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The CEO's Guide to Increasing Profits5 Steps to a Profitable Service BusinessBy: Stephen King, CPA
Step 1: Strategy 4Why Do You Exist?Define Your Value DriversWhat is Your Unique Selling Proposition (USP)?Who is Your Ideal Client?What is Your Go-To-Market Strategy?What is Your Pricing Strategy?What is Your People Strategy?
Step 2: Talent Management 13View Your People as AssetsMaslow's Hierarchy of NeedsHuman Capital Strategy ROIThe Cost of TurnoverAttracting and Retaining the Right TalentBehavior-Based Performance Management?
Table of Contents
Step 3: Written Goals 29How Writing Your Goals Drives Performance What are SMART Goals?Cascading Goals
Step 4: Keeping Score 36The Five Areas of Business DecisionsThe Core set of KPIsFive Business Scorecards Every CEO Should Have Management AccountingSetting up a KPI Monitoring SystemDon't Change Your Culture
Step 5: Recognition & Rewards 45Incentive CompensationRecognition-Based IncentivesROI on Recognition and EngagementProviding Recognition, Rewards and Career Development
DEDICATIONThis eBook is dedicated to John H. Stern, my father-in-law, who taught me "people are not the most
important thing in business, the RIGHT people are the most important thing!"
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ON Introduction
Small service business owners are typically passionate about their
companies and knowledgeable about their fields of expertise.
However, many find themselves wearing so many hats and
dealing with so many issues, that they don’t have the time or
insight to address all the factors that drive business success.
This ebook aims to change that. Using our five-step process,
we’re going to show you how to think strategically about how
people drive performance and, as a result, make more money.
In Step 1, we’ll examine your business strategy, which defines why
your company exists. In Step 2, we’re going to look at talent management and why that’s critical to your
success. In Step 3, we’ll discuss the power of written goals for driving performance. Step 4 is all about
keeping score and what business drivers you need to have at your fingertips. Step 5 discusses the
importance of recognition and reward for driving productivity and performance. Each of these goals is
entwined with the others and, as we work our way through this ebook, you’ll see how adjusting one will
impact the others.
Read on for the inside scoop on what it takes to build and manage a profitable service business—in five
simple, strategic steps!
Step 1: StrategyWhere do you want to go?
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Step 1: Strategy
Building a profitable service business starts with defining
a solid business strategy. This is where you define the
uniqueness of your company and your services so you can get
everyone aligned around your vision, mission and values. You
need to start here as this is the foundation upon which to
create a high-performing team or enhance the performance of
your current team. Let’s take a look at the questions you need
to ask and answer to define your business strategy.
Why Do You Exist?
Self-knowledge is a critical component of your business
strategy. Ask the who, what and why questions to determine
why your company exists.
Focus on Who, What, Why
While a business plan is focused on the financial foundation, target market, and operational structure of a business, a business strategy is focused on the who, what and why of your organization. If you’re approaching a bank or other financier about funding for your company, your business plan can make or break the deal. A business strategy focuses on what’s unique about your business—why someone should hire you or come to work for you.
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Define Your Value Drivers
Value drivers are variables that add significant value to your company.
According to a Chartered Global Management Accountant (CGMA®) report,
today’s business drivers are 68 percent non-financial.1 That means the value
for a service business is in the people, and those key value drivers include:
Source: 1 https://d1iydh3qrygeij.cloudfront.net/Media/Default/Thought%20Leadership/executive-interviews-and-case-studies/Rebooting_Business.pdf
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What Is Your Unique Selling Proposition (USP) ?
This question goes right to the core of the “know thyself” mantra. Regardless of
what industry you’re in, you’ll have competitors that sell a similar service to yours.
To set yourself apart from the competition, you must know exactly what exclusive
benefit you offer that will attract customers—and keep them
coming back for more.
A great example of USP and brand positioning is http://
Salesforce.com - Their USP was that their web based
tools implied the end of software. They developed a "No
Software" logo that helped them "own" the idea in the
minds of their prospects.
Amazon’s USP was originally “Earth’s biggest bookstore.” Did
Jeff Bezos deliver on that? Do we have to ask?
