Keep score to win in business
Get a group of businessmen together and the discussion will invariably turn to sports. No matter what season it is (baseball, basketball, football, hockey, soccer, etc.), someone can invariably recite statistics on every player and every game. While many of these businessmen (and women) can tell you the stats about their favorite team, few can recite important stats about their own company.
Executions, hits and misses
To run a business effectively, you need to keep score. Most companies know who their best salespeople are, but few understand what makes them the best. What are the equivalents of runs, hits and misses? Does the business measure not only EBITDA, but also:
- Marketing effectiveness (cost per new customer, lost revenue due to marketing errors)
- Sales effectiveness (average sale, repeat sales, etc.)
- Purchase errors (incorrect quantities or items)
- Order errors (wrong quantities or items)
- Billing errors (incorrect amounts, items, taxes, etc.)
- Payment errors (misapplied payments)
- Unfulfilled commitments (late deliveries)
- Credits and error adjustments
- Delays and defects (errors) cost a typical business between $25 and $40 for every $100 spent. Find and correct those errors and the profits will fall directly into the bottom line.
invisible measurements
Some companies are so focused on home runs that they overlook other important metrics. In baseball, the Oakland Athletics discovered that a walk is as good as a hit, Michael Lewis wrote in MoneyBall. By using existing and overlooked stats like walks, the A’s were able to find and field excellent teams for a fraction of the cost of most franchises. They discovered that the intuition of the explorers of old was not nearly as useful as a handful of good stats.
Invariably, business owners and managers who have an encyclopedic knowledge of sports statistics often rely on their intuition to make business decisions. Like the explorers of old, they are missing an important source of information: existing measures of success and failure. Are there important statistics that are not measured? Probably.
In football, everyone seems to like the last-minute Ave Maria pass that wins the game. In the world of IT and software development, it was no different. The programmers who played most of the time and then worked heroic hours at the end to deliver an unfinished, buggy product garnered the most attention. Developers who worked consistently during normal business hours and delivered quality improvements on time were often overlooked when it came time for bonuses.
If a company wants consistent performance, it must reward consistent performance. If a company rewards firefighting and last-minute heroics, it will have more crises to handle. Companies get what they reward. How effective is the reward system? Is it rewarding and reinforcing correct behaviors (on time, with quality) or incorrect behaviors (pass the Hail Mary).
What about billing? Losing the best and the brightest or the lowest and the slowest?
What about hiring? Hire the right kind of people? Do they stay long enough to recoup the investment?
How to remove 10 strokes from your golf score
Many executives and employees play golf. Ask any of them what it would take to knock 10 strokes off their game and they’ll probably snort and say they’d have to stop working and practice full time. They often spend hours on the driving range and only minutes on the putting, chipping or pitching greens. A long, arching drive that lands on the fairway is a beautiful thing. A missed short putt is a thing of horror.
Prevailing wisdom says that 80 percent of missed par shots are found within 100 yards of the green. To dramatically improve a game of golf, golfers need to start keeping track of not only the score, but also the shots missed at par. It is up to each golfer to decide if he misses shots along with the drive, irons, chipping or putting.
Keeping track of this information for a couple of rounds will reveal where to focus practice for immediate improvement. Do this for a couple of rounds and you will quickly discover that distance and accuracy of play with irons, chipping or putting is the key. You can then adjust your practice routine to compensate.
In the same way, if companies want to improve, they not only have to measure all the good things that happen, but also the bad ones.
If you want to win in business, you must keep score
- Most companies measure too many things and rarely take the time to improve them.
- Stop measuring anything that can’t be used to improve performance (how many hot dogs are sold in a game). Too many measurements dilute the improvement focus.
- Start measuring anything that can be used to improve performance. What are the hidden or overlooked measures that actually predict performance and customer satisfaction?
- Start using measures to improve performance. Start with the worst first. Performance problems don’t spread throughout the business like butter on bread; they are grouped into a few key areas. Find them and fix them. Employees can know which measures are attracting attention. Unused measures are easily ignored.
- Keep adapting and improving the score, and use the results to improve.
- If you want to win the great game of business, you need to keep score and focus on improving it. Otherwise, you will always be a fool, not a professional.
