Understanding your critical numbers

Take your business to the next level

Success can mean many different things to a business. It may mean creating opportunities, partnering with other businesses for growth or 'getting your own house in order' from a compliance perspective.

More often than not business success rides on how well the leaders are connected to the critical numbers – really knowing what the business needs to do to be successful.

Ask yourself now, what are your critical numbers? For some businesses the response will be calculated, these are the ones that are in front of their competitors with a good handle on strategy and direction. For most businesses, the top line might be known, but the detail of what needs to happen to get there will usually be missing.

As management consultants to small, medium and large organisations, it is our goal to help businesses be successful. The starting point of which is strategy.

Take a walk through any business bookshop and you will no doubt stumble across multiple approaches to strategy and planning. Where do you start? What is the best approach to adopt for your business? Which one is most likely to help you be successful?

The best place to start is a simple question: What does success really mean to you?

Success for most businesses is related to top line revenue and value-adding growth, and ultimately to increased shareholder value.

Why the numbers are important

The critical numbers are the things that need to happen to deliver increased shareholder value to your business, and they can be financial and non financial.

Any successful leader will be able to break down to concise numbers a series of lead and lag measures as to what he or she has to do to achieve the top line revenue the business is aiming for.

Successful leaders will know who their most profitable customers are, the most valuable ones and how to reach them. They will even know who the least profitable are and may have an exit strategy in play. They will have identified key touch points to stay connected with their customers and they will be able to tell you what they expect to convert from each.

Successful leaders at any one time will be able to recognise a number of identified risks and provide a detailed breakdown of how many products or services they need to sell in any given period (to the day) to reach their revenue targets. They will know at the end of each day how they are faring to position their focus for tomorrow and are well and truly connected to their business pulse.

This is just an example of how great leaders use critical numbers to drive their business success. The options are unlimited. The trick is to make sure you have a good mix of lead and lag. Your lag measures are the results, or things that occur as a result of your lead measures. For example, a lead measure may be to hire a new sales person by
September 2007, and the resulting lag measure may be new product sales related to that hire of $200,000 by February 2008. Getting the connection (cause and effect) is just as critical to getting the numbers right.

The power of strategic planning

Powerful strategic planning uses defined timelines to identify when results need to be achieved. Far reaching goals tell the story of where the business wants to be in five to ten years (and are often outrageous compared to where the business is now – that's why it is a 'goal'), and short term goals identify what needs to happen in the next two to three years in order to get there.

This sets the scene for what needs to be achieved in the immediate year, the current quarter, and the month. Everything in the plan links back to the initial goal and provides a step by step approach to reaching your outrageous objectives.

Powerful strategic planning links shareholder value to an action orientated plan. It is articulate and outcomes focused. It details actions, stakeholders, timelines and expected results. Successful strategic planning doesn't sit on a shelf; it is embedded into the corporate DNA and is becomes 'how we do things around here'.

Figure out your critical numbers

Let's go back to the original question: What are your critical numbers? Our top five tips below identify your critical numbers and help to find your business pulse:

Where do you want to be in five to ten years from now? What is your 'big picture' goal? Use the following as a guide:

• Revenue
• Aspiration (for example, market position or overthrowing an incumbent)
• Transformation (for example, entering a new market or transforming your business model entirely).

What do you need to do in the next two to three years to achieve your goal? Think about this across the following areas of your business:

• Financially, what are your targets?
• Customer and suppliers: Who are your most profitable customers? Which markets do you need to be in? Which suppliers do you need to be connecting with?
• What processes do you need to drive your strategy foreword? Think holistically: sales, marketing, products, manufacturing, distribution, financial, operations…cover all aspects
• Learning and development: Who are the people you need to deliver your strategy? What type of culture do you need to create? Is succession planning an issue? What technology do you need to support your processes and the way you want to connect and collaborate? Is your strategy to in source or outsource? What about continuous improvement and innovation?

What do you need to do this year to support your two to three year goals? Aligned to the areas above, create discrete projects with appropriate lead and lag measures.

Translate the above into quarterly and monthly actions with accountability and timelines.

Think implementation – supply a process to implement your plan. Embed the plan into your corporate DNA and keep your eye on your business pulse – daily.

Your strategic plan should be one to two pages maximum. It should be something that can be posted to your wall or intranet and easily understood and referenced. It should tell the reader what the business stands for and why it is the best at what it does. It should be the first thing any new staff member reads on day one.

For successful companies, strategic planning is the reason everyone is focused on your business pulse and taking it to the next level!

Raise your business Pulse

Success can mean many different things to a business. It may mean creating opportunities, partnering with other businesses for growth or 'getting your own house in order' from a compliance perspective. At BDO we realise there are many aspects of a business that can ultimately lead to its success or demise. To enable us to share this knowledge with business owners we have developed the BDO Pulse™ program.

Typically we find there are three key issues that stand between a business and its success:

• Having an action orientated strategy: Most businesses have a strategy but don't use it as an active guide for the business. Your strategy needs to be an integral part of everything you do, driving you closer to achieving success.
• The capacity and capability to implement the strategy: A strategy does not create success without the required people and skills to make it happen.
• A practical framework for sound business management: You need the right processes, enablers, and advisers in place to bring it all together.

For most businesses the challenge is identifying the best place to start – which issue to deal with first. What they lack is an approach and plan to bring it all together.

Pulse™ reveals a business' issues at their source.