Innovation Junkies Podcast

KPIs & Scorecards

The Jeffs talk about how to assess the fuel that powers your economic engine. They discuss Key Performance Indicators and how to use them, the importance of focusing on the vital few over the insignificant many and establishing systems and eliminating guesswork in your leadership.

Jeff Standridge (Intro):
Are you ready to change the trajectory of your business and see massive improvements? Each week, we’ll share strategies and practices to generate sustained results and long-lasting success in your organization. Welcome to the Innovation Junkies Podcast. 

Jeff Standridge:
Hey, guys. Welcome to another episode of the Innovation Junkies Podcast. This is Jeff Standridge.

Jeff Amerine:
Hey, it’s Jeff Amerine.

Jeff Standridge:
Hey, man. What’s going on?

Jeff Amerine:
You’re looking good.

Jeff Standridge:
Got my hair trimmed up. Can you tell that?

Jeff Amerine:
Yeah. That’s what we used to call a PJ Flat Top back in the day.

Jeff Standridge:
Oh yeah. It’s kind of a high and tight.

Jeff Amerine:
You’re still meeting MIL-SPEC there.

Jeff Standridge:
Oh, yeah. 

Jeff Amerine:
If you get recalled, you’re good to go. The goatee would have to go, but otherwise you’re good.

Jeff Standridge:
Yeah. If you’re on the podcast, you really ought to go over to YouTube and check out my new do. I got my hair done yesterday.

Jeff Amerine:
But I bet your hairdo hasn’t changed in about 40 years, has it?

Jeff Standridge:
Yeah, you’re about right there. I think I started with this haircut when I was… No, about 40. Yeah. I think I started this haircut when I was about 18 or so, so it’s getting pretty close. Hey, we’re rounding out our series of episodes on operational effectiveness. So, we started out talking about a series of episodes this season on revenue velocity. Then we moved into organizational effectiveness and some of the best practices that we see and some of the practices that we assess through our GrowthDX. Then we’ve moved to operational effectiveness. We’re in our last episode of operational effectiveness before we move to the next domain of the GrowthDX, which is leadership effectiveness. And we’re talking about key performance indicators and scorecards, how do we actually assess, so to speak, the fuel that powers our economic engine. So, why don’t you talk a little bit about that, Jeff?

Jeff Amerine:
Well, it’s really so critical because the old adage is “you measure the wrong things, you get the wrong results.” But measurements and metrics, key performance indicators are really crucially important. There’s no doubt about it. And one thing I’d say about that is there’s several techniques that you can use. This idea of review mirror and income statement. Talk a little bit more about that, Jeff.

Jeff Standridge:
Yeah. And sorry, I miswrote that, it should say rear-view mirror.

Jeff Amerine:
Review mirror, rear-view mirror. I don’t know, I thought maybe that was one of your international references.

Jeff Standridge:
No, no, no. That’s just pretty much a typo.

Jeff Amerine:
Well, you know what? It reminds me of that scene from Bruce Almighty.

Jeff Standridge:
Yeah.

Jeff Amerine:
Or Evan Almighty, where he was playing the role where he could manipulate what people say. And if you put it on a teleprompter, I’ll read it wrong.

Jeff Standridge:
Yeah, exactly. So, we’re talking about, you got to have your income statement. You got to have your profit and loss. And I will tell you, I know organizations that don’t look at their profit and loss statement until weeks after the closing period, say, the monthly closing period. It may be 15 days, maybe 21, maybe 30, maybe quarterly. You got to look at your profit and loss statement. But even when you get it… And I have one business I’m involved in, by the end of the second day of the month, I’ve got profit and loss statements, I’ve got bank balances, I’ve got any outstanding debt balances. I know everything about that business. And then I have production reports within the second business day of a new month for the prior month. Well, even then, which I would say is even better than a best practice, it’s a rear-view mirror.

We’re looking at something that’s already passed. The further you go out from the close of that period, it’s even a further look in your rear-view mirror. And so it’s a vital component. You got to know what you’re doing financially, but even when it’s at its best, it’s a rear-view mirror view. So, we like to think about, “Okay, how do we actually begin to get a dashboard view, our fuel gauge, our amp gauge, our tachometer, our speedometer, our oil pressure?” That is the key performance you want to get. Those vital few things, not the insignificant many, but the vital few things that we’re going to be looking at while we’re moving our organization forward on a daily, weekly, or monthly basis that tells us how we’re doing in the moment.

