Most business owners now know that it’s important to measure what’s going on in their company. Far fewer think about calibration – measuring business performance against key, defined performance indicators. But it’s calibration, not measurement, that helps you understand how to stay on track to meet your goals.
All too often businesses measure what’s easiest to measure rather than what matters. Rather than understand what the key drivers in their business are, they focus on accountant’s tools of cash flow and profit and loss statements alone. These financials have their place. But they’re blunt tools.
The best businesses are very clear on the key drivers in their business. Clarity of vision, of the end goal, and the steps that will get you there, enable sharp focus on exactly what matters, without getting wrapped up in irrelevant details.
Determining the KPIs for the whole business is the first step – the 3 or 4 key determinants of business success – things like volume of sales, profit margins, branding, driving customer satisfaction, and customer retention.
All other KPIs for teams and for individuals should be set based on those, so they feed into overall performance. Calibration means measuring against these targets to ensure that everything is aligned with the business plan.
Continual improvement works in tandem with calibration. Reviews and feedback processes can reinforce what’s working well, whilst tackling problems, based on a firm understanding of how individual’s work is affecting the whole team and business’s performance.
Incentives can be set to support the right behaviours and dissuade the wrong ones. But in order for any of that to work, baseline targets and standards for calibration are the foundation on which you build long term and sustained improvement.
I always find it amusing when junior guys from consultancies try to look clever by asking about some tiny detail of a business (that doesn’t mean anything to the big picture). Senior people just don’t delve into that stuff, they look for the key drivers. They’re trying to look smart but end up looking stupid!
It’s not the amount of data you have that matters, or having an understanding of every tiny aspect of the business, but rather how well you understand the key drivers and know what data matters in the bigger strategic picture.