Measuring success: Developing feedback systems
November 1, 2004
Editor's Note: This is the eleventh episode in a mountaintop dialogue that Gerald has been having with a "wise business guru." He has been advised to develop a feedback system and to become a master of metrology.
My guru missed my joking attempt at yoda-speak. "Meteorology is the study of weather, my comic. Metrology is the study of measurement," he stated informatively.
"You must create feedback systems so you know how you are doing," he continued. "A way to get meaningful feedback is to measure your performance. The key to successful measurement systems is to know what you are trying to accomplish. If you know what you want, you can measure what you have and either make adjustments or celebrate," he finished triumphantly.
I struggled to dream up systems of measurement that would help me keep my business strategy on course.
"I am not sure how to go about deciding what to measure so that I know that I am on track. Measuring profit is fairly easy, but how do I know if my niche is nice?" I wondered.
"Weighing the gilt and counting the lucre is easy, but does not tell all. Can you think of other ways to measure and other critical business functions to monitor?" he asked.
My blank stare and prolonged silence prompted him to ask an all-important probing question.
"How about lunch?"
It was great fun catching trout in a high mountain lake. The little campfire took the edge off of the afternoon chill. The process of catching a fish for lunch turned out to be another of his metaphors. It involved obtaining the necessary equipment, locating a likely fishing hole, and applying skill to the enterprise of landing the fish.
While we were dining, he returned to the topic of establishing feedback systems.
"Remember, to measure your success, you must know your goal," he reminded me. "What is your strategy? What is your goal?"
"In the most general terms, my strategy is to fill an economic niche, and my goal is to make a profit," I announced.
"How would you describe the niche that your business is designed to fill?" he asked.
"We build stuff in accordance with designs provided by our customers," I replied.
"Basically, you add value to raw materials," he concluded. "What differentiates your company from any of the myriad who add value to raw materials?" he asked.
I was delighted that he asked such an easy question. "The kinds of materials we process and the things that we do to it," I answered.
"Amazing! You found a way to give a correct answer without answering the question!" he said with a laugh. "Is there any kind of material that you do not process?" he asked.
"We generally work with sheet metal—aluminum or stainless steel," I responded.
"Are you going to make me ask what kinds of processes you perform on the sheet metal?" he said with a smile. I got the drift of his questioning. After a few tries, he led me to make a very clear statement of my company's manufacturing mission. "I now understand how your company adds value to raw materials," he said. "But I am not clear about why you do it, other than your desire to make a profit."
"Because it is what my father did. I inherited the business," I explained.
"Well, that is a bit more candid and personal than I had expected! I was thinking in more general terms. Why do your customers come to you to have raw materials processed for them?" he asked.
We went round and round, with him leading me to explain in detail what kinds of customers we serve and what their motivations are for using our service. The result was a vision statement that explained why we add value to raw materials.
"So, part of your vision is to be the manufacturing department for your customers. The idea is to let them focus on the distribution and end-user support, which they are very good at, while you focus on converting raw material into their finished product. In order for that strategy to work, you must find customers that need your service," he said. "Are you with me so far?"
"So, I catch some customers," I muttered. He listened to my proposed policy for prospecting. With his help, I outlined a policy for locating "perfect" customers to fit the goals of my strategic plan.
"It is kind of like a fisherman's procedure. Pick a spot to cast, bait the hook, toss the line, and reel to invite a pan fry to lunch," I mused.
He nodded while I kept talking.
"I write a policy that says we will seek customers who want to outsource their manufacturing. I can elaborate the wording of the policy so that we focus on customers who need exactly the kinds of services that we excel at providing. Now that I think about it, that policy could also cover the demographics of the 'perfect' customer. That way we would target only customers with the right business volume, target industry, financial condition, and so forth." I could hardly wait to hear what was next, now that I had decided strategically how to catch some customers.
"Now, explain your procedures in specific terms," he prompted.
"This is how to purchase a cold-call list, and this is the procedure for mining the cold-call list for prospects. This is how to qualify the ones who respond ..."
He nodded. "Now how do you define the measurements you will take to ensure that the procedures are being followed?"
"How about measuring the quality of the cold-call lists that we purchased? Count the number of manufacturing prospects that we found, and if the hit rate falls below a certain threshold, stop buying lists from that source?"
He nodded, but a mouthful of fish kept him from speaking.
"Another measurement might be the quality of our contact script. We know we contacted a number of companies willing to outsource their manufacturing. But only a few of them were willing to send us projects for bid. By compiling survey results in a database, we could track the performance of individual sales representatives."
"With that policy in hand, you can start working on the procedures," he offered encouragingly.
I considered the amount of work that such a system would take to set up and maintain. Depressing thoughts dampened my mood.
"Hey, cheer up! You already have a pile of successful policies and procedures for manufacturing and human resources. The policies and procedures for marketing are just new to you! Of course, you need to develop a similar regimen to deal with cost estimating, labor reporting, and customer service," he said happily. I groaned.
"Since you are going to be working on policy and procedure, I would recommend that one of your first efforts address a CIP," he advised.
Trying to guess what he meant, I asked, "Curiously Inspiring Peak?"