Measuring What Matters...
By Enda Larkin, Owner/Director at HTC Consulting
Ohh, this is starting to get interesting now.
"I called you a bean-counter, because that's precisely what you are. All you guys care about is numbers; sitting in your little dark room counting money. You couldn't give a damn about people – no wonder the world is in the state it's in."
Ho-ho, this is definitely warming up.
"Look, I wouldn't waste my breath trying to explain to you precisely how many things are wrong with what you just said. Clearly nothing is going to change your Neanderthal views. By the way, the world is in the state it's in precisely because we left the running of businesses up to people like you…"
Not a bad put-down. Not bad at all. Especially coming from an accountant.
"Listen, you might think what I'm saying is out-dated, but that only goes to show how out of touch you are… you guys haven't a clue what it's like to manage anything other than numbers…"
And so it went.
It was highly entertaining listening to the two lads tearing strips off each other. This 'exchange' of views took place at a dinner I attended recently – a networking event. Not too much networking happening at our table I have to say, although the unscheduled entertainment was worth the price of the meal all the same. It had all started off gently enough, just a bit of ribbing amongst the two lads – nothing unusual there between a manager and an accountant in my experience. But as the dinner progressed, the jibes got more and more pointed. Maybe it was the wine, but I think it was just a case of two people taking a severe disliking to each other.
Anyway, the incident got me thinking. About accounting. Well, it was more than that to be honest; it got me thinking about measuring business performance in general.
Accountants get a hard time. I have certainly had plenty of arguments with them over the years, particularly when I was working in operations. On occasion, they do deserve the hard time because some of them – and I do stress it's only some – do only see numbers and little else. But, it's important to be fair too, and that is probably an out-dated view because most of the accountants I know these days have a much broader view of business life. In fact, in many ways, they can now be more akin to internal business consultants. Anyway, I don't know where the 'bean-counting' terminology came from, but whatever about the 'bean' part I'm okay with the 'counting' bit.
Counting is good. Without counting, we would never know what's on track and what's not.
The problem I have, though, is with what's being counted.
Sometimes, even today, the focus of the counting is too narrow. Let me give you a very simple example of what I mean. In most businesses I know of, managers at all levels have accountability for some element of a budget – the higher up the ranks the greater that responsibility. And I'm all for that. What I think is wrong, though, is that all too frequently the scope of that accountability is too narrowly focused. Hit the numbers and that's all that matters. But, managers are responsible for more than just revenues and costs – such as for employee and customer satisfaction to name but two dimensions – and I think this should be better reflected in what they are measured against. Often, managers are not truly held accountable for such things. And I don't limit that failing to operational managers. The same principle applies across all business functions. For example, sometimes marketing people – let's say in relation to social media –get very hung up on 'number of followers', or 'likes' and so on, when what really matters is what additional business accrues or doesn't from those online relationships. They are often measuring the wrong things.
For sure, you don't need me to tell you just how important the measurement of business performance is and no matter what your current role, it is always worthwhile to stand back and consider how well that function is happening in your business at present, or even your department if that is most relevant. As you do so, here are some points to consider. Clearly, the intent of any approach to business measurement is to achieve two general aims. One, it should provide feedback on actual performance in relation to a particular target or goal, and second, the data generated should facilitate decision-making which then enables improvement or corrective action where required. In looking at your current approach, think about the following five questions:
1. Do you have the right information to support decision-making
Okay, it's only fair to acknowledge too that hospitality businesses have gotten much better at measuring performance in the past decade or so and many companies now use tools like the Balanced Scorecard or the EFQM model which help to define broader measures of performance. Still, and this particularly applies to SME's, the range and scope of performance measurement can be too limited in my opinion:
- Many business still are too focused on financial measures, or as I said, even when the measures are broader, they concentrate on the wrong things like the 'number of enquiries' as opposed to 'sales generated per enquiry'.
- Equally, there can be a tendency to stick with 'hard' measures like revenues and costs, number of accidents etc., but avoid the measurement of more difficult issues such as customer and employee attitudes.
- Also, the outputs from certain functions such as IT, Marketing, or Training can be hard to measure and often it's a matter of 'hope for the best' when it comes to spending in these areas.
