Business owners must have the right blend of leading and lagging indicators. Rod Horrocks, Boost business adviser for the Growth Catalyst programme, outlines the right things to track and focus on as a business leader.
Classically, lagging indicators are financially based, with only cash in the bank being in real time. In many companies, an external resource, your accountant, performs financial management.
Modern accounting systems do enable business managers to get closer to real-time assessment, but many do not feel comfortable taking on this role and need to understand some of the principles behind accounting.
Leading indicators are completely different, as they relate to the delivery of products and services to the customer. The first place to start will be the business processes employed. For example, if your business is centred on distributing bought-in products to your customer base, tracking stock levels, purchase prices, and lead times will help prevent stock-outs, obsolete stock, and loss of margin.
On the other hand, if your business designs, manufactures, and implements bespoke products, the same management of raw materials regarding stock levels, lead times, and prices would be complemented by measuring costs against estimates and waste/scrap in the process.
It is recommended that the principles of a balanced scorecard be applied to define what measures need to be monitored and targets set. A balanced scorecard is a management system vision tool put in place to help interpret the goals of a company into various performance objectives.
The scorecard will include financial targets, and customer management targets could consist of lead generation, order closing rates, and order values.
Operations would include inventory management measures such as stock levels, procurement costs, and labour and machine efficiency. Product development might focus on design lead times and contribution based on costs versus prices/volumes.
Ideally, these measures will be augmented by HR-related ones such as absenteeism and staff turnover.
Starting with a high-level business model based on the end-to-end processes the business must deliver successfully, the business owner will be able to define two or three measures that present performance can be assessed, and targets can be set. Applying balanced scorecard principles requires that measures exist in the following areas:
About the author
Rod has worked in business consulting for over 45 years, initially focusing on productivity and computer systems and now on change management and managing successful technology projects. He has been involved in a wide variety of businesses from industrial manufacturing, automotive, oil and gas, pharmaceuticals to food manufacturing.
As a Boost business adviser Rod works with growing and scaling businesses, helping them to build and deliver a growth plan. The areas of technology that Rod works within includes: business systems, robotic process automation, AI, business processes, digital twinning and change management.
If you’re looking to grow, scale or start your business, use Boost; Lancashire’s Business Growth Hub. We offer a range of funded business support services. Call our Business Support Helpdesk on 0800 488 0057 to find out more or complete our enquiry form.
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