Avis has another excellent example of a winning USP: “We can provide free local
pick-up and return service,” and it shows in their tag line “We pick you up.”
Differentiate
Theodore Levitt, a professor at Harvard BusinessSchool, suggested that...
"Differentiation is one of the most important strategic and tactical activities in which companies must constantly engage."
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Who Is Your Ideal Client?
Every business has an ideal client. It’s someone who finds the perfect
solution to their problems or needs in the services or products that your
company provides. The Ideal Client is loyal to your company, loves using your
products or services, and is even likely to recommend you to their friends and
colleagues. In addition, especially for service businesses, the client has to fit
YOUR definition of IDEAL:
Be at the right lifecycle/growth stage of business
Be the right size - revenue or # of employees or both
Have the right attitude or psychographics
Be serviceable at great margins
Have potential for better than average retention and lifetime value
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What's Your Product Go-to-Market Strategy?
You can have the best service in the world, but if you don’t know how to get
it in front of the right people in a way that clearly demonstrates how it can
benefit them, it’s not likely to sell. That’s where a go-to-market strategy comes
in. Typically, your go-to-market strategy is used to launch your service in a
coordinated manner that’s specifically designed to support its success. Your sales
and marketing strategy will continue to evolve as your company grows and you
add products or services.
You can create your go-to-market strategy by defining exactly who your
customers are, de ining your value drivers, and deciding on a price strategy.
Other decisions to be made around your sales and marketing strategy may
include:
»» Direct Salesforce vs. Online
»» Positioning & Branding
»» Pricing
»» Inbound Marketing vs. Outbound
»» Channel Strategy
»» Referral Strategy
As a CEO, you should have resources, internal or external agencies to
help you define the strategy that is best for your company and industry.
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Who Are You Serving?
Many new entrepreneurs make the mistake of trying to
sell to as large a target market as possible. While this
might seem logical, the truth is that it’s more difficult to sell
something to everyone than to focus on just a target group.
Why? Because it’s almost impossible to create a selling
strategy that will appeal to everyone.
The smarter choice is to focus on a small segment of
the market. Maybe you’ve heard the saying, “The riches
are in the niches.” Basically, this means that if you target
a segment of the market, you can study that group to
determine their exact pain points, the specific benefit they
derive from your service, and the highest price they’re willing
and able to pay. That makes creating an effective marketing
campaign much easier.
Target 4
Target 5
Target 6
Target 2
Target 3
Target 1
Stay On Target
As your company matures and grows, there’s room to branch out into new niche markets either with the sameservice or new ones. However, the most profitable companies solidify their position with one specific market first.
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What's Your Pricing Strategy?
Pricing is the most important component of a successful go-to-market
strategy. The customer wants a price that’s reasonable in terms of the scope
and quality of the product or service. In some instances, innovation and
timeliness can play a role, too. On the other side of the equation, you need
to cover the cost of creating and marketing the service—and make a certain
amount of profit. The price you ultimately decide on should balance your
needs with those of the customer.
There are four pricing models to choose from:
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KEY TAKEAWAYS – BUSINESS STRATEGY
Self-knowledge is a critical component of your business strategy.
Determining your people strategy is critical to your company’s success. You need to attract people
who are passionate about your vision by creating a company culture where they can thrive and work
towards self-actualization.
When you know your USP, value drivers and ideal client, you know what sets your service apart and
what specific need it meets. This allows the company to be aligned and focused on performance.
Your go-to-market strategy should support your product launch. When designing your go-to-market
strategy, determine what market segment you’re targeting, your value drivers and your pricing strategy.
Step 2: Talent ManagementA great company is built on great people2
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Step 2: Talent Management
In the previous step, we discussed the importance of building a solid business
strategy. The next step is to review the way you view your people so you can
build an effective talent management strategy.
Why Do You Exist?
In any business that makes money on its people, payroll is the biggest expense—
especially when it’s paying for healthcare and other benefits. CEOs who view
their employees as expenses instead of assets will try to increase profits by
reducing those costs. They’ll hire fewer employees and spend less on their
workforce overall. However, while this might bring costs down, it also reduces the
Return On Investment (ROI) you’ll get on your human capital.
