Get a group of businessmen together and the discussion invariably turns to sports. It doesn't matter what season it is – baseball, basketball, football, hockey, soccer, etc. – someone can invariably rattle off statistics about every player and every game. During a recent cab ride in Chicago, the driver wore a purple jersey. When asked if those were Denver Bronco colors, he said, “Absolutely.” My response was, “Thanks for sending Jay Cutler to the Bears.” And then he spent the entire trip to airport sharing stories about players and statistics for the Denver Broncos, Rockies and Nuggets teams.
While many of these businessmen (and women) can tell you about the runs, hits and errors in their favorite team, few can recite important statistics about their own retail furniture company.
Runs, Hits and Errors
To run a business effectively, you have to keep score. Most companies know who their top salespeople are, but few understand what makes them the best. What are the equivalent of runs, hits and errors? Is the business measuring not just EBITDA, but also:
- Marketing effectiveness (e.g., cost per new customer, lost revenue due to marketing mistakes)
- Sales effectiveness (e.g., average sale, repeat sales, etc.)
- Purchasing errors (e.g., incorrect quantities or items)
- Order errors (e.g., incorrect quantities or items)
- Invoicing errors (e.g., incorrect quantities, items, taxes, etc.)
- Payment errors (e.g., misapplied payments)
- Missed commitments (e.g., late deliveries)
- Credits and adjustments for errors
Delays and defects (i.e., errors) cost a typical business $25 to $40 out of every $100 spent. Find and fix those mistakes and the profit falls straight to the bottom line.
Invisible Measurements
Some businesses are so focused on homeruns that they overlook other important metrics. In baseball, the Oakland A's found that a walk is as good as a hit (source: MoneyBall, Michael Lewis). By using existing and overlooked statistics like walks, the A's were able to find and field excellent teams for a fraction of the cost of most franchises. They found that the gut feel of old-time scouts wasn't nearly as useful as a handful of good statistics.
Invariably, the business owners and managers that have an encyclopedic knowledge of sports statistics often rely on their gut feel to make business decisions. Like old-time scouts, they're missing out on an important source of information – existing measurements of success and error. Are there important statistics going unmeasured? Probably.
In football, everyone seems to love the last minute Hail Mary pass that wins the game. In the world of IT and software development it was no different. the programmers who fiddled around most of the time and then worked heroic hours at the end to deliver an unfinished and buggy product garnered most of the attention. The programmers who worked steadily during normal working hours, delivered quality enhancements on time were often overlooked when it came time for bonuses.
If a furniture business wants consistent performance, it needs to reward consistent performance. If a business rewards fire fighting and last minute heroics, it will get more crises to handle. Businesses get what they reward. How effective is the reward system? Is it rewarding and reinforcing the right behaviors (e.g., on time with quality) or the wrong behaviors (Hail Mary's).
What about turnover? Losing the best and the brightest or the lowest and the slowest?
What about hiring? Hiring the right kind of people? Do they stay long enough to return the investment?
Get the idea?
How to Cut 10 Strokes Off Your Golf Score
Many executives and employees play golf. Ask any of them what it would take to cut 10 strokes off their game and they'll probably snort and say that they'd have to quit working and practice full time. They often spend hours at the driving range and only minutes on the putting, chipping or pitching greens. A long, arching drive that lands in the fairway is a thing of beauty. A missed short putt is a thing of horror.
Prevailing wisdom says that 80 percent of shots lost to par are within 100 yards of the green. To dramatically improve a golf game, golfers have to start keeping track of not just the score, but shots lost to par. Everyone hates keeping track of errors, but if they want to get better, they simply get over it. It's up to the individual golfer to decide where they lose shots to par:
- Drive (left or right)
- Irons (left, right, long or short)
- Chipping (left, right, long or short)
- Putting (left, right, long or short; too many three putts?)
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’ll quickly discover that distance and accuracy of iron play, chipping or putting is key. Then you can adjust your practice routine to compensate.
If businesses want to improve, they not only have to measure all of the good things that happen – the runs, hits, touchdowns, baskets, etc., they also have to measure the bad things: mistakes, errors, hitches, glitches, missed commitments, and so on.
If You Want To Win in Business, You've Got To Keep Score
Most businesses measure far too many things and rarely take time to improve any of them.
- Stop measuring anything that can't be used to improve performance (e.g., how many hot dogs are sold at a game). Too many measurements dilute the improvement focus.
- Start measuring anything that needs to be measured to improve performance. What are the hidden or overlooked measures that truly predict performance and customer satisfaction?
- Start using measurements to improve performance. Start with the worst first. Performance problems aren't spread over the business like butter on bread; they cluster in a few key areas. Find and fix them. Employees can tell which measurements are getting the attention. Unused measurements are easily ignored.
- Continue to adapt and improve the score, and use the results to improve.
If you want to win the great game of business, you've got to keep score and focus to improve the score. Otherwise, you'll always be a duffer, not a pro.
ABOUT THE AUTHOR
Jay Arthur, the KnowWare Man, works with companies that want to fire up their profits with Lean Six Sigma. Jay is author of "Double Your Profits: Plug the Leaks in Your Cash Flow." He has spent the last 20 years helping companies maximize revenue through the "Lean Six Sigma System," a collection of audio, video, books and software. Jay is also the author of "Lean Six Sigma Demystified" and the "QI Macros SPC Software" for Excel. To plug the leaks in your cash flow, sign up for free Lean Six Sigma lessons online at: http://www.qimacros.com/freestuff.html or call (888) 468-1537.