Every business has a key strategic metric, one that encapsulates the productivity of the investments made in the business, that can be tracked over time, and broken down progressively as you move into the operational levels of your business.
The metric you choose should reflect the strategic choices you make. It should never be about profit, which is just an outcome, the metric you choose should be the single thing that drives the commercial sustainability of your business. It also acts as a ‘touchstone’ for everyone in the business, from the Directors to the cleaner. Everyone knows, understands, and can relate what they do in some way to the metric, it removes any confusion about what is important.
I have two acquaintances working in senior roles in large law firms. One is judged on his ‘Billable hours,’ the other on the rolling annual value of the clients he handles. The first works 70 hours/week, and ensures that every available 10 minute period in his diary is billed to somebody, for something. The other concentrates on the relationships he builds with his clients, setting out to become their legal ‘go- to’ man, providing advice on a range of issues in their businesses, often issues he sees before they do, given the ‘engagement’ he has. Both manage staff that have similar KPI’s directly feeding into theirs.
Two distinctly different KPI’s in very similar businesses that result in very different outcomes for both the employees and the clients.
Bricks and Mortar retailers all use some variation of the sales or gross margin/square foot of retail space as a key KPI. It may be calculated in slightly different ways, but all use it, and cascade the measure down through their organisations, in both the store management and buying functions. On line retailers by contrast generally measure the cost of acquisition of a new customer, and their ongoing lifetime value.
What is your key metric, and how does it reflect your strategic choices?
