As you attempt to control your business and your team's effort, you will likely be attracted to dashboards. And the first question you should ask is “does the dashboard make the team accountable, and does it give them the data needed to make the right adjustments to hit plan?”
Leaders and entrepreneurs spend a lot of energy and effort attempting to identify the KPIs (Key Performance Indicators) that will help them succeed. For those who aren’t familiar, KPIs are metrics with the following function:
– meaning important for your department, your team, your business, etc.
– meaning connected to your business activities and results.
– meaning it should reflect a number and give you time to act accordingly. An example is NPS (net promoter score) for customers or employees.
It takes great effort to identify the correct KPIs, but once they are identified, you aren’t yet done. Great companies run fast and, just like a race car, great teams could use a little “nitro” to help them burn past the competition. The nitro in business is your Critical Number.
Critical Numbers are often derived from KPIs – making the critical number a very special KPI. The way I coach Rhythm clients to best leverage Critical Numbers is to move from results indicators (lagging) to leading indicators. This begins with the question, “what drives results and how do you measure it?”
Results indicators are the usual suspects of EBIDTA, revenue, NPS or customer satisfaction, employee retention, and more. All of these represent after the fact measurements. It takes effort and thought to develop indicators that happen in advance of the above measurements. For further information, read my blog Use KPI Bifocals to View Your Critical Numbers.
By now you may be thinking, "Whoa, Barry! Let’s slow down. What exactly is a Critical Number?" Here’s the answer: the Critical Number is a KEY driver (or indicator) that greatly influences the performance of your business. We derived this concept from Jack Stack’s book The Great Game of Business.
Jack asserts that Critical Number is
The one number that at any given time, is going to have the biggest impact on what you are doing and where you want to go. It is the number that can make, or break, your department or company. It is the number that is connected to the most important priority in your business.
The goal of a Critical Number is to give you strong focus for a year or for the quarter. The key thought is focus. How do I focus energy and effort for myself, my team, and my company in such a way that it has a positive effect on performance? This Critical Number is often an operational number or financial measure and should be quantifiable and measurable. Choosing many "critical numbers" defeats our purpose - and negates the definition of “critical.”
Once you have focus on the #1 thing to drive, then what do we measure to push the nitro to it?
As an example, let’s suppose that revenue takes 2.5 months to realize from the first meeting with a prospect. Since revenue is measured after the sale data is entered and, according to your method of accounting, after the money is collected, there are many earlier indicators that would lead you to make adjustments sooner – therefore reducing any slump in sales (by volume, length, or both). These might include number of sales meetings, call connect ratio, presentations requested, daily bookings, daily sales entered, average per daily sale, and on and on. The key is to move the opportunity for adjustment as far in advance of when the revenue is realized so that you make more meaningful adjustments sooner.
The Critical Number helps you focus and prioritize. Whenever you’re in doubt, PUSH on your Critical Number - do that work first. As Patrick Thean, author of Rhythm, says, “When I play the piano, I play the whole song, but the great players know how to put emphasis on the crescendo.”
Join Patrick and me on March 5 for our FREE Webcast: Build Awesome KPIs and Dashboards. As always, I appreciate your comments below!