every function and every service of an organization and to do it for both internal and external customers over a period of time. Apart from the primary objective of knowing how well the organization/function is serving its customers, this score and its trending over time helps in identifying the functions that need the most attention. I have found this useful particularly in zooming in on process gaps and lapses and bureaucracy within the organization.

Key Metric #2 – Employee Satisfaction Score: Attrition hurts the top line and bottom line – everybody knows this now and there is increased focus on happier workplaces and organization culture. One SMART (Specific, Measurable, Attainable, Realistic and Timely) way to gauge the mood of your people and the levers at your disposal to reduce attrition is through the metrics arrived at from employee satisfaction surveys (Gallup is a market leader in these surveys). With the pressure on margins and the constant competing demands on resources, this is one metric that can provide you the guidance on the best ways to improve performance by focusing on the areas that matter the most to your people.

Key Metric #3 – Productivity: And I don’t mean lines of code per person kind of productivity metric here but one tied tightly to business. This is one metric that you can choose based on your strategic goal for the time period by deciding the numerator and denominator for the output per unit (productivity). Is your goal the launch of a new product offering – measure Return On Investment (ROI). Do you want to determine which accounts to focus on (with limited sales resources) – measure sales productivity across accounts. If your new business exceeds your sales and marketing expenses, then you know that you’re on the path to success.

Key Metric #4 – Cash Flow: Cash is the life blood of the business – and hence one the most critical aspects of performance management. There are two metrics here that I look at closely and in conjunction – DSO (Days Sales Outstanding) and DPO (Days Payable Outstanding). DSO gives the average number of days it takes a company to collect their accounts receivable or payments outstanding. DPO gives the number of days it takes a company to pay its creditors or vendors. There are a number of operational inefficiencies that can be pin pointed based on the trend of these two metrics.  So for example, if we are paying our vendors appreciably faster than we are collecting our own payments – that’s a big red flag and needs digging to identify the source of the problem. Again if the DSO has increased over the previous period, more often than not it is due to a gap in the order to cash process internally. And if it has dipped considerably, one of the reasons could be that we have not raised invoices for earned revenue, again a big red flag.

Key Metric #5 – Gross Margin: This is like the mother of all business metrics and the best indicator of a business’s health in my view. The higher the gross margin, the more the indication that you are on the right track in every operational aspect. You do not have to wait for the quarterly or annual financial results to determine profitability, productivity and customer satisfaction. Man­ag­ing and mon­i­tor­ing gross mar­gin on a reg­u­lar basis goes a long way in reducing unpleasant surprises in the long run and also in deciding critical strategic initiatives for pricing, investments and sales efforts.

The choices of key metrics need to be reviewed periodically – business is dynamic, why should metrics remain static? What makes sense to measure in today’s scenario may be irrelevant tomorrow. Also, it is not enough to measure, you also need to act. No metric is useful unless there is an action plan that arrives out of it and is communicated and implemented with urgency. Otherwise, a metric becomes just another number on a report that nobody pays attention to till it is too late.

What metrics do you as a business owner or as a business manager focus on? Are you part of a culture that is addicted to reams of reporting or is the focus more on analysis and results? Have you tried some or all of the above and it did not work for you? Please share your tips, thoughts and success/horror stories – would love to hear and learn from you.

Pic Courtesy: InfoDoodle by Nilisha Mohapatra (@NilishaM) – www.fantasycluster.wordpress.com

Love Metrics ? Here is some more food for thought :

Five Human Resource Metrics that link People to Business Strategy – Business Operations Performance Metrics

Five Metrics that can help Maximize Revenue and Cash Flow Potential from existing Business – Business Operations Performance Management

Business Operations Performance Metrics: Gross Margin – Five Steps to Improve your Margin

Business Operations Performance Metrics: Cash Flow – Five Steps to Improve your DSO

Five Sales Performance Metrics Key to Successful Business Operations

Five Project Management Performance Metrics Key to Successful Project Execution – Operational Excellence

42 Comments:

    • Business Operations Performance Metrics: Cash Flow – Five Steps to Improve your DSO « Happy in the now…
    • April 21, 2012
    • Reply

    […] is king. I have written about the importance of tracking cash flow related metrics in one of my earlier posts and now want to capture some of the “hows” behind the “whats”. A commonly known and […]