Some time back, when I was working on a forthcoming book, I was speaking to a hotel owner about this very point – having the right information to hand. I captured his views as part of that book and I think what he had to say is quite useful here:
"We have identified global performance measures for the company overall, as well as those for our individual key processes. These include: Management Measures – financial targets, and other non-financial measures, for example, in relation to quality, environmental management, hygiene & safety; Customer Measures – targets in relation to customer satisfaction, loyalty, retention, market share etc; and Employee Measures – goals in relation to employee engagement, turnover, productivity and so on.
"With this dashboard of measures to monitor our performance, we now have a much broader, and I would say more useful, analysis of how the company is really doing. We always stay on top of those measures too and any signs of slippage are met with a clear investigation of cause-and-effect and appropriate action is taken to bring us back on track."
I think he hit the nail on the head on this question and you should consider whether your current approach gives you a real 360-degree view of how your business, or department, is performing.
2. Do you have the right systems in place to provide the information you need?
Most businesses today have very strong financial information systems in place, but you might need to consider how effective your current approaches are in non-financial areas such as gathering customer or employee feedback? My experience is that these areas can be weaknesses.
For example, a lot of companies rely on comment cards to measure customer feedback, but at best this hits only a very small % of overall customers and the information attained is limited. Yet you hear managers all the time saying things like we have 90% satisfaction rating from our customers – sure, maybe they do, but only based perhaps on 5-10% of their total consumer base and with regard to three or four aspects of the customer experience.
3. Do the right people get the right information relevant to their roles?
It is always important not to mistake quantity for quality in terms of the range and scope of measures you provide for people. The 'blanket' approach where everyone gets the same data can actually be counterproductive in my experience. Information overload in other words.
Give the right people the right information.
A related issue is of concern here and this is a problem I have seen many times and often goes under the radar for a variety of reasons, not least of which is the potential embarrassment for the people concerned. Often, and particularly so in relation to more junior managers, they don't really understand the data they are presented with and as a result its use, in terms of supporting decision-making, is diminished. Such individuals often don't speak up, because they don't want to appear 'stupid' in front of their more senior colleagues. And, this issue is not just limited to junior ranks: for example, several CEOs in the major finance houses which failed in recent years have admitted that they didn't really understand the derivatives and other products they were selling, so a lot of the performance data they received meant little to them.
4. Do they get that information at the right time?
At what intervals do you currently take snapshot measurements and is that appropriate in a rapidly changing operating environment? Obviously for financial and market data you need to track your metrics constantly, but for customer or employee satisfaction the intervals might be monthly, quarterly, half-yearly or annually. Is what you currently do as regard these non-financial areas sufficient? For example, lots of businesses I know only measure employee satisfaction once a year. I don't think that's enough. For any data to be of use in terms of decision-making it has to be timely and this can be a challenge if yours is a small business.
A second consideration here is the differentiation between measures which track implementation and those which focus on impact. If actions agreed are not happening then you won't see the desired impact at a later stage, so you always want on-going evidence that 'execution' is actually taking place effectively.
5. Are the right decisions being made with the information you have?
This has all to do with the effectiveness of decision-making that arises from the data at hand. Key considerations here include who is involved in analysing the data and how good are they at it? It is important to ensure that you have a core team of leaders – be that business-wide or at department level – with appropriate expertise across relevant business dimensions, who collectively review performance and make decisions accordingly. This analysis phase requires you to investigate root causes to ensure you are identifying the right issues and not just focusing on symptoms of more fundamental problems. Another consideration here is how you currently compare your results externally to determine how they measure up to industry norms and more importantly best in class organisations?
The answers you come up with to these five questions should provide you with some food for thought in relation to how you currently measure performance.
Phone: +41 (0) 22 700 8675
of senior management positions in Ireland, UK and the US. In 1994 he founded HTC Consulting, a Geneva based firm, which specialises in working with enterprises in hospitality and tourism. Since that time, he has led numerous consulting projects for public and private sector clients throughout Europe and the Middle East. He is author of Ready to Lead? (Pearson/Prentice Hall 2007), How to Run a Great Hotel (How to Books 2009), 'Quick Win' Leadership (Oak Tree Press 2010) and Journeys – Short Stories and Tall Tales for Managers which is due to be published in March 2012. He may be contacted via www.htc- consult.com or at firstname.lastname@example.org. Read his Blog at www.htc-consult.com/new/blog