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Five Thoughts through Five Favourite Quotes on Performance Metrics

Five Thoughts through Five Favourite Quotes on Performance Metrics

Numbers tell stories – and metrics are the tools through which these stories get shape and substance. And yes, I am mad about metrics. And I know I am not alone in my fascination for metrics. There are tons of metrics to choose from and the right performance metric for your business may not be the right one for mine. I have been asked many times on how to know when to introduce metrics, what the right metric is, and how to work the metrics so that the metrics work for you. So through this post, I will try to answer these questions through another passion of mine – quotes! I LOVE quotes (as do the majority of internet users going by the number of quotes shared every minute) – do you too get the feeling sometimes when you read a quote – ahh, I totally get that one, I wish I had written that – an Eureka Moment ?

Quotes are distilled pieces of wisdom. And when it comes to metrics, my experience is that getting the perfect metric and the perfect outcome as a result of tracking the metric needs a lot of hard work and experimentation – so wisdom from people who have been there, done that certainly goes a long way in making the metrics journey easier. So, here are the five quotes on performance metrics, pieces of wisdom that have helped me crystallize my approach to key performance metrics:

“Measure what is measurable and make measurable what is not so.” – Galileo

From the Father of Modern Science comes this gem. The thought to keep in mind when you have to begin from the beginning with metrics. The second half of the quote – make measurable what is not so – stands out to me – just because you can measure something easily is no good reason for measuring something. Metrics need to be tied to the desired business outcomes. And we need to spend some time assessing what metrics we have already and what metrics we need, and then going back to work on creating the systems and processes that will provide the data for quantification in a shape and form that will allow us to measure that. Data collection, analysis and management is most often cost and labour-intensive – so that part should always be weighed against the benefit derived from the metric. Don’t start something you can’t sustain in the long run.

“The ability to simplify means to eliminate the unnecessary so that the necessary may speak.” – Hans Hofmann

What not to measure is sometimes more important than what you do measure. Selection of the right performance metric for your business is critical. Do not introduce metrics just for the sake of metrics – it serves no one and the whole purpose is defeated. Start with what is the business goal that you need to track and improve, what are the processes related to that goal, and what metric would best reflect the productivity of the process. Measure only that which is important, that which provides real value to the process in question, which can be easily understood by all stakeholders and is ACTIONABLE.  Control your love for metrics and don’t produce reams of excels and slides and/or dashboards that make peoples’ eyes glaze over right from the start. Be ruthless in cutting down the unnecessary so that the necessary can stand out and shout.

“If you torture the data long enough, it will confess to anything.” – Ronald Coase

One of my favourites and sorry to say, one that I am reminded of time and again in the corporate world. Data through metrics must speak the truth even when (and especially when) it does not serve our personal needs. As professionals, we have a responsibility to ourselves and our organizations to be honest, transparent and collaborative. How you measure is as important as what you measure. Don’t devise metrics out of the data just to show things in a good light or in a bad light – keep doing that and there will soon be nothing left to measure. Design the metrics and the data collection systems in such a way that it throws the spotlight on the business outcome and is balanced to reward productive behaviour and discourage “game playing”.

“There is nothing so useless as doing efficiently that which should not be done at all.” – Peter F. Drucker

This one is a popular quote and one that has served me well every time I enter a new setup or review a long running process. Business is dynamic, why should metrics remain static? What made sense to measure last month, quarter or year may have become completely irrelevant to measure today. Many a times I have found during reviews, a metric that no one remembers why it is being used, knows who is using it or where it is being used. Trust me, the same is true for many processes as well. There may have been a good reason once sometime in the past that makes absolutely no sense today. So keep reviewing, keep questioning and keep going back to the drawing board with your list of chosen metrics so that they remain relevant and useful.

“An idea not coupled with action will never get any bigger than the brain cell it occupied.” – Arnold Glasow

Do I see you nodding your head to that? All data, dashboards, metrics are useless unless the knowledge and insights derived from them are translated into action.  Ask yourself – what story does this metric say, how can it help the leadership make the right decisions (more, less, better, different?) and arrive at an action plan when necessary? Every metric should be mapped to an end goal and have an action plan defined for improvement, sustenance and excellence. The action plan reviews should go hand in hand with the metric reviews feeding each other in a continuous loop. If the metrics are chosen carefully and presented properly, then, in the process of achieving their metrics, people will make the right decisions and take the right actions that enable the organization to maximize its performance. And that is when you know you have done your job well.

So, there you have it, the method and mechanism behind key performance metrics through learned wisdom. Metrics matter, metrics need work for them to work, metrics tell a story – the ending of which you have the power to change. Make your Metrics Rock!

