By Dr. Michael O’Connor and Noel Lais
In our 35-plus years of consulting with small business, one question rises to the top:
“What are the most important measures that I need to manage to ensure my business is successful?”
When asking this question, most small business people are curious about a financial benchmark, such as a key sales or expense ratio. We refer to this type of measurement as the economic side of the business success equation, or the “harder side” of business.
Historically, Spader Business Management has spent considerable resources defining, tracking and measuring the economic equation for small and medium sized businesses. However, Spader has long stressed the importance of balancing the economic equation with the human equation, or the “softer side” of business, for a successful business formula.
Factoring in the Human Equation
Every business needs a stable financial base. However, financial measurements lack indicators. They are a measure of what has happened in the past, like the score at the end of the game. We know that we won or lost, but the score doesn’t tell us why.
In our work with thousands of small business people, we learned that businesses must also look at human equation measurements as leading indicators to provide the “why.” They predict, quite accurately, what business could be like in the future.
Predictor 1: Alignment of Business Values across Departments, Products and Services, and employees.
This predictor has the single biggest impact on business success. Your business values are your organization’s “rules of the road.” Your values can be expressed in a formal statement, or informal mantra. While business values may be expressed formally or informally within your organization, they must always be:
• In business terms and linked to results required for survival and success
• Clear to all key stakeholders
• Communicated clearly, regularly and effectively
• Aligned with your key business processes and people
Predictor 2: Ongoing High Performance (Greater Than One Year), of the Key Result Areas (KRAs) by Critical Performers.
That’s a mouthful. What we’re saying is that every business has key results that must be achieved for the business to survive, succeed and thrive. Secondly, an organization needs to have high performing employees who are responsible for those key results. You want your top employees in the most critical areas of your business. Are your best people involved in your biggest opportunities?
Predictor 3: Identifying and Achieving Individual, Team, and Functional Performance Goals that are Strongly Aligned with Your Organization’s Goals and Strategies.
There are two elements to this predictor. The first is identifying your organization’s goals. If managers or consultants wrongly diagnose the business situation or provide too much freedom of time, money or resources on personal agendas, the performance goals may not be aligned with those of the organization.
The second element of this predictor is that goals are understood and agreed upon by the performers accountable for achieving them. Try the following exercise in your organization. Ask your employees to list the three to five most important objectives achieved by their job. Then ask them to rank these objectives in order of importance. Compare your list to your employees’.
You can imagine it becomes difficult to reach your organization’s goals if key employees’ expectations differ from yours. By reviewing the areas of agreement and discrepancy, you can work together to identify and prioritize critical objectives.
While there are many financial scores that are important and even critical, don’t overlook the importance of getting the human equation right, too. A healthy understanding of both equations is essential for your business to achieve sustained success.
(C) 2013 Spader Business Management, Inc. All rights reserved.