Critical Success Factors (Tropical Island Metrics)

Critical Success Factors (Tropical Island Metrics)

I was asked to write some articles on my top 5 Metric/KPI recommendations for various business functions. Here are my “Top 5 Company Metrics (KPIs)” – the Critical Success Factors for the overall organization. I call them “tropical island metrics”

(Note: I use the terms Metrics and KPIs interchangeably – but prefer to use Metrics these days in an effort to reduce the use of 3 letter acronyms).

If you’re new to Metrics, I recommend taking a quick read of some of my previous articles first:

Tropical Island Metrics.

Imagine you are the CEO, and you are on holiday on a remote tropical island. All you can receive is a once-weekly email that contains a small handful of numbers (5 maximum) that are leading indicators of how well your overall organization is performing. The 5 metrics are color-coded:

– If the Metrics are “green” you can relax and go back to reading your book
– If the Metrics are “yellow” you need to ring the office to see what is going on
– If the Metrics are “red” you need to cut your holiday short and return home

Of all the metrics we will be measuring in your functional teams (Marketing, Sales, Operations, Customer Service, Finance etc), what 5 Metrics would you single out and consider to be the “critical success factors” for your overall organization? These numbers are often a subset of the metrics from your other functional areas (above).

These tropical island metrics are what I call your leadership team metrics. They are the critical success factors that you display on your one-page strategic plan. You want everyone in the company to see these Metrics and pay attention to them above all else.

Every business model is different and you need to choose the right metrics that drive the performance of your business model, but here is a list of 5 generic metrics that are commonly used by my clients, and a brief explanation of each:

1. Sales Activity

A core “activity measure” is usually the number of “critical” activities the sales team “completes” every week. By critical, I am referring to meaningful interactions with sales qualified opportunities. This usually means the number of appointments or demonstrations that actually take place with these customer prospects. Whether they are face to face interactions or virtual meetings, a meaningful sales discussion must take place, and the prospective customer is moved along the sales funnel (or removed).

2. Sales Conversion

This “effectiveness measure” lets us know whether or not we are getting in front of the right people and whether or not our sales appointments/proposals are effective.  It measures the percentage of appointments/proposals that convert to closed sales. 

3. Delivery In Full On Time (DIFOT)

DIFOT is the percentage of deliveries that were received by customers, in full, and on time, over the period. Providing the right product or service in the agreed time frame is a key driver of operational excellence and customer satisfaction.

4. Complaints / Reported Issues / Support Tickets

This is a simple count of the total number of complaints/issues/support tickets that are received over a given time period. If you see this number spike upwards, it signals an urgent need to investigate and address the cause.

We can pick up an increase in the number of complaints much earlier than we can detect a deterioration in customer satisfaction survey scores or client retention metrics. This lead indicator enables us to respond quickly. 

5. Gross Profit

Whilst this is a lagging measure and you may not be able to report it weekly, Gross profit is a great metric for aligning the sales and operations teams.

Sales teams tasked with bringing on new clients while maintaining or improving gross profit are motivated to increase the average sale value and not give away discounts.

Operations teams focused on improving gross profit are motivated to improve labor utilization, reduce costs, and improve quality

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Of course, there are many other Metrics that you could consider, but these five common ones should give you a good start point for discussion.

Regardless of which Metrics you choose to measure, it is vital that your team meets every week to discuss performance.

There is a saying, “You can only manage what you measure, and what gets measured, gets done”.

I disagree with this statement. Just measuring the numbers will not deliver the outcomes you are looking for. I see plenty of companies who measure the right things, but they still don’t get the results they want, because they fail to meet to discuss performance every week, and they fail to hold people accountable for achieving the agreed standards.

You need to run effective meetings. Every week. Without fail. And you need to hold people accountable.

I have my own saying which I think captures it better: “Successful Business Execution is 20% giving people clarity about what needs to be done, and 80% following up to make sure it actually gets done”

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Until next time…
Stephen

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