    • Business Operations Performance Metrics: Gross Margin – Five Steps to Improve your Margin « Happy in the now…
    • May 06, 2012
    • Reply

    […] as you soon run out of cost reduction options.   Gross Margin (as I wrote in my earlier post on key performance metrics) is the mother of all metrics and the quickest way to determine if your business in on track or not […]

    • Five Ways to Use the Pareto Principle in Work-Life « Happy in the now…
    • May 28, 2012
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    […] applied this in many areas of my work and life for some interesting outcomes.  Whether it is in performance management, team management, relationships or home, one question helps me direct my energies and time – […]

    • Five Steps to turn your Strategic Initiative into Execution Success – Business Operations Performance Management « Happy in the now…
    • June 10, 2012
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    […]  Set up a steady state tracking mechanism and a schedule for review with the key stakeholders. Choose the performance metrics that best measure the progress (or regress) of the goals of your initiative. It is important to […]

    • Five Metrics that can help Maximize Revenue and Cash Flow Potential from existing Business – Business Operations Performance Management « Happy in the now…
    • July 01, 2012
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    […] the timing, today’s blog post is focused on the metrics and areas that act as indicators to these quarterly business objectives. I have been called a […]

    • Five Secret Killers of Company Growth « Happy in the now…
    • July 11, 2012
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    […] often said, what cannot be measured cannot be improved. But it is critical to keep figuring out the right metrics for your company (derived from your Goal). Are you measuring your sales opening ratios or just your […]

    • Five Human Resource Metrics that link People to Business Strategy – Business Operations Performance Metrics « Happy in the now…
    • July 29, 2012
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    […] size definitely does not fit all when it comes to metrics  – and you may have your own views on what metrics are best suited to drive the talent advantage for your organization. One thing is common though – we need to […]

    • How to Easily Improve the Sales Performance of Your Business | Fed Management Conferences
    • October 02, 2012
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    […] Excellent Techniques For Boosting Sales Performance In Any BusinessBest Strategies For Boosting Sales Performance TodaykendallLean Sales And Marketing — Time Available For Selling4 Ways to Increase Your Sales in 2012Five Performance Metrics Key to Successful Business Operations – Business Management […]

    • Five Ways Business Operations Can Drive Strategy – Business Operations Performance Management « Suchitra Mishra
    • October 11, 2012
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    […] used to arrive at the most likely to be successful offer/product strategy. The operations team can link metrics to strategic planning as they are closest to defining measures and setting the […]

    • Five Ways Sales Operations can Enable Sales Leadership – Business Operations Performance Management « Suchitra Mishra
    • October 14, 2012
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    […] Enabler #4 – Metrics and Dashboards: One of my favorite topics and pet projects. Metrics need to be aligned to business strategy and objectives – metrics should not only measure the past performance but also act as leading indicators into […]

    • Five Actions that can make your Sales Forecasts a Hit – Business Operations Performance Management « Suchitra Mishra
    • October 21, 2012
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    […] the very least) to check if the assumptions still hold good. Measure your forecast accuracy, develop mechanisms and metrics to identify and eliminate the sources of error and plough the learning back into your sales […]

    • Five Keys to set up a Successful Project Management Office – Business Operations Performance Management « Suchitra Mishra
    • October 22, 2012
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    […] delivery is around Scope, Schedule, Budget & Resources, Quality and Customer satisfaction. A well defined metrics/dashboards for these important parameters can encourage PM to report the project status in correct and timely […]

    • From Idea to Execution: Five Pointers to Getting Things Done in Complex Organizations – Business Operations Performance Management « Suchitra Mishra
    • November 08, 2012
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    […] how far have they gone ahead or fallen behind. Set up regular feedback and tracking mechanisms with the right set of metrics to have early warning systems that will help anticipate problems or the need to change the […]

    • Five Strategies to shift from a Cost Cutting to a Business Growth mindset – Business Operations Performance Management « Suchitra Mishra
    • November 20, 2012
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    […] 5: Metrics and Rewards –Targets breed Performance – Coming to my favourite topic,setting metrics and commensurate rewards is an important lever to quickly drive and arrive at the behavior needed to […]

    • it outsourcing
    • November 22, 2012
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    • Five Skills Key to Successful Business Operations Management – You Could be Great at Operations if.. « Suchitra Mishra
    • November 29, 2012
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    […] to derive meaning out of the different ways numbers can be combined or dissected to arrive at the right performance metrics for early warning signals for the business as well as measuring the results is part and parcel of […]

    • Adamant Solutions
    • January 03, 2013
    • Reply

    You have written an incredible website.

