The Curate’s Egg…managing Company performance

Slide1

Are you in control of your business?

With the proliferation of data from automated feeds into the Boardroom Report, Executives have an opportunity to manage their business and make decisions with the facts at hand. The challenge however is that the availability of measures creates a counter-problem by the pure volume of insight. The Dashboard approach which is used in many companies, takes a sample of metrics and measures and presents them as beautiful arrays of BRAG indicators, Graph’s, Spider-graphs and Tables, which compile to ‘The Month Review Pack’, probably delivered a day before the Executive Review or in a worse scenario, presented on the day.

The Executive then starts to reason. Financial one’s are to some degree the easiest. ‘Actuals, Forecast, Outlook and Trending’, multiplied by views of Revenue, Order Book, Sales, Profit, Cash-flow, Expense and EBITDA or PBIT. Getting complex but a bit like singing the national anthem, it subconsciously fits together as you are doing it.

Then the challenge comes. Business Units start to provide their views of the business in an array of styles; Sales, Marketing, Customer Services, HR, Finance, Operations… What started as the hope of a simple dashboard, delivers a Christmas Tree-like book, with Blue, Red, Amber and Green status lights, with Graph Lines for tinsel and Pie Charts for baubles. Very pretty, but when you add to the complexity that a RED ‘may not be bad’ as it is trending in the right direction and a GREEN ‘could be bad’ as it is on a small percentage of the business mix.

Having lots of data can be as damaging as having no data.

It is no wonder that unless you are having a really successful time in all your markets, the Review will either be a contentious one or partly overlooked.

So, what can you do about Measures and Metrics to make more sense and ensure that they can be reviewed? You need to work together as a Management Team and dedicate some quality time to agree Metrics that represent your focus with a clear definition that the operational source can confirm.

These needs to include:

  • Financial Performance
  • Market and Customer Performance
  • Critical Operating Metrics
  • Strategic Metrics
  • Change Measures

Don’t accept measures just because you can get them.

Think about what the company is trying to achieve. Use a good balance of Lag and Lead indicators. I think of them as ‘have we achieved objectives’ and ‘Are we going in the right direction?

I’ll cover other areas of Scorecards and Alignment in future posts.  I will also cover data quality and efficacy later too.

So, the challenge when viewing your next Executive Pack, ask yourself, “are we really managing our business with the information that we review?”

Change Plans – plain sailing?

This slideshow requires JavaScript.

A company-wide Change plan and the ensuing programme plan may take 2 to 3 months to build and to take through to your executives/stakeholders. Assuming that you have the green light and you start to implement the plans there are a number of key aspects of execution that you need to consider. Here are two…

1. Change Metrics – it’s very important to set the right measures for the outcomes that you are trying to deliver on the transformation roadmap. From my experience, metrics and measures can take many weeks to define, agree and then implement with the right data sources. Although the drivers for the change programme might be to improve top-line revenue or to improve the bottom-line by taking cost out of the business, it’s essential that the metrics be built around the required outcomes of the change imperatives themselves, i.e. the attributes that make up the Change.

And…

2. Change Programme Audits – your Change strategy should dictate that you start a series of transformation activities that are not necessarily 100% complete. Over time you build up a series of very concise and complete objective plans, metrics and implementation activities that will deliver your Change programme. You need to launch and get early shift change in your initiatives and get employees engaged, but manage for marginal incremental gains along the way. This is where the Audit comes in as your ‘thermometer and barometer’ for effective Change based on your ‘programme structure.

For instance, take the high profile America’s Cup sailing race. If a boat were to wait for the perfect wind and a favourable current then it’s very unlikely they would ever have a chance of starting the race let alone winning it. The Boats have a win strategy in place, which is challenged by tactical changes en route based on the environmental factors outside of their direct control. A Change Plan and Audit works exactly the same. The Audit should be sampled at regularly intervals. It is an objective and structured assessment determining where you are and shaping plans for mitigating risks through the overall course of the transformation.

Taking the right Measures

Planning for success is a science rather than an art.  I’m sure someone will come back to me on this statement.  Let me state my case…

Most business plans get to a stage where the Directors can thrash out the top line view, the ensuing investments and the resultant profit forecast.  Nice and simple to do (give or take a few arguments) and put into operation for the coming Quarter or Year.  It then becomes important to keep to plan by managing the business.

Directors and Operational Managers need to be able to make decisions to keep on course with the plan and to sustain this going into the following year, the continuum, that we have talked about in past blogs.  The way that they can do this is with a dashboard of critical metrics, a sort of blended alchemy for your type of business that can tell you if the company is beating irregularly and if there are issues with the main arteries of the business processes.  The ‘organs’, aka Business Functions, themselves need critical unit specific monitors to ensure that they are operating ‘to plan’ and contributing what is required.

