Why good success metrics make all the difference between success and failure!
August 18, 2014
I was facilitating a strategic decision for the management team of a shipyard in Singapore that was thinking of setting up a Super-Yard; one that can handle three times the number of ships it was currently handling.
The intent of their decision was so that they could be the number one ship repair company in the world. I then asked them to identify the success metrics – the measurements that would explain what that meant. They bandied around revenue numbers, profit numbers, margin numbers and the like. After a while, I stopped them and asked, “Frankly, these are just financial numbers. What EXACTLY would show that you have arrived at being the Number 1 ship repair company in the world?”
The crowd fell silent. Then I asked again, “If I were a ship owner trading in the Atlantic and had some repairs to do, what would make me send the ship to you in Singapore?” Still more silence. “Would it be how much cheaper you cost, how much more efficient you are, how much more quality processes you use? Or would it be how many days of sailing time I would need to get to you?” Suddenly, their minds clicked! Of course it would be sailing time. After all, a ship in need of repair cannot be sailing for 34 days from the Atlantic to Singappore to get the repairs. And not only that, each lost day of charter can cost about US$40,000. That's $1.36M lost revenure just getting to their yard. Finally, they determined that, as a success metric for being the best ship repair company in the world, the sailing time should be no more than 2 days from any point on the globe!
And with that one metric, they realized that they could not build a Super Yard, but have smaller partner yards all around the globe. Which was exactly what they did. I don’t know if they are the Number One ship repair company in the world, but I can report to you that the Super Yard initiative never took shape.
When we build our success factors, we need to define clearly what the future state will be and define metrics to test them. Often, executives who put in success factors usually only think of financial metrics because that is the most visible and what the markets look to. But financial metrics are just one source of success factors; here are a few more:
1. Customer satisfaction
All businesses have customers and if your customer is not satisfied with you, they will certainly not come back for seconds - unless of course you're monopolistic. But in a global economy, the power of the monopoly is reduced. If you don't care much for customer satisfaction, and its impact on success, you might just not get to your destination!
The example above was one of execution - how can I get my product out to the customer as easily as possible. Not all establishments have fixed establishments that pull customers in. But if yours is retail, then your success metric might be "How many steps one needs to take to reach my joint from any point on the street?" At the height of Starbuck's success, that was really what they used as a metric. Which resulted in one outlet on all four corners of an intersection.
After you have address the execution part, you might like also to look at the scalability part. How can you ramp up production, perhaps? How can you get more with less. These are all examples scale. In the case of the ship yard, a scalability metric could be "To repair 100 ships per month", given that the total yard capacity is only 15 ships at any one time. Your scalability metric will impact both your physical capacity as well as your operations.
So the next time you work on your strategic intent, make sure you have more than just financial metrics. Oh, and one more thing. It was Albert Einstein who said, "Not everything that can be counted, counts; and not everything that counts, can be counted." So your success factors might just include non-metrics.