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What's Your People Strategy?
If you make money on people’s time, the value of your business lies with your
employees—the people who understand and share your strategic vision, have
in-depth knowledge of your Intellectual Property and processes, and possess
the ability to help drive your company forward. They’ve built relationships with
your customers, subcontractors and suppliers. And if your company runs on
tribal knowledge, when a member of the tribe leaves, so does their knowledge.
It’s important to realize that the most important sale you’ll ever make isn’t to
any customer. Instead, it’s to an A-player employee who’ll join your company,
help you build a high-performing team and add to your momentum. And that’s
why you can’t hire just anyone to work for you. We cover more on this in Step
3: Written Goals.
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What Kind of Company Do You Want?
Company culture encompasses the shared values, beliefs and behaviors in an
organization. The culture plays a crucial role in how the organization functions
because it determines the overall attitude towards things like
professional development, collaboration, fun team building
activities and many other aspects of the workplace.
For example, an investment firm might have a conservative
culture with a linear hierarchy, a formal dress code, reserved
executive parking spots and a strict on-site policy, while also
encouraging professional development and offering regular
company retreats. In contrast, a boutique design agency
might have an informal culture with a relaxed dress code, a
matrixed structure and flexible work arrangements while
prioritizing things like paid time off (PTO) for volunteering over
team building workshops.
Culture Eats Strategy for Lunch
Culture eats strategy for lunch. If an employee doesn’t fit into the culture, chances are they won’t be thrilled with the new job and might even bring down other people. Regardless of how good that employee is at the job, they are unlikely to become a high performer and will probably leave the company sooner than a committed employee. Think about it: IT companies are known for their casual workplace environments and flexible work arrangements. If you hire an employee who’s more at home in a conventional corporate environment, they will feel like a fish out of water.
If you don’t define the culture yourself, one will be defined for you collectively by your employees—and that might not align with your core values. That’s why you need to establish a “culture by design” throughout all levels of the company and lead by example.
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As we saw in Step 1, the CGMA® reports that 68 percent of a company’s value
stems directly from the people in the organization. When you view employees as
expenses, all you see is the numbers on the payroll. But when you view them as
assets and hire people who share your core values, you understand how much
value each person currently brings to your company in the form of knowledge,
skills, experience, behaviors, relationships, networks and more. You also
understand that investing in your people can yield a significant ROI because the
more and better their abilities, the more they can put them to use to meet your
goals.
The Motivational and Financial Cost of Not Having Engaged Employees
While hiring people whose vision and values align with yours is an important first
step, you need to initially create a work environment that motivates employees.
Research shows that on average, U.S. employees in small businesses waste more
than two hours a day at work.1 That amounts to almost $700 billion per year in lost
productivity!
During those two hours, they’re taking long breaks and thinking about things they are passionate about. Why are
they doing this instead of working? Because they’ve learned how to complete all their responsibilities in six
hours—and they’re not being challenged to work in a manner that clearly shows them how their contributions
make a difference. They need opportunities to develop their careers and to be recognized for their
contributions.
U.S. workers waste $700 billion per
year in lost productivity.
Source: 1 http://www.salary.com/2014-wasting-time-at-work/
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Maslow's Hierarchy of NeedsOnce a business has the right people and talent management system in place, how does a business owner/CEO
motivate employees to contribute “discretionary effort”? As shown in the famous Maslow’s Hierarchy of Needs
pyramid, it is companies and management teams that provide self-esteem (recognition) and self-actualization
(challenge) opportunities. Remember that most employees say they leave because they don’t feel they are being
recognized or challenged at work.
Recognition among peers and
co-workers can have a long-
term impact on employee work
engagement and job satisfaction.
Effective self-actualization tactics
include all-important training and
career development initiatives such
as classes and seminars paid for by
the company.
MASLOW HIEARCHY OF NEEDS
HUMAN CAPITAL MANAGEMENT
CAREER DEVELOPEMENT OPPORTUNITIES
REWARDS &RECOGNITION
COMPENSATION & BENEFITS
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By tying together talent management and human capital strategies, a business
can reduce turnover and the associated overhead costs.
