Do you have an early warning system?

If you want to build an effective and efficient business you need to accept a basic philosophy – if you don’t measure it, you can’t manage it!  

Sounds a bit corny, but you would be amazed at what business owners take for granted. They somehow assume that leads will come through the door, that sales staff will convert them to business, and that the rest of the organisation will deliver quality products to customers.

However, the reality is that this is simply hope, and that sustainable best practice only happens with a lot of work and very good monitoring systems to back it up.

Any business is a complex interaction of lots of internal and external activities, any of which can throw the business off track. It is not sufficient to have a set of accounting reports that tell you what happened last month or last year – what you need to know is what is going to happen tomorrow, next week, next month and next year.

We only effectively manage by controlling how we will respond to anticipated future events, not by simply reacting to what has already happened.

Thus early warning systems, measuring leading indicators, keeping track of what is happening at the coal face, and monitoring how you are progressing internally, are all essential parts of a high performance information system needed to promote efficiency, profitability and growth.

Basic quality management theory suggests that you can only improve quality if you measure activity. By putting in tracking systems and measuring outcomes, we are able to see the variability of the result over time. We then start the investigation into why the results are variable.

We need to understand what happened when we achieved better results, and what happened when results were poor. The investigation needs to get to the root cause of poor performance, or explain good performance.

We learn from the analysis and put in place new methods to improve the average performance. When we do this across the organisation we get a gradual but consistent improvement.

This basic approach works in all aspects of the business. We can track the effectiveness of our marketing spend, the conversion rate of leads to orders, the cost of procurement and the quality of our after-sales support systems.

If we are serious about seeking out growth opportunities, we have to have a performance setting and monitoring system to back it up. We improve our ability to set and hit targets by improving our ability to accurately forecast future events and deliver quality outcomes by examining how we do that each time, and learning from our mistakes. Underpinning our learning process is a system of measuring so that we understand what we did and what the outcome was.

In setting up performance monitoring systems, we also should be sensitive to the fact that we need to assign responsibility and accountability.

There is little point in measuring stuff if you don’t have a mechanism for taking action on what you discover. Ultimately, we need to be able to predict what is going to happen in the future and use that information to improve our chances of success.

Tom McKaskill is a successful global serial entrepreneur, educator and author who is a world acknowledged authority on exit strategies and the former Richard Pratt Professor of Entrepreneurship, Australian Graduate School of Entrepreneurship, Swinburne University of Technology, Melbourne, Australia.