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:
You must manage what you can’t measure
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:
Do you rely on financials and key performance indicators to manage your business?
How much time do you spend managing the other items?
Have you laid out a system to manage everything, both the items you can measure and those you can’t?
Do you get input from your team on areas to improve your management?
Do you know how much you and your team have learned this year?