Copyright ©March 2000 IMDA
CHARLESTON, SC--Is your company’s information system like the roach motel – where the data goes in but doesn’t come out? If so, yours isn’t the only one.
IMDA speaker Paul Selden, president of Performance Management, Kalamazoo, MI, says that Fortune 500 companies with whom he works have the same problem. Despite the dollars they’ve invested in IT, they’re simply not getting the information they need to make meaningful decisions about their businesses.
Over and above that, many companies misuse the information they do get. When sales fall, the boss gets nervous, rallies the troops, maybe tries a few threats. The next quarter, when sales go up, the boss pats himself on the back for turning around the situation and tells his people how great they are. The next quarter, sales fall again and the boss – and everyone else – questions whether they are indeed on the right track.
Unfortunately, too many decisions about people’s lives – such as whether they should be promoted or fired – are made on the basis of what could be a random uptick or downtick in the normal business cycle, said Selden.
What we really need to know is whether that last spike in sales was due to
some action we took, or a random, expected fluke in the business cycle.
Likewise, if it’s down, do we really need to take some drastic action, or is
the downturn to be expected?
Most business owners evaluate their companies – and sales reps’ – performances by taking some average of past activity. Perhaps they add up all their reps’ sales figures, then divide by the number of reps to get some kind of average. Those below the average are taken out to the woodshed, those above it are rewarded.
Similarly, the owner may add up a year’s worth of sales, divide by 12 and arrive at an average monthly sales figure, which he uses to compare future months’ numbers.
The question is, how many points below the average warrant action, and how many above it validate management decisions that were made? In other words, how do we tell whether peaks and valleys in our businesses’ performance are predictable, random events, or truly meaningful ones.
Selden showed IMDA Annual Management Conference attendees a way to figure out the answer. He calls it his Business Performance Alarm System.
The BPAS is a fairly simple
mathematical formula that shows business owners normal fluctuations in their
businesses. Its strength lies not in calculating averages, but in focusing on
the average of the differences in the
numbers being examined.
Running a business is a complicated affair. Sales are affected by any number of things – the quality of the reps, promotions, discounts, marketing efforts, the customers themselves. Yet out of all these factors, owners are expected to pinpoint the one or two that is affecting things the most.
When they see a blip in sales, most business owners are tempted to identify the leading sales rep and create some sort of “best practice” out of what he or she is doing. “They must be doing something right,” says the owner, absent information to the contrary.
But rather than improving his business, the owner instead is creating a kind of Las Vegas lottery. Selden calls it the “operational definition of insanity.”
Business owners waste time, energy and money reacting to normal outcomes as if they were unusual. (Selden calls it “brush fire management.”) On the other hand, they frequently fail to react to genuinely unusual outcomes, thereby missing the opportunity either to dramatically improve their businesses on a permanent basis, or to save them from some damaging behavior or market condition.
Rather than being mere caretakers, managers have the tools to create fundamental changes that can drive the business outside the normal expected range of performance. And, with the alarm system in place, truly meaningful “best practices” can be built.
Other Best of IMDA Updates