For many businesses, the term ‘metrics’ means looking at the financials at month end – the “after Action Reports.” But these reports provide only a snapshot and they typically don’t show you what’s actually going on behind the numbers.
If your profitability and cash are falling short, do you understand the big picture and know why? Are you always surprised by poor month-end results?
Many businesses miss this key component to managing and leading. I think it’s because many leaders don’t understand the concept of “situational awareness.”
Early in my career, I flew the F-14 Tomcat for the Navy, and it was always important for me to be aware of everything happening in the cockpit as well as outside the aircraft.
In a cockpit we look at the gauges and radar displays to determine where we are, watch for other aircraft, and listen to the chatter on the radios to keep the big picture in view. This situational awareness was crucial in helping me fly safely and do my job.
It’s similar in business, except that the gauges and radar displays we scan are the performance metrics of your business and we need to understand how they all interrelate. The situational awareness you must utilize in business is understanding the complete picture, identifying problem areas, fixing them – and then continuing to scan those “gauges.”
To be effective, metrics must cover all the bases and be linked to organizational vision and strategy. I recommend a Balanced Scorecard system that gives you all the key information in a one-page summary, broken down into key areas. For example, metrics for a manufacturing company might include:
- Financial: Sales, margins, profit, cash, orders, backlog
- Customer: On-time delivery, past-due-orders, warranty returns
- Internal processes: Quality, overtime, supplier performance
- Investment: Training, additional employees, capital improvements
Within these main categories you may also be reviewing smaller metrics. Let’s say in Sales, you’re looking at a million dollar month. That may be a great number for you business, but what if your on-time delivery was only 50%? That’s not a great indicator for excellent customer service.
And did you make any profit off that million? Or just break even?
I once had an Operations Manager tell me that his company couldn’t deliver on time because a primary vendor was consistently late. But when I asked him to show the past history with the vendor we discovered that the vendor required a three-month lead time, but the company was only giving two months. No wonder the vendor was always “late”!
Do you see how getting information that’s either wrong, or not the whole story, can impede your progress? If a metric is not performing we need to understand the reasons why, make the adjustments, and bring it back in line.
In the cockpit, I’m constantly scanning the gauges/metrics in order to keep a heightened level of situational awareness. In business, just because a metric is performing well this month, doesn’t mean it will continue to do so. A proactive approach and constant vigilance is required.
You might be surprised at how fast things can turn around once the right set of metrics is implemented and monitored; metrics are crucial to track progress towards your objectives.
And while you certainly don’t have to be a fighter pilot to accelerate the performance of your business, it sometimes helps to think like one!