On the way back to the office from a business coaching session with a new client, I read an article by ex-captain Michael Vaughan commenting on the upturn in the fortunes of the England cricket team. He expressed the opinion that a move away from ‘management by statistics’ had liberated the players and allowed them to express themselves. That in the past too much analysis had led to joyless paralysis.
The coaching session had started off in a similar vein. My client explained he’d been receiving monthly management accounts for a year and then confessed that he’d spent the grand total of 45mins reviewing them which had led to zero new ideas about how to improve his business: they were, in their current form, a small waste of time and a large waste of money.
On further questioning it emerged he specifically found them:
- Too long (each month’s report amounted to 5 pages)
- Too many numbers – head swims just looking at it
- Too hard to find the numbers that are relevant/important – too many highlighted numbers
- Too hard to work out what the context is for the numbers – what the trends are
- The only number he actually ever looked at was net profits
Sound familiar?
Yet in truth, the issue was not concerning analysis – the issue lay in confusing the discipline of measuring things with the art of analysis.
A genuinely compelling KPI (Key Performance Indicator) is actually the answer to a genuinely compelling question. If you’re not interested in the answer – or if studying the answer doesn’t lead to more business brainwaves – the problem doesn’t lie with numbers in particular or the efficacy of KPIs in general – it lies with the question generating the answer: the more interesting the question, the more interested you will be in the answer.
A genuinely illuminating KPI has to start with a great question. More than that, very often a great KPI answers the final question in an illuminating line of enquiry. For example:
‘How much revenue did I generate?’ is a typical place for many to start.
‘How much profit does that equate to?’ is a better question but still not great. The answer is of course important – vitally so – but in fact, is of limited usefulness from a decision-making perspective.
‘How much did I spend on salaries?’ is of similar interest.
The question ‘What is the Gross Profit per person in my business?’ is now becoming much more useful – but you still don’t have any context – you just have an absolute number. The best KPIs are expressed as percentages, averages and ratios as these are most easily compared with other time periods.
‘What % of Gross Profits do I spend on salaries?’ gets to the root of the issue; it gives an answer that can easily be compared to previous time periods and allows you to shine a much brighter light on your business with far fewer questions.
For larger businesses you can go into more detail: ‘What % of Gross Profits do I spend on Sales / Admin / Operations etc’ which then gives you a benchmark for productivity & efficiency, which is – or should be – at the core of every business.
The closer a KPI gets you to identifying a business priority that you can proactively target the better it is, so don’t settle for less. You may not get there the first time you try – or even the 3rd – but when you do you will have a handle on your business that most can only dream of.
Paralysis by Analysis? A great KPI achieves exactly the opposite.
Tim Brown, Business Growth Coach in London
Would you like a hand figuring out exactly how to apply this to all areas of your business?
Take action and call me on 07825 589333 or email timbrown@actioncoach.com to request your complementary KPI review phone call – and for appropriate businesses, a complimentary 1 to 1 coaching session.