What are your favourite quotes on performance metrics? What wisdom have you gathered on setting key performance metrics ? What has worked for your business and what has not? I would love to hear back and learn from you.

Pic Courtesy: http://www.flickr.com/photos/rubyblossom/4674821065/

Mergers and Acquisitions – Five steps to a Successful Organizational Integration

Mergers and Acquisitions – Five steps to a Successful Organizational Integration

If you like me have worked for a decade or more with or for small or mid-sized companies/clients, it is quite likely that you have experienced that sinking feeling that comes with the announcement of yet another merger or acquisition quite a few times. Whether you are acquiring or getting acquired, merging or get merged, it involves uncertainty and change at all levels. Mergers and Acquisitions (M&A) are done to integrate two entities for achieving rapid inorganic growth (Wiki definitions). But though the goal is performance improvement, results from mergers and acquisitions are often disappointing compared with results predicted or expected. Numerous empirical studies show high failure rates of M & A deals. As Irwin Stelzer, US economist and writer said –

When it comes to mergers, hope triumphs over experience.

I think the major reason that post-merger integrations are not successful in the long-term is the lack of systematic planning and the haste in which “a one size fits all” approach is implemented. Sufficient time, thought and effort needs to be put in. It takes time to understand and establish a vision for the integrated company and then align people, processes and technology to create an ecosystem that allows both the merged entities to adapt to the best from each other and become a collaborative, high-performance organization.

The steps of integration can vary from company to company based on the nature of the business and the complexity of the merger. The goal of a merger is business performance improvement and performance is all about people – collectively and individually. Hence, what works is to consider this as the top priority while defining the integration plan. Here are five steps that I have seen worked well for some of the more successful mergers that I have been associated with:

Step 1: A clear and realistic shared Vision – In the pre-merger diligence and evaluation phase, the reasons behind why a merger makes sense for both entities would have emerged. The details from this phase should be used to create a strong, realistic and well-articulated vision statement. This is what would drive integration by giving the organization a strategic direction. It is not easy to create a shared vision but I have seen that through the endless meetings and details in the pre-merger phase, if we are able to find an answer for this question – how will the customer benefit in future from the joint capabilities of each entity ? – it serves as a good starting point to create a vision statement. It helps identify the best features of both companies and ensures that these remain intact post-merger. Once the vision statement is created, it should be used a clarion call to inspire and motivate both teams to work together and communicated through every medium and at every opportunity possible.

Step 2: Understand the differences – Even though most mergers are done because both organizations “fit” each other, the integration will only be successful if you take time to understand the differences. The differences commonly are in the corporate culture and value systems, levels of staff qualifications and competencies, leadership styles, operational processes and systems and tools. The rationale here should not be to just impose one common way of functioning but rather to identify and evaluate the uniqueness in each organization and what needs to be done to preserve the successful business models while creating a platform of commonality that allows the organizations to leverage each other in a way that performance is boosted.

Step 3: Know the people – It is important to identify the key stakeholders/leaders/influencers within the new entity quickly and also listen and address their fears and concerns. Announce an integration core team drawn from multiple functions of  both entities that would be responsible for creating, monitoring and tracking the integration plan with tasks and timelines till all post-merger actions are completed.  If staff in the company being acquired see that their managers have bought into the integration process, they are more likely to get engaged and buy-in as well. The “Us” vs. “Them” mentality soon gets neutralized if people see that the integration is being driven by a joint team. The new organization structure should also be drawn up quickly so that priorities are identified and set by the leadership and the middle management and the staff knows who their leaders and what the long and short-term goals are. This brings in stability and helps quell the normal fears that such changes bring in the minds of people.

Step 4: Define and implement the processes and tools – This is related to step 2. Sufficient attention should be given to identify the best practices in operational and service processes and tools in each organization and to ensure that they become the standard procedure of BOTH the organizations. A merger gives us an opportunity to view our processes with a fresh eye and pick and implement more efficient systems and processes. Set transformation timelines, training programs and workshops to bring the organization up to speed on the changes. A data strategy is also important for data migration and creating a common database to provide the necessary reports for the merged entity.  It is also important to not attempt too many changes in these areas at the same time – initiative overload sets in then derailing the integration process and you also run the risk of hampering the regular business operations.

Step 5: Engage, Engage and Engage : Of all the HR aspects that determine the success or failure of a merger, communication has been found to be the biggest factor that has the power to make or break the post-merger integration. There needs to be a communication strategy within the integration plan so that there is strong leadership communication from day one. It has to be honest, transparent and candid to win the trust and credibility of the employees. Quick wins in the integration process need to be celebrated and a sense of positive urgency needs to be created. A regular two-way feedback mechanism needs to be set up so that there is sufficient input from the organization to measure how well the integration strategy is working. Connect leaders and employees with counterparts or supervisors within both organizations, organize networking events and set up an online social-networking portal or collaboration workspace.