Human Capital Strategy ROI
Two hours a day is 25 percent of a workday—so that means we have an average
of 25 percent more potential in our companies than we’re currently getting.
If you can just increase productivity by as little as 15 minutes per employee per
day, then you’ll gain 1.25 hours per week or a 3.1 percent in productivity. For a
$3 million revenue business, that’s a potential impact of over $90K per year for
every 15 minutes of additional productivity you get from your team!
So how can you do this? Treat people as assets by implementing a human capital
strategy that attracts people who are passionate about your USP, and once hired,
empower and motivate them by keeping them challenged and working towards
clearly defined personal and company wide goals.
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The Costs of Turnover
While low productivity can be a concern,
the biggest problem facing many small-to
mid-sized companies is turnover.
The financial impact of turnover is high.
According to some studies, it costs an
average of six to nine months' of an
employee's base salary to replace him or
her.1
And for at least one in five companies, the
costs exceed $50,000.2
The costs of turnover can involve the following seven factors:
A paid time off (PTO) balance that must be paid out at the end of an employee’s engagement.1The out-of-pocket recruitment costs associated with updating job descriptions, job ads, sourcing, interviewing, screening and hiring, new candidates.
2The time and productivity losses for managers and other personnel involved in the recruitment process.3Higher salaries for external hires, which are on average between 18 and 20 percent higher than internal hires, according to a study by the University of Pennsylvania.
4The costs of onboarding and training new hires, such as travel costs and loss of productivity from your best performers or senior managers who are charged with training.
5The administrative costs associated with processing applications, conducting background and reference checks and scheduling drug tests.6Client losses due to the loss of an employee.7
Source: 1https://www.zanebenefits.com/blog/bid/312123/employee-retention-the-real-cost-of-losing-an-employee 2 http://resources.careerbuilder.com/small-business/the-hidden-costs-of-bad-hires-on-small-businesses
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Reduced productivity as a result of a
diminished headcount.
Lower morale among the remaining
workers, who often start to question
whether there’s a better job or a better employer out there.
Loss of information due to the
knowledge that leaves the company
along with the worker.
Increased stress on the remaining
workers, who must compensate for the worker who’s left, resulting in higher
workloads.
The Human Impact of Turnover
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Attracting and Retaining the Right Talent With Effective Hiring Techniques
80 percent of all turnover is due to bad hires. Many people share the belief that
attracting the right talent is all about offering them more money than the
competition. You need to be competitive as candidates certainly consider salary,
benefits and perks while deciding to accept an offer of employment, however
they are not the only factors they consider.
The best candidates also want to work in a positive, supportive environment
that aligns with their core values and provides them with interesting work. When
you communicate your core values and company culture to candidates up front,
you increase the odds of attracting candidates who are passionate about your
business—and who are more likely to be high performers who stay with you for
the long haul because they believe in what they’re doing.
80% of all turnover is
due to bad hires.
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Dynamic Recruitment
The biggest mistake small businesses make is recruiting for the skills to pay
the bills instead of recruiting for the behaviors that will allow an employee to
succeed. Basically, if you want a successful hire, you should not just determine
WHAT you need, but WHO you need. It’s not all about skills and abilities or
knowledge and experience in a specific field. You also need someone who:
•»fits into your company culture
•»shares your core values
•»demonstrates the behaviors associated with your core values
You can train people in skills—but you can’t teach them intrinsic behaviors.
The dynamic recruitment process begins with defining successful behaviors. Ask
yourself the following questions:
•»Who are my best performers?
•»What are the behaviors that make them successful?
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Recruitment Is a Marketing Function
If you think recruiting is about posting a job ad that’s a
summary of the job description and lists the skills you’re
looking for, then you’re missing an important point.
Recruitment is about marketing your company and creating an
enticing offer to the candidates you want.
Today, candidates can find out everything about your
company by doing a quick Google search and reading reviews
on Glassdoor. You need to be honest about what you’re
offering while simultaneously making it interesting.
