Trigger points occur during the year, for example, the new calendar year, new tax year or the anniversary of setting up the business when a business owner is more likely to think about their business and might consider their aspirations going forward. The degree of formality of the review varies considerably. With some it is a brief mental note in passing, others arrange a full “away day” to review and plan. Regardless of how much consideration is given to the review the reason it has occurred is because of a significant external event. Other significant events can trigger reviews, for example a key member of staff leaving, difficulty in paying an invoice or being late with a VAT return. Looking at the examples the events can be categorised as:
· Long term – external
· Long term – internal
· Short term - internal
· Short term - external
If a business is to keep on track to achieve the long-term objectives of the owner, in their capacity as the shareholder, then a formal forecast and monitoring process needs to be in place, so that the appropriate steps can be taken in a timely manner to correct issues and drive the business forward.
Designing a review system is not a difficult as it might seem. Macro-economic effects (Long term external) need only to be reviewed annually to notice a difference. Long-term internal targets will be the same, but with interim quarterly reviews to check progress. More detailed planning and reviewing will occur monthly, weekly, or daily as appropriate to satisfy the short term internal and external requirements.
Most people would accept the reviews should focus upon marketing, sales, operations, and finance, but what specifically should be measured when? One of the first frameworks was developed by Kaplan and Norton in the 1990’s and is called the Balanced Score Card. The BSC provides measures for a commercial business. It only considers just four dimensions, but many of the wider issues can be included in those dimensions. This short Harvard Business review Video explains the interaction of the dimensions measured.
Whilst in the 1990’s a business could exist in isolation to the community around it, now-a-days the impact businesses have on the community and environment is under the spotlight. A highly profitable business may not be sustainable, if the public suddenly decides that they consider their activities to be unethical or not in the best interests of the planet. It is interesting to see how quickly businesses respond to the public’s mood, if they are doing something which is out of favour. For example, plastic and packaging are big in the news now.
One framework which measures the community and environmental credentials of a business has been developed by Business in the Community. It includes the commercial aspects and the wider aspects. It also makes suggestions for the metrics in each dimension, which will save you developing specific KPI’s.
If specifically, you considered staff to be a focus area then, the Investors in People, IiP, system could be used. Many of the metrics in this will overlap with those in the more holistic systems above, but there will be more detailed KPI’s for staff as there is a focus on those.
There is a myriad of frameworks to use. External ones have the advantage that you can be benchmarked against others and often offered shared learning experiences. These benefits have the advantage of saving time developing your own in-house ones. However, collecting badges can be counterproductive. The selection of the metric’s used or Key performance indicator’s, KPI’s and their calculation should be done with care to avoid unbalancing the business. Whilst Peter Drucker is quoted as saying “what gets measured gets done”, the McNamara fallacy, named after Robert McNamara, the USA Secretary of Defence 1961-68, sums up the risks of blindly setting and following arbitrary metrics.
· The first step is to measure whatever can be easily measured. This is OK as far as it goes.
· The second step is to disregard that which can't be easily measured or to give it an arbitrary quantitative value. This is artificial and misleading.
· The third step is to presume that what can't be measured easily really isn't important. This is blindness.
· The fourth step is to say that what can't be easily measured really doesn't exist. This is suicide.
If you know where you want to get to and are having trouble keeping on track, then please get in touch if you would like to quantify the interim steps and set up some metric’s or KPI’s to monitor progress against from which you can take action at the appropriate time to head off major issues.
Peter.Searle@ba4cs.co.uk