Financials are important in deciding on a merger but after that, it is the softer issues like providing a purpose behind all the change, understanding the cultural nuances and having a well-defined plan that can help make mergers work to achieve the successful outcomes that were intended.

Have you gone through a merger or acquisition or department integration? What was your experience – what worked and what didn’t and how would you have done things differently? I would love to hear back and learn from you.

Business Operations Performance Metrics: Gross Margin – Five Steps to Improve your Margin

Business Operations Performance Metrics: Gross Margin – Five Steps to Improve your Margin

~~The success combination in business is: Do what you do better and do more of what you do. David Joseph Schwartz ~~

Margin improvement – this phrase usually conjures up images of budget cuts and lay-offs – and strikes fear in the hearts of the toughest managers.   But it really does not have to involve any of these things – costs reductions though important should not be used as the only lever in any margin improvement strategy as you soon run out of cost reduction options.    Gross Margin (as I wrote in my earlier post on key performance metrics) is the mother of all metrics and the quickest way to determine if your business in on track or not   and acts as an early warning system to put in place margin improvement initiatives. So, a quick definition of gross margin:

Gross Margin (%) = (Net Sales – Cost Of Goods Sold)/Net Sales

The gross margin represents the   percent of sales that the company keeps after incurring the direct costs associated with producing the goods and services sold by a company. The levels of gross margin may vary dramatically based on the nature of business (products or services, manufacturing or retail, etc.) but the principles and strategies behind improving margins boils down to two things – increasing your sales and increasing your operational efficiency to   bring down the cost of goods sold.

Thinking through some such initiatives that I have been involved in and noting what worked and what didn’t, these are the five steps that I came up with that I believe are critical to the success of any margin improvement initiative:

Margin Improvement Step #1: Customer profiling or Knowing your best customers – It all starts with the right data that gives you the information that you need, in this case a profile of your customers (or customer segments) that gives you a view of where your profits are coming from. Pareto’s principle applies here too; around 80% of your profits would come from 20% of your customers (or segments). Now you have identified where to focus your energies on – sell more in high profits areas and less in the low profit ones. This will also help in reducing the cost of sales that arise from keeping alive or going after customers where you are consistently not making any margins.

Margin Improvement Step #2: Order to Cash process or Leaving no money on the table – Take a close look at all your internal business processes and systems that are in place to book orders, bill them and collect the cash. Where are the revenue leakages – do you have a method to track unbilled and deferred revenues and plug these?  Are invoices being raised in time or are customers being essentially financed by you? Do you have policies to regulate and control warranties, refunds, credit notes, etc.? Little things add up to a big dent into your margins over a period of time.

Margin Improvement Step #3: Pricing Policies or Enabling your Sales force Effectiveness – The quickest way to increase the gross margin is to increase prices. Even a 2-3% increase in prices brings in a big jump in margins and the people who can do this are the sales team. So are the sales people in the company aware about the linkages in pricing and margins? Is there clear communication and transparencies in how pricing is done within the organization and how it translates into bottom line for the company? Are there tools that can help sales make better decisions by giving them access to real-time data on profitability?   Making key stakeholders aware of the tools at their disposal and how their actions impact the outcomes is a big step forward in any improvement initiative.

Margin Improvement Step #4: Operational Excellence or Reducing inefficiencies – This is all about doing more with less and driving performance improvement through the smart use of metrics. Look at all areas of waste and inefficiencies  – space that is not being used, people that are not being utilized, advertising that is not working, projects that are out of control, inventory that is gathering dust, supply chain expenses, travel costs, etc. Translate this into a plan with measurable outcomes and deadlines and assign clear ownerships.

Margin Improvement Step #5: Rewards and Celebrations Or Creating a Customer-focused Culture – Tie the incentives, awards and rewards that you give to your employees clearly with the margin goals. Tie Sales bonuses with the levels of margin that each sale brings in and not just the revenue. Celebrate early wins to reinforce the importance of the margin improvement initiative. Positive reinforcement works best here.   Research shows that companies with a customer-focused culture that consistently deliver value beyond customer expectations grow at rates that exceed industry averages. Customer Focus is a profit strategy and the way to achieve long term profitability is to build and sustain the culture of customer focus within the organization

What steps have I missed ? What business operation metric do you use to measure margins?   What has worked for you in improving margins? I would love to learn from you.