I recently attended a Think Tank here in NYC, sponsored by SmartCEO, where the topic was “Data Analytics – Determining Measurements That Drive Business Success”. The questions posed to the assembled group of small, below middle market business leaders were very good ones:
• how often do you measure metrics?
• are metrics shared within the company?
• are metrics compared to benchmarks?
• are metrics tied to strategy?
• what specific metrics are used?
• do metrics drive your business decisions?

Despite all participants being smaller sized companies, everyone did look at some form of metrics. But the participants varied in their habits when it came to tying metrics to a defined strategy, communicating performance metrics within the company, comparing metrics to external benchmarks, and formalizing the use of metrics in their management process. Not surprisingly, the most vivid takeaway was that the smaller the business, the less likely management paid attention to formal metrics beyond a customer centric thought process that emphasized revenue, or customer retention or customer acquisition.

Using performance metrics does not require reams of data, or tracking a wheelbarrow full of ratios. But it does require thinking though the business strategy, identifying the keys to success, selecting a few ratios or other metrics that reflect those keys, establishing a process to collect needed data, and comparing your selected metrics against a target or plan on a regular basis.

Also, as Robert Kaplan and David Norton have proposed in their writings about a “Balanced Scorecard”, the selected metrics should reflect key performance objectives from four perspectives:
• the owners/shareholders perspective (financial performance),
• an internal perspective (operational performance),
• an external perspective (customer’s view of performance), and
• a future perspective (improvement programs, innovation, fundamental market changes).

Are performance metrics any less important for smaller businesses? Perhaps, but even in smaller businesses, metrics can identify problems before they become disasters, and are essential to achieving growth. So why does a business not track and use performance metrics when making decisions? Why not create a formal set of strategy centric metrics that are regularly measured and shared throughout the organization?

In future posts, I’ll explore some typical reasons used by small businesses to justify not employing a broad, strategy based set of performance metrics. I’ll also expand on the reasons why any business, irrespective of size, should invest in developing and using metrics in their management process, particularly if it is a business that wants to grow.

JCJCo provides outsourced CFO and business consulting services to entrepreneurial and high growth companies. We help our clients develop performance metric measurement and management systems that reflect the client’s strategy, and delivers essential information needed by the business owner or CEO to monitor performance, make business adjustments, and meet growth objectives.