As business owners, what is the one question we should all ask ourselves?

In the seventh show in this current series of B I G Insights on the Business Bunker we explored “The Calculator”, one of the ten characteristics that we find defines success. The Calculator is an aspect of an entrepreneur’s approach that appreciates the need to develop a broad range of performance measures and develop systems that provide accurate information upon which to base decisions.

We were joined on the show by Hamish Clifton, a serial entrepreneur. Hamish has moved from the funding and management of major international sporting and events venues through consulting to management buy-out. Over his career he has run some seven businesses, most recently as an “intrapreneur” for a large London University in the creative industries.

More often than not, we focus on the financials

Our research shows that the majority (over 70%) of business owners focus their attention solely on the financial aspects of performance.

So what?

Well, these types of measures present a challenge for strategic decision making. Financial data is in its very nature historical; it lags the decision making process, and by the time it reaches us it is often out of date. The world has already moved on. Whilst financial data can help to answer the “how much did we get it wrong by?” question, it doesn’t help to develop understanding around “how” or “why” this was the case.

This is because financial measures focus on outputs, the results, not the processes involved in converting your valuable resources into sales and profits. This also means that financial measures are difficult to translate into a format that staff, at an individual level, can understand. Employees work on and in the process, so they need measures that make sense for them, and that drive the right kind of behavior that you want to see.

But, why should we be concerned about how we measure performance in our organisations? Well, aside to measurement being an important part of a strategic approach to managing your business, our research shows that those who measure and monitor the right things are building more sustainable and successful businesses.

How we present data helps

We think data only gives us tactical information, to help with a decision might that we make now, but it can give us strategic insight too. We condition ourselves to think of management information as facts and figures but it can be so much more.

Last year Hamish reviewed a company’s processes, as management believed thing could work better. However, the work revealed that processes were not working because management was not functioning properly, it was structural:

“One of the ways it came to light was when the management team their own financial data. Instead of columns of numbers, I presented the data as colours and graphs. At once, what had been hidden became clear”.

Interestingly, senior management at this firm were mainly highly educated artists and craftspeople, and while they could appreciate and endure reading long documents, they were not comfortable with tables and columns of numbers; this as a complete turn-off. When information was presented graphically it was somehow totally clear to them.

The data is essential, and the trick is to ask the right question

Aside from the format though, is the data itself. As an entrepreneur and generally someone who wants to know how businesses tick, and how they could perform better Hamish applies an acceptability test:

“find the question that you (and others) do not know the answer to. Limit this to one question only. This question is likely to reveal both a blind spot in the company, which is always a risk, and the corresponding opportunity to manage the risk and in all probability improve performance”.

In his last role, Hamish ran a reasonably sizeable business. When he took over as CEO his main responsibility was to fix the internal processes around the accounting function. The operating aspects of the company were fine; it was a successful training business with £13m turnover and very healthy profits:

“The question here was: If we start to lose sales, what will be the cause? No one could offer any explanation, only guesses. This revealed to me that we did not really understand our business. To understand it, we needed to understand our customers’ motivations”.

This led Hamish and his team to recognize that they knew little about their customers, so they developed their internal systems to capture data on the needs and wants of customers. This led to a more customer-centric approach to doing business, which drove internal behaviour change. Management teams that once competed were now going after the same prize.

“I think people in senior management posts fall into two camps: those who find data boring, and those who find it interesting. In my early life I was definitely the former, but now having understood that the whole issue of understanding your business is a creative endeavor. Being strategic in business, for me, is about getting a holistic picture of your business and its place in the market. I don’t see the distinction any more between data, knowledge or understanding. They all help to create a strategic and tactical understanding”.

Make a Difference (MAD) challenge

We can all choose the two or three key measures that give us the insight we need to track our progress. These measures may not be immediately obvious, they may lie behind the data you already have, and can only be worked out through personal reflection. Once Hamish has defined his measures for a business he likes to apply his ‘acceptability test’; by answering the following questions:

  • are they driving the right behavior?
  • can they be easily adopted, understood, and communicated within and across the business?
  • will their achievement take us closer to where we ultimately want to end up?They may be financial measures or they may not, the difficulty is; only you are in a position to start this process as only you know your business.

To listen to the live show again click here

On 7 December 2015, we will be running a workshop for ambitious business owners and senior leaders to explore this topic further. Please do get in touch should you want to find out more.

Click here for further information on the collaboration between the Kent Business School and the Business Bunker Radio Show. Should you have any questions in regard to this piece of the wider work please do not hesitate to get in touch with Dr Simon Raby or Paul Andrews

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