One problem that many business owners experience is the “can’t see the forest for the trees” syndrome. In other words, they are so busy managing the details of their business and looking after particular situations that they lose sight of how well their business is operating. This is a particular problem for small business owners, who often don’t have a lot of management around them, and at times are management. The key to solving this problem is knowing what information to focus on that will quickly convey the business’ status. Here’s a way to do that.
Over the last several years, it has been popular to devise new tools to use in tracking a business; balanced scorecards, dashboards and the like have been very helpful for business owners and management. When looking to create a tracking tool for a small business, I feel that there are three important areas to take into consideration: Strategy, Operations and Finance.
Strategy is really the key; I define strategy as the concrete steps that a business is going to take to achieve their objectives and fulfill their mission (For more information on how to do that, see my Blog posting A Simple Strategy). Once you have your objectives in place, including the manner in which you will measure execution, you can decide on what to look at on your tracking tool. For example, if one of your objectives is “customer satisfaction”, then you must define what “customer satisfaction” means and how you will measure that. For example, you could use a survey sent to customers after a product or delivery was delivered.
There are really two things to look at here: first you may want to look at what your average is for on customer satisfaction. If you were using a survey, you could start with a goal of an average 4 on a scale of 1-5. Your tracking tool should then show a number that represents the actual average of customer satisfaction. As long as you are tracking to your goal, you know that you do not have a major problem.
However, it would also be interesting to track outliers; events that are a certain percentage out of whack. For example, supposing that your customer satisfaction goal for a type of product shipped was 4 out of 5. Perhaps you might want to identify and investigate any instance when a rating is 3 or below. While your averages may look good, investigating an outlier can alert you to brewing problems.
Financial returns can also be tracked to good effect. For example, you may want to look your gross margin on a periodical basis, say monthly. You can set a goal for gross margin as a monthly target and the results will alert you to problems in your production cycle. In the same manner as we did for on time delivery, you may want to also look at any particular order where gross margin is a certain percentage below what you generally expect for any particular product or service.
When it comes to operations, you may want to look at “On Time Delivery” for a product or service. In this case, you might track the average of on time deliveries, with a goal of 90% of all deliveries on time. You might also investigate outliers that fall more than 20% over the expected delivery date.
As you can see, creating and maintaining a system to help you keep your finger on your business’ pulse need not be complex, but they must be based on a real strategy in order to be effective.