Just Keeping Track of Key Measures Can Double Your Profits
A study by Aberdeen Group found that companies using operational dashboards realized two times higher year-over-year net income growth and three times higher year-over-year sales growth than those who didn’t.
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This magic “operational dashboard” is simply a listing of your business’ key metrics. They are effective for many reasons best summed up by GoDaddy CEO Bob Parsons, who said, “Measure everything of significance. Anything that is measured and watched, improves.”
Yes, the very act of measuring something causes it to improve. The reason for this is probably rooted in psychology. If you are constantly looking at a scorecard, you want your performance to improve. Intuitively, it makes sense. Operational dashboards allow business owners and executives to see performance within each business unit and exactly how their business is performing overall. That allows them to spot and fix problems faster than competitors.
Dashboards improve employee productivity. When employees know they are being judged on key metrics, they work considerably harder to make sure their metrics improve. The very act of keeping score motivates them to produce better results.
Put it all together and it is less surprising that operational dashboards quickly boost sales and profits. Try the following exercise. Give each of your key employees one metric to measure over which they exert control. For example, a marketing employee should track “number of new leads” as a metric instead of “number of sales,” if they are not specifically responsible for closing new sales.
If your employees cannot determine a metric to track, this should alert you to a problem. Either they are trying to accomplish too much, or they don’t understand how their job relates to the overall goals of the company. In either case, take the opportunity to correct this issue.
Once your employees have identified their key metric, have them or someone else track it. Make sure they see their results on a daily basis. Seeing their results numerically will make them want to improve. You can then watch as their results improve. As a great by-product, you’ll most likely see employee satisfaction and enjoyment rise.
Importantly, if performance does not improve, a new strategy is probably required. In such a case, spend time with the employee brainstorming new ideas. This will likely lead to a breakthrough that significantly boosts performance.
If athletes never kept score, performance wouldn’t be nearly as high as it is today. For instance, if only today did they start keeping score, golf scores would be higher, baseball pitches would be slower, and so on. However, once tracked, scores and speeds would quickly improve. Keeping better score in your business will give you similar results. Performance will quickly rise and both you and your employees will be happier.
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Dave Lavinsky is the co-founder of Growthink, a Los Angeles-based consulting firm that helps entrepreneurs identify and pursue new opportunities, develop business plans, raise capital and build growth strategies. He is also the founder of Guiding Metrics, a company that tracks KPIs to help businesses grow faster and more profitably, and the author of Start at The End (Wiley, 2012).