Accountability

August 26, 2021 - Are Measurements the Key?

Main Idea:

How important are grades in schools?  Do you ever have great years and at the same time you know that something was incredibly wrong?  Do you ever have horrible years yet you made incredible improvements in your business?  Do key performance indicators matter?  If they don’t then how can you manage your business?

Expansion of the Idea:

Most of us have heard statements like “You can’t manage what you can’t measure” or the alternative statement that you “Manage what you measure”.  We have been ingrained with the need for measurements, key performance indicators and accountability.  And yet at the same time we look at some intangibles and we know instinctively that we can’t measure them.  I view financial statements as absolutely critical for providing feedback on your operations.  However, when looking at financial statements, the financial statements show how we did and where we stand but it doesn’t show how we have invested for the future.  When you start thinking about all of this it leads to the following question:

Should we use measurements to manage and, if not, how do we approach management?

I was reading an interesting article this morning.  The author proposed that we change a metaphor such as “Curiosity killed the cat” to something like “Curiosity fed the cat”.  What does that do to our thinking when we look at something a little different?

I started thinking about what that could mean to measurements and management.  What if we changed the above statements to the following:

  1. You must manage what you can’t measure

  2. You must decide how to manage what you measure

What does that do to your approach?  For the items that you can’t measure, then you need to figure out how to manage some of the following:

  • Relationships: employee, customers and vendors

  • Culture

  • Personal investment in your team

  • Creativity

  • Fun

For the items that you can measure, it is important to make sure that you are measuring the right things and then how to use them.  There is no perfect balance between short term profitability on product lines and the lifetime value of a customer.  Those two measures are at odds with each other.  Another example would be employee efficiency versus employee effectiveness. 

Managing people and our businesses can be a black hole.  The issue for each of us is to identify what is going on in our businesses and to try to identify what we don’t know.  This can only come from having clear goals and creating the right management systems.  We have to have the right balance of using measurements and managing everything else. One of my favorite authors is Eliyahu Goldratt who said:

Almost all decisions based on cost accounting are utterly wrong.

The bottom line is that management is a lot more than just following the measurements.  There is no one size fits all.  It requires a lot of work. 

Questions to Consider:

  1. Do you rely on financials and key performance indicators to manage your business?

  2. How much time do you spend managing the other items?

  3. Have you laid out a system to manage everything, both the items you can measure and those you can’t?

  4. Do you get input from your team on areas to improve your management?

  5. Do you know how much you and your team have learned this year?

June 27, 2008 - Are You Accountable?

Main Idea

In your business who are you accountable to?  Do you have a board of directors, a management team, or a spouse that holds you accountable?  Is your bank the only one who holds you accountable?  

Expansion of Idea

Most small business owners are in business for themselves because they want freedom.  And freedom is very good.  However, most of us need some structure and deadlines to get things done.  Our spouse is generally the wrong person to hold us accountable in this area of our lives.   

One of the best business decisions that I have ever made was to start an advisory council that is composed of one of my team plus two outside directors.  After my dad died several years ago, there was no one who would hold me accountable.   I was making okay decisions but was not following through.  This council has helped improve my decisions, brought outside input, and held me accountable for follow through.  I am not quite as transparent as I would like to be, but I am a lot closer than before.   

How far you go with this depends a little on the size and complexity of your business.  However, almost everyone would benefit from increasing the level of accountability.  And there is one other huge benefit from doing this.  You are creating a culture at the top which will spread throughout your organization. 

Areas to Look At

  1. Personal accountability

  2. Peer accountability

  3. Management team

  4. Board of Directors

  5. Overall culture of accountability