Measuring business performance for the small to medium sized credit union – Part 2

What measures should small businesses consider using?

Are there measures that can be reasonably obtained at varying intervals through the year without adding inordinate amounts of cost to your operation? Absolutely. Here are some you can consider as your starting place:

What measures can be affordably and reasonably obtained on a regular basis?

FOCUS AREA: People / Comunity / Education
– Employee Satisfaction Survey
– Retention / Turnover rates
– Educational Program Usage
– Community Support

FOCUS AREA: Customer / Market / Brand
– Customer Satisfaction Survey
– Market Share
– Wallet Share
– Brand Attribute Importance/Performance Matrix

FOCUS AREA: Business / Operations / Innovation
– Enterprise Risk
– Efficiency Ratio

FOCUS AREA: Financial
– Reserve Levels
– Profitability
– Loan Growth
– Deposit Growth

Once you have your measures:

As part of the implementation process, quantify the following and make sure they are signed off by both your board and management team. What impacts the results and what the results mean will be more consistently interpreted if this is discussed up front and reviewed at reporting time.

– Measure name
– What are the drivers for this measure? (used to determine what the results mean)
– How is it measured?

Measuring business performance for the small to medium sized credit union – Part 1

Over the past few years, I’ve run across a few measurement related fallacies that I’d like to talk through. Some of these are verbally stated within companies and others are implied through their actions.

1) Small companies can’t afford to do it, it’s too expensive or takes too long
2) Financial measures are the most important
3) When the financials drop, an analysis of the market will explain why

Part of implementing a balanced is determining the measurement framework. For many smaller companies, the idea of implementing a balanced scorecard can seem to be a daunting task. It may feel like a “big company” activity that is too labor intensive to justify the potential benefits. I doubt that many people would argue against using measures to help you manage your business, but to what degree should they play a role in smaller to medium sized companies?

Everyone uses some form of measurement but the majority of companies base their performance on the financial. Is this a mistake? Financial measures are almost always lagging. They only indicate end of the day results which are indicative of your success in other focus areas. Secondly, they only indicate one kind of performance. In a company where social, community or a more broad value proposition and vision exist, these measures fall short.

What you need are additional leading measures that explain WHY the financial measures occurred in the first place. Measuring other areas of your scorecard (balanced scorecard methodology) allows you to create information from which you can steer the organization rather than responding to after the fact results. Without monitoring the leading measures, you have nothing to let you know what is coming. Worse yet, without having this leading perspective, when a downturn happens, you will be playing catch up to determine WHY it happened.

Moving to more structure in the strategy management process is a change from how many small to mid sized companies operate, but it is achievable and will result in the same benefits that larger companies derive. Finding measures that connect with strategic objectives in each of your focus areas but are readily obtainable may be easier than you’d think.

Smaller companies can often get away with less rigorous measurement frameworks than larger companies because the decision makers are closer to the business and have the same familiarity as line managers do in larger organizations. Interestingly so, this is probably the reason that people don’t feel a measurement framework is required.

Here are three good reasons to do so:

1) By formalizing the structure, you will have better information and will be more likely to pay attention it.
Measures should be used to bring about change, and you can’t evaluate direction without knowing specifically how the business is operating in all areas. Secondly, changes and trends will be less likely to sneak up on you. Entrepreneurs are highly intuitive, prefer to work from their “gut” and often work in small companies.

2) Reporting your success to the board or owners cannot be done effectively without quantifying the impact you have created.
If significant business challenges are present, they will be quantified. Inversely, if progress has been made, it can be celebrated both by the board and by staff.

3) Changes in your environment will be less likely to sneak up on you.
The leading measures you put in place are designed to give you feedback when combined with market research will assist in deciding on what you need to do in order to position your business for the future. Once the board has set the direction, you will be able to see the gaps between how you look now and what you need to look like to meet the challenge.

Sequencing your management processes

Sequencing your management processes really becomes a chicken and the egg scenario. It can be confusing to groups within an existing clear direction because people get used to operating a specific way and when change is required the confusion of how to create change results.

In general, I recommend sequencing your processes as follows:

1) Measurement
2) Information
3) Understanding
4) Strategic Commitment
5) Implementation

In order to understand what needs to change, you have to create a baseline picture of your environment at the appropriate levels. You don’t have the information you need to create sound direction without this picture.

Understand what your measures say and imply. By creating a strong measurement framework, you should have a picture of how you’re performing, and a picture of what is likely to come. You need leading and lagging measures.

Eventually, you will understand the connections between each of the measures and what this means to your business. Measures suggest more as a complex than they do on their own. The implications of your measures should act as an input to the strategic development cycle.

Strategic Commitment
Strategic development is the critical section of this process, but it is nothing without commitment. Once you have created the “right” direction, you need to build commitment at all levels of the organization to ensure follow-through and maximization of the opportunities.

Implementation and reporting/measurement are intimately linked. The vast majority of companies that fail in strategies fail at implementation. The quality of the plan is meaningless when it doesn’t get implemented effectively.

Measurement 2
Measurement occurs continually, as the rest of this cycle does. However, your measurements need to be aligned to the strategic direction on a continuous basis. Information trending is valuable, but not when the measures aren’t linked to the direciton. What gets measured gets done.

Measurement of the effectiveness of implementation should be done at varying frequencies within your organization. The lower and closer the reporting, the higher the frequency should be. As you move up within the company, the reporting should be done less frequently. This only works when there is a high degree of commitment at every level so that executive can be confident that the follow-through is in place. Should something begin to go sideways, people at lower levels of the company will have time to course correct and build understanding of the trends prior to sending the reports to the higher levels. When companies fail to report at adequate frequencies within the lower levels of the company, this often leads to lower levels of commitment to the plan as the accountability is lessened.

Success is in the follow-through and through learning as you go.