Once we’ve sorted the structure (read here), we then move on to scoring.
What does scoring mean?
It means developing scorecards through the use of KPIs, (key performance indicators), that clearly define what success and failure look like for each individual role.
This is why it’s important in the first stage to completely put the existing roles and existing names to one side, just bag them for a minute, and look at what is the ideal. Once we’ve got that structure, we’re going to start to build three to five KPIs for every single role in the business.
The best way to think about this is to start at the top, like we have with this, and then we have to work our way down.
We have to start with company level KPIs
What defines success and failure for the business as a whole?
Before we even start thinking about all the different roles in the business. How can you possibly define KPIs for a role at operative or manager level, without knowing what high level KPIs they need to contribute towards achieving at this board level?
These high level KPIs for the business sit up at the top with the level one roles (see more here) or you could just say that’s the business. These are typically things like;
- Increasing net profit
- Free cash flow
- Increasing cash at the bank
- Better customer satisfaction,
- Higher revenue growth per annum.
Typically these are the ones that make the most sense for most businesses.
The things you want to track are the things that are going to be important to you and are going to get you the best results. If we’ve got cash in the bank and we’ve got a healthy net profit margin which is being maintained year on year. If we’ve got a really high customer satisfaction rating and if we’ve got revenue growth of a certain percentage per annum that we’re happy with. This will then facilitate the growth of our business, so that very clearly defines success and failure for our business.
We then take this and we duplicate it down the line.
We then look through our structure, starting at the top, to define what numbers these need to be, because every KPI must have a tangible, specific and measurable number.
If it doesn’t have a number – it’s really really hard to make it measurable.
We come up with our high-level KPIs.
We might say that net profit needs to be twenty percent.
We might say cash a bank needs to be five percent of revenue any given period.
We might say that the customer satisfaction must be five stars.
We might say the annual revenue growth needs to be 10% per annum, just as some examples.
We’ve got tangible numbers which define our success and failure at a business level. Now we can look down each of these different levels and for each of these different roles, what key metrics, what KPIs do we need to derive in order to support these high level KPIs up here?
What does the managing director need to be measured on?
What does the sales director need to be measured on?
What does the finance director need to be measured on?
And more importantly which of these metrics do each of those roles directly support?
For example a sales role at any level in the tree, is generally speaking going to support revenue growth and net profitability.
It’s not really going to have much effect on customer satisfaction, perhaps to a point but really customer satisfaction is more supported by the operations director in terms of the actual delivery of the products and service.
We have to define and figure out which role supports which of these high-level KPIs and then derive KPIs that support the achievement of that role.
The other important thing to make note of here is that we start at the top and work our way down because when we have got the high level KPIs we then need to make sure that the next level down feeds into that level.
For example; the exec director level feeds into the achievement of the high level KPIs at the business level. The manager level KPIs feed into the KPIs at the exec director level. The operative level KPIs feed directly into supporting and facilitating the KPIs at the manager level. To ensure there is always a next logical step for how these numbers work and how they eventually generate these results at the board level at the business level.
Deriving KPIs to define success or failure is super super important for two reasons because it facilitates information flow in two directions. What it does is it facilitates what strategy information, what tactics need to be communicated from board level down to the executive director team through the managers and into the delivery teams.
The other thing that it facilitates is the flow of information and what information needs to flow from the bottom, right the way back up the tree to feed back into the board of directors so that they can make quality educated decisions on what works and what doesn’t work with regards to their strategy, with regards to their operational tactics so that they can evolve, adjust course and refine their strategies to make sure they’re always getting the very best results in the business.
Once we’ve derived the KPIs and we’ve dealt with the scoring element of that KPI and accountability chart, this becomes a key management document which defines success or failure. Which every manager, exec director and board director (non exec director) can use to measure performance accurately, measurably and in a meaningful way to make sure that they’re always getting the very best results out of every level in the structure and every member of the team.
This is super super powerful.