Business Metrics

Every business has a set of metrics that define its operation, growth and profitability. Invariably this is left with the finance team to deal with. However business leaders must embrace this important aspect. Without business metrics you cannot understand where you are and therefore will have no idea of where you want to go. We present the importance of fully understanding the key metric drivers of your business, why they are needed and what can happen when those metrics are not measured and addressed.

The importance of business metrics is like the balance sheet in accounting.  It provides a snaphot moment in time of key information that defines how well or how bad your business is performing in every area.  We will look at the basics for this exercise to prove that an understanding of your business can help to provide the framework for targetting key areas to drive growth and profitabiity.  Examples include:

Customer metrics

• What % customers contribute to the top 80% of sales revenue and profitability (helps to focus the business on keeping those customers)
• What is the gross margin for each of your top customers (allows the business to think of ways of improving margin)
• Delivery costs as a percentage of sales revenue for top customers (which helps to understand if there is a better way of reducing the cost of delivery)

Selling metrics

• What is the amount and value of the sales prospect pipeline? (helps to understand market and sales activity)
• How many new enquiries from web, email, telesales and account management (allows an understanding of the most efficient way to get customers)

Operational metrics

• What is the percentage of purchase costs to revenue spend (focus on reducing purchasing costs)
• What suppliers account for 80% of purchases (helps to identify those suppliers where cost and payment terms can be improved)
• What is the amount of stock that has not sold over the last 6 months (enables the business to focus on stock turn/ effective selling and obsolescence processes)

The typical financial accounting metrics and some of the more unusual metrics identified above can be presented in a weekly, monthly or year format which will allow the business to understand where they are today and will help to pull a plan together for moving the business forward.  We have a lot of experience in helping companies to identify the key business metrics for moving their business forward.  Businesses invariably fail through lack of control in various areas.  An example of the use of metrics in a company turnaround situation is illustrated below to illustrate how control can drive and accomplish business goals. 

Case Study -  How a clear focus on key business metrics can help turnaround a business  

Marketing or Innovation?

Peter Drucker, the famous writer and thinker about management once said, ' Business has only two functions - marketing and innovation'.   For most businesses their importance is never underestimated but the difficulties arise in setting priorities in relation to their execution.  Both demand spending money up front and return on investment is incredibly difficult to measure.  However in this article we break down the importance of applying BOTH functions in the growth of a business.

Marketing is the process whereby you advertise and communicate your business and your products to your target audience.  Some key principles:

• Understanding your customers is key to obtaining a a good return on any cash expenditure in this area
• A clear regular review of the six P's of marketing (Product, Place, Place, Promotion, People (ie customers) and Purpose (Vision) helps to keep the busienss focussed on the things that customers want
• Alway test each marketing campaign and have clear objectives of what you hope to achieve, and measure it
• Understand your product or service so that its VALUE is always communicated on a regular basis to your customers. 
• Avoid marketing campaigns around price but ALWAYS market on VALUE
• Always market using a variety of outlets such as direct marketing, email and web marketing.  Again test each outlet
• Using customer feedback techniques will help to inform on how the the services and products of the company is performing and allows the business to refine its offering

Innovation is the process whereby a company looks to understand new ways of creating, developing and promoting services and products to its customers.  Some key principles:

• A close understanding of your customer base will help to develop a clear innovation strategy
• What differentiates your product or service from your competitors?  If there is no disernable difference then your competitive advantage is not based around product or service but on price.  So innovation is critical in staying ahead.
• The most innovative companies tend to outperform their competitors in margin and profitability by on average 50%
• Understand the return on investment in new products launched and the benefits to the business on savings, profitability or margin increases.

Many people ask us which is more important, marketing or innovaiton.  Well from our work with companies it depends on what the key business issues are.  To hear the answer then check out Wayne's recent telephone conference with well know business journalist Paul Green on the importance of marketing and innovation to business growth.

Click here for the Marketing and Innovation business growth interview with Paul Green  

The Leader - born or learnt?

Leadership impacts an organisation in the following ways:

• Vision
• Strategy and implementation
• People

Notice, we have not said that leadership impacts manufacturing, IT systems and the like. The main role of a successful leader is to impart vision, strategy and motivation to ALL employee groups, to achieve overall businesss goals. As a leader, your main priority is to get the job done, whatever the job is. Leaders make things happen by:

• Knowing your objectives and having a plan on how to achieve them
• Building a team committed to achieving the objectives
• Helping each team member to give their best efforts

As a leader you must know yourself. Know your own strengths and weaknesses, so that you can build the best team around you.  Sir Terry Leahy of Tesco is an example of someone who has taken the time to pull together talented individuals in driving various elements of the business forward.

Have faith in people to do great things - given space and air and time, everyone can achieve more than they hope for. This will build trust and respect in your role.

Constantly seek to learn from the people around you - they will teach you more about yourself than anything else. They will also tell you 90% of what you need to know to achieve your business goals. If you set low standards you only have yourself to blame for low standards in your people. "... Praise loudly, blame softly." (Catherine the Great). Follow this maxim.

Can leadership be learnt or is it something that you are born with? Our experience is that it is a combination of both.

We have been recently facilitated several strategy sessions for Boards to enable leaders to develop a clear vision for moving their businesses forward.  Contact us if this is of interest to your company.

Case Study - How an understanding of strategy led to the development of leaders in a Medical Device business