“Companies that establish clear lines of sight to the metrics that matter and then make sure that employee behavior is aligned with those metrics can create enormous value growth.” Tony Siesfeld and John-Paul Pape
Over the past two weeks I have been discussing both financial and non financial metrics. They both have their place in helping manage businesses better. I find non-financial metrics fascinating and am inclined to look at them for guidance in comparison to financial metrics. Unlike financial metrics which are purely numbers performing in different segments, non-financial metrics provide much deeper insights into the inner workings of the business. They help understand why certain financial metrics turn out the way they are and what changes can be brought about to improve them. Some however find safety in numbers and are less inclined to rely on these relatively intangible measures. As entrepreneurs we have to look after the business on multiple fronts. We must have the ability to quickly assess several key components on a regular basis. Outlined below are five relatively generic key non-financial metrics. They can be applied to all sorts of business models to help you gauge the level of progress being made from a dashboard view.
1. Customer Satisfaction: Acquiring a customer is only the first step, providing value and satisfying the customer is where the actual work begins. It is a well known fact that acquiring a new customer is between 5-10 times more expensive than retaining your current customer base. To measure customer satisfaction comprehensively we need to take into account all major touch points where the customer will be interacting with our business. Subsequently we will need to choose several sub metrics such as perceived quality & value, trust and loyalty to accurately gauge their satisfaction levels. These can be measured through a variety of tools such as surveys, focus groups and observations. To learn more please click here.
2. Employee Loyalty: Employee loyalty has been directly linked to the customer’s loyalty and corporate profitability. Whether you are a new start up or an established one, this measure needs to be continuously monitored. From the very beginning employees must be told what to expect when they join the firm. They need to be made part of the inner circle to avoid alienating them. Growth and development opportunities must be presented to keep their motivation levels high and lastly they need to be compensated fairly for the work they are doing. Each one of these sub measures needs to be monitored along with several other key indicators such as burnout thresholds. To learn more please click here.
3. Innovative Index: Innovation is measured very differently in various organizations. I believe innovation relates to the ability of an organization to continuously improve on its existing product/service ranges as well as to develop complementary assets around them which will enhance their core products. This will help create multiple lines of business and will keep the business afloat when a core product faces strong competition or a recessionary pressures. To learn more about this metric please click here.
4. Market Share: There is substantial evidence which states that market share is directly related to ROI. With an increase in market share a business can expect to benefit from economies of scale that ultimately lead to better operating margins. A business therefore becomes stronger by gaining market influencing powers and equipping itself with quality management teams. To measure a business’ market, one needs to first understand the industry, competitors, customers and other market factors which have a direct impact on it. Through the understanding of these measures we can calculate how much the total market is worth and then determine our share. Accordingly we can then measure how we grow market share over a period of time. To learn more about this metric please click here.
5. Execution of Corporate Strategy: Business all comes down to execution. Without this critical component we can make all the plans we want and prepare for every possible scenario and achieve very little. As business owners we set ourselves targets and construct strategies to reach them. The next step requires one to implement strategies through a set of tactics. This is the step that separates the talkers from the doers. Don’t get me wrong, careful planning, thoughtful preparation and taking calculated risks is very important. However it should not restrict someone from taking action. To learn more about this metric please click here.
Listed above are a set of non-financial metrics which I believe can be applied to most business models. Apart from these metrics, a business needs to be careful of other measures which are critical to their particular business model. In the end these metrics should not be the end all and be all of the organization. Their purpose is to primarily provide management with the ability to look at several key segments of the business and get an idea about their performance. I believe the correct use of these metrics helps us not only to become better leaders but also impacts positively and dramatically on the business. I would really like to know what non-financial metrics you are using and which industry you are in. Feedback and comments on the metrics provided above will be greatly appreciated.