Good data begins in your bookkeeping and accounting department. If it also ends there, you have wasted one of the most valuable tools in your tool box. The power in your data is with your people.
Everyone likes to keep score. We all have an innate desire to succeed. Those two facts, coupled with putting the right data into the hands of the right people in a timely way, can transform your business.
We have often heard the adage, when it comes to real estate, what is important is location, location, location. When it comes to people, what is important is communication, communication, communication. As CEOs, we focus our communication on the vision, possibility and next big sale of the day. These types of communications are critical in creating culture and building a cohesive team.
Your employees also need clear communication on their individual, daily roles. Have you communicated clearly what it means to do an excellent job? What do they need to do today to make the company vision a reality tomorrow? A job description is a good start, but daily and weekly measurables built from that job description create a winning formula for both you and your employees. That is where scorecards come in.
You set your employees up for success when you empower them with their own individual scorecards. What are the one to three measures that really matter in their job? That is a simple question, and one that can be a slippery slope. Measures have consequences, and the wrong measures are just as powerful as the right ones, but in a negative way. Taking your time and think through what makes a motivating measurement is key.
Here is an example from a professional services firm. A CPA friend was confiding in me one day that she was let go because she was “too efficient.” She often accomplished jobs in 50% or less of her budgeted hours. Her boss told her that if a budget for a job was 6 hours, she needed to spend 6 hours on it. Getting it done in 3 wasn’t a success. Based on her “performance,” she was terminated. She is a stellar CPA, and this firm lost a key talent by using the wrong measure.
A better measure might be revenue per labor dollar. In a service firm, your employees are your biggest asset. You invest in them in terms of wages, benefits and training with the expectation of a return. One measure for this is revenue per labor dollar. In other words, how many dollars of revenue does an employee produce based on your investment in them? If your culture is more team oriented, this metric might be better as a team goal.
If you couple the revenue per labor dollar metric with one or two that measure customer satisfaction, like days accounts receivable, new business referrals from existing customers or contract renewals, now you have a powerful set of metrics for your employees or your team.
What makes them powerful?
- First, they are understandable by everyone on the team. Everyone can understand if it takes on average 3 days or 60 days for a customer to pay their invoice. Everyone can understand revenue per labor dollar or how many referrals came in from existing clients.
- Second, they are controllable by the people that are being measured by them. Revenue per labor dollar, and contract renewals are something your employees can relate to their everyday activities.
- Third, they are self-balancing by design. If my only measure is revenue per labor dollar, the focus is purely on today’s profit. By combining revenue per labor dollar with a customer satisfaction metric, you are balancing the focus on today and tomorrow’s profit.
- Fourth, they fit the culture of the business. What are your business values? For example, is individual performance paramount? Or is it more about the team? Reviewing your measures for value fit allows them to build on your culture. Otherwise they will tear your culture apart.
- Fifth, your scorecard has a maximum of three goals. Study after study on goal setting tell us that if you have too many goals, it is worse than having none. Where do you really want your employees’ attention to be? What is most relevant in their job to the overall achievement of the company’s goals? Keep focusing until you find the best answer for your culture.
Fall is the time when we are focused on how 2017 will end. It also the best time to begin planning for 2018. As you prepare for 2018, why not empower your team with scorecards?
At Mackey Advisors, we love helping business owners achieve their goals. If we can help you develop scorecards for your business, please reach out to me at Mackey@MackeyAdvisors.com or 859-331-7755.
To your prosperity,