Ongoing planning and strategy are both main drivers to push a company forward and usher in growth and success. Yet many still continue to track progress on a quarterly – and even annual basis. In the realm of moving the needle, this is no longer effective. You must have constantly flowing review of strategic analysis and metrics; otherwise, the company isn’t performing at its fullest.
In fact, an Economist Intelligence Unit report indicates that less than 15% of companies routinely track how well they performed in comparison to their targeted performance. What should you do to make sure your company is performing at its fullest?
Naturally, it all starts with the CEO and trickles down. When you think like a strategic CEO, you understand the importance of mapping out key performance indicators (KPIs) for the company to run better, grow faster, and make more money.
Structuring a Strategic CEO Brain
15-20% of a CEO’s brain should be focused on strategic thinking. When establishing KPIs for Strategy & Planning, a CEO should start with the end in mind. The end begins with defining your critical business drivers, and what decisions you can make to improve those drivers.
The recipe for defining your drivers and creating actionable management reports starts with the company vision.
Here are some questions you should be asking to lead your company vision:
Why do you exist? What does the future look like? How will the company get there? Where will sales come from? How many clients do you need to make money? How many people do you need to serve those clients? Where are they coming from and what do they cost?
Starting with your vision for the company, and the plan to achieve that vision enables you to generate company KPIs to help monitor progress on where it matters most. Then you can cascade those company goals to departmental and employee goals.
You’re then able to build high performing teams by recognizing and rewarding the individuals and teams that contributed the most to profits.
If you haven't answered those questions, if your vision and strategy have not yet been clearly defined, or if your people don’t know the unique reason why you exist, then get your management team in a room and get answers to those questions – stat.
Once you have those answers you will understand the drivers for the business. Then challenge each department leader to identify their role in the business’s strategy. Thinking like a strategic CEO with strategy & planning will force you to call out these questions. Then you can develop company scorecards to help you to measure these drivers more efficiently.
Understanding The Company Scorecard
Your business’s Company Scorecard is a window into where the business stands financially – from all angles. In short, a Company Scorecard helps you evaluate your revenue and whether it’s growing or shrinking.
You can also understand relationships between sales and gross profits to see if you're pricing your jobs right, managing your people effectively, and how well you manage the use of their time.
Here is an example of 4 charts we suggest you track in a Company Scorecard:
- Gross Revenue
- Gross Profit
- Net Income
These show the most macro results of any company. You should share your Company Scorecard with your management team and trusted advisors, because let’s face it: what management monitors gets done.
In the pictured Company Scorecard, the charts on the left show the actual monthly results for topline revenue, gross profit and the bottom line net income for a 12-month time period.
The right side charts depict the same metrics – however, each point represents the Trailing Twelve Months. You want to understand revenue and profit, not just on a month-by-month basis, but using the Trailing Twelve Months charts eliminates seasonality and shows the real direction of your company.
Using Company Scorecards to Gain Strategic Insights
Analyzing gross profit, both as a dollar amount and as a percentage of revenue, allows you to better understand whether you are pricing your jobs right or not. As we'll discover in the Service scorecard, this is the most important decision a company will make.
It also tells you how well you manage employee productivity and if you’re hiring and onboarding employees at the right pace. The Company Scorecard, in effect, is a proof statement of how well you are running the company.
If all the trend lines are going in the right direction, it confirms that you have the right alignment of gross revenue driving gross profit and, in turn, management of overhead to drive net income.
Depending on your business, you may want to track additional KPIs for your Company Scorecard – here are 3 additional KPIs to consider, and their benefits:
- Operating Margin – while gross profit shows the “Direct” profit on the work that you did, operating profit or margin shows the total net profit of that work by also subtracting the associated sales and variable overhead expenses related to that job.
- Net Income % - in addition to monitoring net income in terms of dollars, you should watch net income as a percent of sales. Most industries strive for 10-15% of revenue to the bottom line.
- Return on Assets – this tells you what percentage of every dollar invested in the business was returned as profit (also knowns as ROI).
The Importance of Staying the Course
You can conjure strategies all day as the CEO, but without a consistent execution and synchronization from your team, the business will suffer.
Keep in mind strategic failure can come from different directions, and increased sales without the right planning can cause serious strain, not just the opposite outcome of inadequate sales. This is exactly why the need for strategy & planning is such a make-or-break element for a company.
You need to have a flow of actionable information readily available to help drive decisions throughout the organization. The Company Scorecard’s ongoing, real-time metrics makes this possible and plays an integral part in fulfilling strategy & planning for a CEO.
Next Steps: Getting Strategic
As a CEO, by knowing what to monitor, you’ll have a firm understanding of the leading indicators to watch for your business. This inevitably leads to data-driven decisions, which can drive your company forward with a comprehensive scorecard and a unified team.
Click below to schedule a free (non-salesy) consultation to see if your business is setup properly to get the data you need at your fingertips to better decision-making...