As first mentioned last week in Part One of this series, Innovation, we believe that one key to succeeding in business is through analyzing and improving business development systems. According to Michael Gerber, business development comes through a cycle of "innovation, quantification, and orchestration." Systems quantification, the second step in the cycle, consists of evaluating the effectiveness of a particular system.
Why is quantification important to your business? Quantification is the objective evaluation of business performance. It allows an owner or manager to understand the impact of any changes in the business because it provides a basis of comparison between the new way and old way of doing things. When you receive reliable quantified information, you no longer need to micro-manage every detail of the business.
Key performance indicators
To start quantifying any system, you need to identify the proper Key Performance Indicators that will tell you me how the system is performing. In any organization, quantification will be a tiered effect with three levels: strategic indicators, business indicators, and systems indicators.
- Strategic indicators give you a sense of the general health of your business. They are of the highest form, usually designed around the objectives or long-term goals you have for your business. Annual revenues, profits, growth rates, and market share are all examples of strategic indicators.
- Business indicators quantify the different functions in your organization. Some examples of business indicators would be leads per day, percentage of total leads converted to sales for the sales department, average wait time, and the number of service calls processed per shift for the customer care group.
- Systems indicators allow you to measure performance of specific systems in your business. Let’s assume your firm just implemented a new sales presentation system; the systems key indicators would include the following: number of presentations delivered, ratio of presentations to sales, time average of presentation to close of sale, and dollar value of sales. With this information you can objectively make decisions about the effectiveness of the system: that’s quantification.
The business quantification process
Author and satirist Mark Twain once said, "There are three kinds of lies - lies, damned lies, and statistics." Many EMyth clients say that they sometimes feel the same way about quantification systems. Some businesses overwhelm themselves with unnecessary quantification systems that produce misguided or useless results. Instead, we recommend that you implement EMyth’s business quantification process to create the ideal system to reveal problems and suggest solutions:
- Step one is to identify the business activities and results to be quantified.
- Step two is to establish your management report structure.
- Step three is to use or create a system for collecting the necessary data.
- Step four is to design the management report.
- Step five involves use or creating systems for producing the management report.
- Step six is to refine and upgrade the report on a regular basis.
You can start the process by looking at all the systems you put in place to begin tracking and quantifying your operations, and decide the time intervals that your quantification will take place. Keep in mind this may be different for all quantification systems. Then, commit to the timing of each report’s development, while always remembering that this strategy must be connected to your goals for the business. You should not overload or overwhelm your organization with quantification processes; the most important starting point is to implement those that will give you results in a timely enough matter to allow necessary changes to take place.
The discipline of quantification
Quantification takes time to develop, so we invite you to be patient with it. Building a library of information takes time and hard work, so begin slowly, methodically, and intentionally. Choose which key indicators you need to concentrate on to move the business forward this week, then next month, next quarter, and then for the year. System quantification should be incorporated into the present, starting now, to get your business moving in the right direction.
As Michael Gerber once said, "It isn’t how you did it at first, it’s that you do it and then improve it, and then improve it again...Remember, nothing is more powerful than action."
Now it’s your turn!
If you could have objective, reliable information about one part of your business right now, what would it be? What system, advertising campaign, department, or company initiative is currently not being quantified? If you have something in mind, the next step is identifying a few key indicators that would provide the insight you desire. Write them down, and then set aside one hour of your work day tomorrow to work through the steps listed above. As you’re learning the process, remember to keep it simple and be patient. Like any new skill, learning the process of quantification takes persistence and patience. Don’t forget to share your experiences with other community members! We are all invested in each other’s successes.