For the Strategy to be monitored you need a Balanced Scorecard and for the Business Plan you’ll need to have critical lead and lag metrics that give you good insight and foresight on the health of your operations.  The science is to have the right blend of Metrics, but you can also be bamboozled by having lots of other colourful metrics. This is a common failing. Making a decision is hard enough, but if you can’t see clarity in your key metric or it has a contradiction measure by the side of it, the decision can be delayed and you are possibly on the road to failure.

Metric design should be a discussed and agreed with the Executive team and then a process with one acknowledged data source and a common definitive algorithm for its calculation, with quality processes put in place to make sure it delivers to schedule.  Don’t be afraid as an Executive Team to spend time on definitions for the Metrics as it is important that there is no debate abaout validity after they are built. It is also OK to have Metrics from different time lines as long as the Executives agree that the measure is in sync with the causes behind sister metrics.

So what goes wrong in Business?  I see five main areas that cause problems for Companies.

  1. Too many Metrics are produced.  Like trying to understand a Jackson Pollock painting.
  2. Measures are invented for a Business Review e.g North Region Sales presents differently to South Region Sales
  3. Central Metrics from the definitive sources conflict with a ‘Local’ view from a Functional team
  4. Measures fall out of sync with each other, timeline wobble, product revenue creep etc
  5. The Algorithm for the calculation changes

When problems 2, 3 , 4 and 5 happen, a confident Manager can paint a positive or negative picture with available data which will lead to poor decision making.

So, I come back to my original Science statement.  Be creative with the ideas for running the business, but stay scientific in the selection and preparation of your metrics if you want to stay in control of your business.

Mind the Gap

The dreaded word that comes up at a business review, “Gap”.  However you wrap it up it is a trigger for management action.  Lost contracts and churn, ‘Sell more’, Cash Flow problems, ‘constraint and debtor days’ or simply that you don’t have the resources to deliver a contract.

OLYMPUS DIGITAL CAMERAThe usual crisis management that ensues creates changes to the plan, but companies can overlook some of the basics.  At the signing off of a Business Plan you intend to sell products to target markets and invest in your organisation and with Capital & Operational expenditure to make it all happen.  And, you have a resource plan aligned to meet the original product sales forecast profile.  You have a Balanced Plan.

“Gap!”.  So cracks and gaps in the plan start to unfold and sometimes the positive opposite, the good news of winning unexpected business.  For an area of a business to announce a gap, it also probably means that they have no contingency to stay ‘on plan’.  So the pressure on other areas starts to look for the shortfall.  All right and proper especially where you have Shareholders, who expect predictable business results.  The piece that gets overlook is the balance in the plan as you move forward.  If a Sales area is delivering less then some of its budgets need to change.  If another area is picking up the slack, are they expecting to invest more to make it happen.  Will there be a dilution of profits from one area to another…

Effective mitigation to the problems starts not at the point of problem acknowledgement, but in the detail of the business plan and the performance that you expect for the investment in each individual area at day 1 of the trading year.   This is true even if you hold a contingency for failure in the plan.  It is also possible to hold unallocated financial targets at a board level challenge at day 1, awaiting allocation that never happens, which we will discuss at another time.

In summary, if you want to manage the Gaps well, pay good attention to the alignment of resources and investments in the agreed Business Plan and take time to understand the subtle balances between Revenue, Profit and Costs.

Business Planning biorhythm

For the many businesses that have their trading year ending in March, and as I write this we are in the mid-Summer, we are fast approaching the mid-year point in which the usual sales push and expense constraint starts to happen.  For the senior executives of a company the holiday break was probably broken up by thought of some of the challenges back at the business even if it was just a thought before going to bed.

Slide1One of the considerations to this Business Planning biorhythm is that for a large slug of these businesses the course of the final outcome for this year is over and the growth results are probably already decided, so it’s a matter of profit management through Cost Transformation programmes.

But here is the irony, cast your mind back to 12 months ago, 2 years ago, 5 years ago.  Did you react in the same way at this time of year?  So think of the biorhythm, things that happen at certain times of year, the natural cycles of cause and effect and how you take them into account when controlling your business.  Yes, a wrong decision can still be made, but at least that is your choice and you are proactively managing the business.

A quote that I remember from a response that a Sales General Manager gave at a business review to the question of ‘Will you hit your annual targets?’…”Yes, but not within the confines of this financial year!”.  The simplicity of the each part of the biorhythm is key and the role that Executives and Managers play at a cycle point.

The nature of the business planning biorhythm is that a reduction in one thing has a knock-on to another which has a dramatic effect to another.  The cyclical fashion of planning is that a lot of this is predictable and therefore you have a choice to manage the risk mitigations as part of everyday business operations.  It also highlights that Business Plans are living documents that should be regularly reviewed and the whole business has visibility on the critical metrics.  The ideal position is that you have rolling business plans and active management.

%d bloggers like this: