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Are You Using a Business Scorecard?

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Peter Drucker is often quoted as saying that "you can't manage what you can't measure."

Drucker means that you can't know whether or not you are successful unless success is defined and tracked. The unfortunate reality is that most businesses lack activity-based numbers to track and review on a regular basis. Some rely on Profit and Loss statements, but many small businesses do not even have those in a timely manner. And Profit and Loss statements are trailing indicators where data comes after the fact, which is too late to proactively make changes.

Create a Scorecard

So, what is the answer?

In his book Traction: Get a Grip on Your Business, Gino Wickman says that the answer is a business Scorecard where you create a handful of numbers unique to your business that can “tell you at a glance how your business is doing.

When you create your unique Scorecard, you should include items such as weekly revenue, cash balance, weekly sales calls and proposals, customer satisfaction/problems, accounts receivable and payable, to name a few. Wickman says that “you should end up with 5 to 15 numbers – hopefully closer to five.”

To create your business Scorecard, you should first spend a dedicated period of time (i.e. 1 to 2 hours) with your leadership team away from phones, emails and other interruptions to identify these numbers that allow “you to have an absolute pulse on your business.” 

Keeping a simple design of the Scorecard is most efficient. You want to have a column for Who is accountable for the measured number (usually the head of that category i.e. Sales Director for sales activities). Another column is for the Measurable activity (i.e. Weekly Revenue). A third column is for setting the weekly Goal for that item (i.e. 10 Sales Proposals per week). The rest of the columns to the right are weeks of each month where you can track the actual numbers for that week.

Decide who is the person who is responsible for collecting and entering the data each week. You must review the Scorecard each week and after 3 to 6 months you will be able to see patterns and trends.

Scorecard Rules

Finally, Wickman has three Scorecard rules.

  1. The numbers should be weekly activity-based numbers that lead to targeted goals. For example, if an analysis shows that I need to generate 40 leads per week to close 5 sales averaging $1,000.00 per sale, then by tracking the actual weekly activity number of leads I can measure the chances of reaching the sales target for the week and month. Over three to six months my tracking of actuals will show me variances and trends to proactively manage activity.
  2. The Scorecard is a proactive tool that helps you to manage problems before they happen. However, you still need to look at monthly or quarterly financial statements and monitor actuals to budget monthly.
  3. Shade (i.e. in red) in numbers that do not hit or exceed the goal for the week. This creates better focus on that number which highlights the urgency to discuss its corrective strategy during that week’s meeting.

Creating and using this unique Scorecard for your business should cause an organizational shift. “Your leadership team will become more proactive at solving problems because you will have hard data that not only points out current problems but also predicts future ones. By solving them you are assuring them that you are on track with your vision.” Contact us for more assistance and guidance.

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