Jeff Amerine:
Yeah. And one of the kind of classic ways, back in the 70s and the 80s, early 80s, there was a group, Kaplan and Norton wrote the book called The Balanced Scorecard. And these guys realized that there was way, way, way too much focus on just financial measures and quarterly focus, to the detriment of everything else that was going on in the organization. This was a time when I think it’d be easy to say there was a fair amount of organizational malaise, amongst in particular large enterprises in the U.S. because we were just measuring one thing. It’s pretty uni-dimensional. Instead, I think the structure of having key financial measures, which are important, things like your financial performance and your key ratios can be interesting, understanding where you stand with your customers.

So, we’ve talked in the past about net promoter score. We’ve talked about customer acquisition cost. We’ve talked about things like lifetime value and how long we’ve taken them. Measures like that are important. Also, important to look at internal processes. If you overlaid a total quality management or a lean approach, reviewing those internal processes to see where there’s waste, and what are things that we can get rid of, and how effective are we being as an organization based on having documented processes that enable good performance rather than slow things down. And then the final thing is this idea of people development or learning and growth. How are we investing in our number one asset, our people? And how are we measuring the progress they are making? So, things can be like every team member has an annual performance review, every team member has an annual performance improvement plan.

Those sorts of things. Are you winning on your first offer to key employees that you want to hire? There can be key measures within each one of those four KPI areas, financial, customer, internal process, learning and growth, that then will support or be bounced against your long-term objectives, your short-term goals, your purpose, and your mission. They are the things that bring meaning to, are we headed in the right direction, and how do we know, on a regular basis.

Jeff Standridge:
Yeah, that’s great. And we’re keeping two things in mind. Are they vital? Right? Or as I said, the vital few, not the insignificant many. And one of the ways that I like to think about the vitality of them is, do they fuel or are they part of the fuel that powers our economic engine? There’s another model. So, I love Kaplan and Norton, and I’ve been a student of theirs for a long time. There’s another one that came about from the Covey Organization, a guy by the name of Kevin Cope, who wrote a book called Seeing the Big Picture. And he talks about the five drivers of any business. I actually teach these five drivers in my entrepreneurial finance class and in some of the work that I’ve done in Managing by the Numbers, where he talks about cash, profit, assets, growth and people. And people means both customers and employees.

So, I think it’s another kind of a… You have the four ways that Kaplan and Norton provided, and then you have the five ways that Kevin Cope provides. Look at cash. What’s our cash flow? What’s our cash position? What’s our number of days of cash on hand? Those may be key performance indicators that fuel your economic engine. What about profit? Gross margins? Net margins? Could be things that you look at. Assets. What’s the strength of our assets? How liquid are we with our assets? How could we liquidate some assets? How quickly could we liquidate assets to cover some of our debt obligations, for instance, if we had to? Growth. There are a lot of vanity measures out there for growth where people look at number of employees, number of locations, number of customers, and I put those all under the vanity measures of growth.

The only real two ways to measure growth of an operating business is are we growing our top line and are we growing our bottom line? Are we growing our sales? How quickly are we growing our sales? And how quickly are we growing our net income? And then finally, people. What’s our retention rate of our customers? What’s our retention rate of our employees? How quickly are we losing top customers or top employees? Some of those kinds of things. So, whether you’re using Kaplan and Norton or you’re using Cope’s five drivers, have a system to understand what are the vital few fuels, if you will, that are being used to power your economic engine, and how do you measure them on a daily, weekly, or monthly basis.

Jeff Amerine:
Yeah, it eliminates guesswork and it allows any good operator or any good leader to keep the business under control and it just allows you to get ahead of issues that are going to occur if you understand where you are on all these.

Jeff Standridge:
And if you think of them in terms of knobs, levers, and dials, that’s what key performance indicators give you for your business, is they give you a number of knobs, levers, and dials that you can pull, push, twist, and turn in order to fine tune how your business is doing between profit and loss statements, between income statements. That’s the ideal scenario that you want to get to.

Jeff Amerine:
Critically important. Great stuff, Jeff.

Jeff Standridge:
Good stuff. Hey, great episode. And this rounds out our series on operational effectiveness. When we get back together again, we’re going to transition into talking about leadership effectiveness, the domain of leadership effectiveness, which is one of the six domains that we assess with our growth diagnostic, which we call the GrowthDX. This has been another episode of the Innovation Junkies Podcast. Thank you for joining.

Jeff Amerine:
See you next time. 

Jeff Amerine (Outro):
Feedback from listeners like you helps us create outstanding content. So, if you like this episode, be sure to rate us or leave a review. Also, don’t forget to subscribe to get the latest growth and innovation strategies. Thanks for tuning in to the Innovation Junkies Podcast.

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