I recently discussed how important building the culture is to maximizing performance. The CEO must also take an active role in driving that performance, which is the fifth and final key CEO responsibility in this series. He or she must be in touch enough with the core business functions to ensure proper execution.
There is an old saying: “You get what you measure.” Executing on the plan demands that the CEO determines what measurements are important and relevant for his or her particular business. Then, the CEO needs to constantly drive and refine the operational metrics. Verifying performance is a vital component of this.
It is critical for an organization to know that the CEO will constantly hold everyone to a high standard. The CEO is the one who determines where the bar is set, and no one in the company will ever set the bar higher.
Choose Your Metrics Carefully
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The backbone of any verification system is a set of metrics that reflect business performance. Picking the right metric is critically important. The ideal metric possesses the following five characteristics:
- Easily measurable
- Directly correlated with business performance
- Predictive of future business performance
- Comparable to the competition
- Isolated to factors controlled completely by the group that it is measuring
Now before you get all excited about finding these “ideal” metrics, let me tell you that I have never found one. Anything you can measure in business will not satisfy all of these criteria completely, but you are looking for as many matches as possible.
For example, let’s say we are looking for a good metric to measure the performance of a sales group. Many people would suggest that the most important metric is revenue. While revenue is fairly easily measurable and correlated with positive business performance, it is not totally isolated to the performance of the sales group. If the product performs poorly, even the best salesperson might not be able to sell much, while a great product might rack up huge revenue even with a mediocre sales group. (If you want to know what our number one sales metric became at NetQoS, see this post: Business is unpredictable despite your best calculations)
The first conversation I have with every new manager who works for me revolves around this question, “What three to five metrics can we come up with that tell me whether or not you are doing a good job?” Often it will take some trial and error to find metrics that are as ideal as possible.
Don’t Try to Outrun the Grizzly
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Thinking about performance reminds me of an old joke about two hikers who come across a vicious grizzly bear in the woods. The one hiker turns to the other and asks, “What are we going to do?” The second hiker says “Run.” The first hiker replies, “We can’t outrun a grizzly bear.” The second hiker slyly observes, “I don’t have to outrun the grizzly bear, I just have to outrun you!”
This is an important point that relates to business performance. Many times people talk about performance like there is an absolute standard that must be met. You can sense this in slogans like “Quality is Job 1” or “The Relentless Pursuit of Perfection.”
In reality, performance in a competitive business environment is relative. Making a product that is of a higher quality than the competition has value, but making a product that has much higher quality than any competitor is a quick path to bankruptcy.
Sometimes, you will receive the greatest financial reward by being just a little bit better than the competition. As you build a performance culture, always look for ways to compare your company’s performance to that of competitors and other related companies.
Similarly, if your company is growing at 10% while the market is growing at 25%, you are clearly underperforming, while the same 10% growth in a declining market might be exceptional. Executing the plan requires delivering results compared to objective measures in the appropriate industry. As I mentioned earlier, it’s important that the CEO set the bar for what level of performance is success in their business.
Trust, but Verify
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While you trust all of your people to deliver results, you want to create a culture where performance is consistently measured and constant improvement is the norm. For instance, when people promise you things by a certain date, make sure you check to see that they follow through. Ronald Reagan famously said: “Trust, but verify.”
As CEO you should have the same attitude. Too many CEOs think that following up on these performance details can be left to someone lower in the organization and because of this the organization’s performance slips to mediocrity.
Having weekly meetings with all of your direct reports is important for understanding how your teams are performing. In addition, the performance metrics should be visible to everyone who can impact those metrics. I have each department put up a board with their metrics for everyone to see. It is good for the employees in the department to understand how they as a group are being measured. It is also good for each department to understand the key drivers of success for other departments. If everyone understands the company goals, how they are contributing to them, and what progress is being made, they are more likely to perform well, making your job as CEO much easier.
Hold Everyone to a High Standard
Setting up good metrics is the easy part, the harder part is consistently holding everyone to the high standards required to be a successful company. If everyone understands that they will be held to a high performance standard, the productivity of the company will be maximized. People want desperately to be part of a winning team, and building a culture that verifies performance is one of the most important ways to building that team.
Related articles:
5 Responsibilities of a CEO: Make Good Decisions
5 Responsibilities of a CEO: Build the Culture
Joel, your point is well taken about how difficult it is find the right metrics. The big trap for CEO’s is assigning a metric to a group that doesn’t have adequate control over the outcome (e.g. revenue to Sales). CRACKING THE SALES MANAGEMENT CODE by Jason Jordan contains the most useful advice I’ve seen for choosing appropriate metrics, clearly distinguishing between results (no control), objectives (partial control), and activities (total control).
Thanks for sharing Bob!