Sometimes I’m asked to help companies find the right path for their next 3-5 years – which qualifies as “long-term” strategy for a Stage 2 company. Other times, my strategy work focuses on short-term performance. In either case, it’s useful to have some way to measure progress and check to make sure we’re on the right track – to have a dashboard or scoreboard.
In designing a dashboard, there are 2 main factors: (1) what you will measure, and (2) how you will measure it. I would rather have a precise description of the business driver and an imprecise metric than an imprecise description of the business driver and a precise metric. In other words, it’s more important to understand what to measure than to have a top-quality measure itself – it’s not much help to have an accurate measure of something that doesn’t matter. Or, said even another way, you should not pick your metrics by what is easy to measure – you should focus on what will drive your business, and then do the best you can to approximate a metric if there isn’t one easily available.
As for the business drivers, when you’re measuring short-term performance, the first job is to decide what’s important to track – what’s going to move the needle. In general, the items to track to improve short-term performance are going to be either revenue or costs/productivity. However, I recommend you come up with more specific metrics that zero in on exactly how you’re going to drive those areas. Examples would be:
- Revenues from our top 20 customers
- Revenues from new customers
- Revenues from a particular product line or market sector
- Costs or productivity of non-customer-related activities
- Costs or productivity in the areas of your largest expense areas
For a situation where the short-term performance is OK and the focus needs to be on medium- and long-term initiatives, there are a broader range of areas that are usually represented in a dashboard. Examples of long-term programs include:
- Development of new products
- Diversification into new markets
- Building a new way to acquire customers
- Changing the sales process
- Training and developing your people in general, or the skills in a particular part of the business
- Developing partnerships
So, what do you do if you don’t have a precise metric available? I’ve found that Green/Yellow/Red works fine as long as (a) there is a clear owner of the area that is being tracked, and (b) there is discussion about the status. The benefit of having an actual metric is that good data leaves little open to interpretation. (“Data ends discussions.”) If you’re not working with good data, but instead using something like a color scheme, then you’ll have to make sure you spend time understanding and interpreting what’s going on.
I’ll have some more specific recommendations for designing dashboards during my upcoming Monthly Strategy Hour – register to hear more and ask any questions you have.
Not all strategic decisions need the same amount of analysis. This is something that many founders understand intuitively. But it’s also something that becomes more complicated as a company grows.
Why? Because the decisions get bigger and more complicated, what worked for a Big Decision in the past often doesn’t work for the Big Decisions of a bigger company. In addition, the “decision environment” gets more complicated, with more potential participants and more dynamics among them. Who do you include? When? How? Who provides input and who participates in the decision? How is the decision actually made?
What qualifies as a Big Decision? Something where the payoffs are extraordinary – say, it could have an impact of 20% or more of a company’s revenue, or it could impact more than a third of the employees – and/or where the risks are extraordinary – say, it could take 20% or more of a company’s discretionary resources to implement.
Decisions fall on a continuum – as the stakes rise, so does the need to treat the decision more seriously.
And how do you do that? As the decision gets bigger, you should add more information, more structure and process, and more focus and energy on the decision before its made. If you don’t, you can be pretty sure you’ll be spending more time than you’d like or expect after the decision.