    • guru
    • January 04, 2013
    • Reply

    Greetings! Very helpful advice within this post! It’s the little changes which will make the most significant changes. Many thanks for sharing!

    • Five Sales Performance Metrics Key to Successful Business Operations « Suchitra Mishra
    • January 27, 2013
    • Reply

    […] more of? What do you need to eliminate? With the budget season in progress, metrics are on my mind (again). In this Accenture analysis of the 2012 Sales Performance Optimization Study, sponsored with CSO […]

    • Five Critical Components of Business to Ensure Operational Excellence – Business Operations Performance Management « Suchitra Mishra
    • February 22, 2013
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    […] the plan and the execution but is important to measure what is important . Care must be taken to set metrics that actually drive the desired behaviors and do not risk people running after the wrong goals. The choices of key metrics need to be […]

    • Five Key Considerations for Efficient Knowledge Management – Business Operations Performance Management | Suchitra Mishra
    • April 27, 2013
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    […] Metrics wisely. A perfect blend of qualitative and quantitative metrics should be available to the […]

    • Five Performance Metrics Key to Successful Busi...
    • July 02, 2013
    • Reply

    […] The ability to simplify means to eliminate the unnecessary so that the necessary may speak ~ Hans Hofmann (1880 –1966) Data Availability today – Infinite possibilities Sources of Data – Myriad Repo…  […]

    • Five Project Management Performance Metrics key to Successful Project Execution – Operational Excellence | Suchitra Mishra
    • October 30, 2013
    • Reply

    […] I am passionate about metrics and have written about my favourite performance management metrics in business, sales and human resources earlier. In this guest post, Kavita Verma draws upon her PMO experiences […]

    • Oorja Biz Ops | Five Sales Performance Metrics Key to Successful Business OperationsOorja Biz Ops
    • December 11, 2013
    • Reply

    […] more of? What do you need to eliminate? With the budget season in progress, metrics are on my mind (again). In this Accenture analysis of the 2012 Sales Performance Optimization Study, sponsored with […]

    • Oorja Biz Ops | Five Project Management Performance Metrics key to Successful Project Execution – Operational ExcellenceOorja Biz Ops
    • December 12, 2013
    • Reply

    […] am passionate about metrics and have written about my favourite performance management metrics in business,sales and human resourcesearlier. In this guest post, Kavita Verma draws upon her PMO experiences […]

    • Oorja Biz Ops | Business Operations Performance Metrics: Gross Margin – Five Steps to Improve your MarginOorja Biz Ops
    • December 16, 2013
    • Reply

    […] as you soon run out of cost reduction options.   Gross Margin (as I wrote in my earlier post on key performance metrics) is the mother of all metrics and the quickest way to determine if your business in on track or not […]

    • Oorja Biz Ops | Business Operations Performance Metrics: Cash Flow – Five Steps to Improve your DSOOorja Biz Ops
    • December 16, 2013
    • Reply

    […] is king. I have written about the importance of tracking cash flow related metrics in one of my earlier postsand now want to capture some of the “hows” behind the “whats”. A commonly known and accepted […]

    • Oorja Biz Ops | Five Metrics that can help Maximize Revenue and Cash Flow Potential from existing Business – Business Operations Performance ManagementOorja Biz Ops
    • December 20, 2013
    • Reply

    […] the timing, today’s blog post is focused on themetrics and areas that act as indicators to these quarterly business objectives. I have been called a […]

    • Oorja Biz Ops | Five Keys to set up a Successful Project Management Office – Business Operations Performance ManagementOorja Biz Ops
    • December 20, 2013
    • Reply

    […] delivery is around Scope, Schedule, Budget & Resources, Quality and Customer satisfaction. A well defined metrics/dashboards for these important parameters can encourage PM to report the project status in correct and timely […]

    • gm
    • January 11, 2014
    • Reply

    what do you think will the metrics be for a cost center?

