In the post titled “Common Reasons Not to Use Performance Metrics”, I outlined a few of the justifications used by businesses for not making an investment in developing and monitoring a strategy centric set of performance metrics. I also offered some opposing arguments, suggesting an owner or CEO should question those justifications, especially if business growth is a key objective.

Extreme examples can help put the growth point in perspective, so let’s consider Microsoft and Facebook. Both were once total startups, then small businesses, and now they are anything but small. Granted, each had an unusual growth opportunity by virtue of playing in a new, large and unfulfilled market. But, their evolution was no different than any other company seeking growth. They started with a product that solves a problem, then sold that product to a group of customers. Once established as a small business, they then attacked the hardest part of the growth challenge, business expansion.

The evolution from small business to growing company is very hard to achieve, largely because it requires shifting from being run by a single horse or small leadership group, to a decentralized broad based company. In other words, success in the growth phase of a business’s development is dependent on the business’s ability to develop organizational capacity.

Developing and employing metrics is an integral if not essential part of building organizational capacity. Employing a formalized set of strategy centric performance metrics serves not just to keep leaders informed, but also to communicate what people need to do for the business to succeed. The selected metrics package defines the execution plan imbedded in your business strategy, and is a highly effective means of maintaining focus on that strategy throughout the organization.

What if you’re not Microsoft or Facebook, you don’t play in a new, large and unfulfilled market? Irrespective of business growth prospects, all companies must deal with changes in their external marketplace or internal operations. And the smaller the business, the fewer the moving parts, so adjusting to change can be tantamount to a wholesale change in the business model. Making such a wholesale change can be both difficult and time consuming.

For smaller businesses, if a need to adjust to market or operational change is not recognized early, it can threaten the business’s survival. Perhaps a talented leader or a barebones performance monitoring system focused on revenue or customer satisfaction will recognize problems before they become disasters. But the risk can be reduced by investing in and regularly monitoring a well devised set of strategy centric performance metrics.

So what is a well devised set of performance metrics? As pointed out in my first post on this topic, and as suggested by Robert Kaplan and David Norton in their writings about a “Balanced Scorecard”, selected performance metrics should be balanced among 4 key areas of concern:
• financial performance,
• operational performance,
• the customer’s view of performance, and
• innovation, improvement and response to fundamental market changes.

The selected metrics in each of these 4 areas should reflect the business strategy, be measured regularly, compared to industry benchmarks or competitive intelligence, and shared with key employees throughout the company. Irrespective of business size, investing in a strategy centric set of performance metrics can be important, but it is an especially important, if not critical, for any 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.