      • Suchitra Mishra
      • January 13, 2014
      • Reply

      Hello GM,

      Thanks for dropping by. For a cost centre, the prime determinants for measurement are quality of output and productivity related to human resources. I have a selection of metrics in these two posts that you can browse through, let me know if this helps:

      http://blogbysuchitra.wordpress.com/2013/10/30/five-project-management-performance-metrics-key-to-successful-project-execution-operational-excellence/

      http://blogbysuchitra.wordpress.com/2012/07/29/five-human-resource-metrics-that-link-people-to-business-strategy-business-operations-performance-metrics/

      My posts on Operational Excellence and Employee engagement are also useful from a cost centre management perspective.

      Regards,
      Suchitra

        • Anonymous
        • January 13, 2014
        • Reply

        Thanks Suchitra. These are good metrics and in vogue. Would you have any other ideas/metrics on how a cost center can show the value it provides to the regions using its services. Regards

          • Suchitra Mishra
          • January 13, 2014
          • Reply

          Hello GM,

          All metrics need to be linked to the strategy and ultimately tied to values – revenue generation (top-line) and margin improvement (bottom-line).

          The question to ask while deciding the additional metrics is – what are the things that matter the most to the company this year? Once you have the answer to that question, it becomes easier to design KPIs to track progress and gain relevant insights to help manage and improve performance.
          And for a cost centre, the productivity metric based on your strategic goal for the time period by deciding the numerator and denominator for the output per unit would be useful.
          For example, in one instance, the strategic goal was to increase competence in a particular capability in the cost centres. We tracked the number of IPRs, white papers and publications related to that competency per quarter per centre. Another goal was to increase the culture of innovation – we tracked the number of successful ideas (that got approved and were used to create offerings) against the total number of ideas submitted. And then the revenue from a new offering against the investment done to generate the offering in previous year/quarter.
          What value are you measured against – select the lagging and leading indicators accordingly.

          Metrics need to provide insights that aid decision making – they need to be SMART (Specific, Measurable, Attainable, Realistic and Timely). So upon selecting a metric(whatever metric that makes sense for your business), make sure they pass these two tests. Hope my answer is helpful.

          Regards,
          Suchitra

    • Jasmine Sinclair
    • September 10, 2014
    • Reply

    Hi! I am a graduate student seeking advice on performance metrics for an assignment. This post definitely helped in my research!!! I will be revisiting to get more insight throughout my program!!

      • Suchitra Mishra
      • September 10, 2014
      • Reply

      Thank you, Jasmine. Glad you found my post useful. I wish you success in your graduate courses.

      Regards,
      Suchitra

    • Five Project Management Performance Metrics key to Successful Project Execution – Operational Excellence | Suchitra Mishra |
    • May 05, 2015
    • Reply

    […] I am passionate about metrics and have written about my favourite performance management metrics in business,sales and human resourcesearlier. In this guest post, Kavita Verma draws upon her PMO experiences […]

    • Anonymous
    • June 12, 2015
    • Reply

    Hi Suchitra,

    Good article. I’m working on the metrics for my own organisation. According to you what would be the metrics in terms of time, potential market for a new business.

    Keep writing.

    Thanks.
    Soumya

    • Ria Valdez
    • September 05, 2015
    • Reply

    Can you give me idea on the difference between performance metrics and performance measurement?Thanks

    • Five Project Management Metrics key to Successful Project Execution | Career Resources | Oorja
    • September 19, 2015
    • Reply

    […] I am passionate about metrics and have written about my favourite performance management metrics in business, sales and human resources earlier. In this guest post, Kavita Verma draws upon her PMO experiences […]

    • Five Project Management Metrics key to Successful Project Execution | Oorja Biz Ops | Resources
    • December 01, 2015
    • Reply

    […] Margin (as I wrote in my earlier post on key performance metrics) is the mother of all metrics and the quickest way to determine if your business in on track or not […]

    • wordpress.com
    • January 30, 2016
    • Reply

    The vital message is to question assumptions and to measure
    outcomes over time.

    • Five Sales Performance Metrics Key to Successful Business Growth | Oorja Biz Ops | Resources
    • April 20, 2016
    • Reply

    […] need to eliminate? With the budget season in progress, sales performance metrics are on my mind (again). In this Accenture analysis of Sales Performance Optimization Study, sponsored with CSO Insights, […]

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