Just like you tailor your marketing strategy to your ideal customer, you need to
tailor your recruitment strategy to your ideal candidates. You need to know what
your target candidates care about. That’s where knowledge of current workforce
demographics is important.
Tailor Your Recruitment Strategy
A good recruitment strategy is all about marketing yourcompany to your ideal candidates! Treat prospective employees like you would your most valuable client, and find out what’s important to them.
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There are as many as four key generations in the workforce today, all with
different wants and needs. Baby Boomers and Millennials are currently the two
largest groups in the workforce—and they each want different things from work.
Of course, everyone is different, but some broad strokes apply:
Baby Boomersare goal oriented and motivated by position, perks and prestige.
Gen X(the one-time “latch-key kids”) are independent, flexible and prefer a good work-life balance.
Millennialsor Gen Y are tech savvy, team oriented, and prone to job-hopping.
Gen Zrely on technology. They’re entrepreneurial and hyper-aware, and they take multitasking to a new level.
(1996 - 2010) (1980 - 1995)
(1965 - 1979) (1946 - 1964)
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Behavior-Based Performance Management
Once you’ve recruited candidates who share your core values, you need
to keep them engaged so they’ll perform well and stay with you. According
to PricewaterhouseCoopers, you can achieve an ROI of 700 percent by
implementing HR best practices.1 This is where a strong performance
management program can make all the difference.
Behavior-based performance management is not a trip to the principal’s office.
In addition to reviewing an employee’s performance against written goals, it’s
a formal meeting designed to help the supervisor understand the individual
employee’s motivation and career goals. It should be clear that not all employees
share the same motivations and objectives.
For example, an entry-level employee who’s a working parent might want the
flexibility to respond to their children’s needs, while another may want a fast
track to a senior position. Or a mid-career manager might want to spearhead a
new division because they have a passion for innovation and wants the company
to benefit from it.
Source: 1 https://www.coachfederation.org/files/includes/media/docs/ExecutiveSummary.pdf
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Whatever it is, you need to know your employees’ motivations so you can offer
them the career guidance and opportunities they need to stay motivated and
productive. Moreover, you need to regularly take stock of their development to
figure out if they’re on the right track and if anything needs adjusting.
Consider the following training opportunities:
•»soft skills training (goal setting, time management, priority setting)
•»technical skills training
•»management training for first-time managers (interview skills, performance
management skills)
•»leadership development and formal coaching for mid-level managers
When you correctly and consistently implement behavior-based
performance management, it will yield the greatest ROI possible from any
human capital investment.
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KEY TAKEAWAYS – TALENT MANAGEMENT
View your people as assets, not expenses.
Turnover is costly in terms of both finances and human impact. The costs associated with replacing an
employee are between 90 and 200 percent of that person’s base salary, plus, there’s the potential for
losing clients. In terms of human impact, coworkers can become unmotivated and stressed, and you
could also lose knowledge along with the worker who is leaving.
68 percent of a company’s value stems from non-financial components, i.e. its people.
Employees who aren’t motivated can lose as much as two hours of productivity per day. Keeping
them motivated and adding even as little as 15 minutes of productivity per day can add thousands of
dollars to your profits.
When recruiting employees, you need to keep several things in mind: Approach recruitment as if you were
‘’marketing” your product to your most important customers; hire for behaviors, not skills; and tailor your
recruitment efforts to the specific individual.
Use behavior-based performance management to provide your employees with additional training
and development. This will help you retain top talent.
Step 3: Written GoalsLet everyone know what you're aiming for3
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E Step 3: Written Goals
Perhaps you’re thinking, “My goal is pretty self-explanatory: Make as much money
as possible. Why do I need to write that down?”
That’s a valid question. But according to a landmark Harvard study, setting goals
and writing down your objectives enhances your motivation and increases your
likelihood of success.1 Moreover, companies that had written objectives showed
a 700 percent increase in growth versus those that didn’t.
The researchers performed hundreds of correlational and experimental studies.
The results clearly showed that setting goals and writing them down increases
success rates and your chances of achieving those goals. It also helps companies
get alignment.
That's really important for an employee. Think about the people who are just
bored at their job. They've got two hours of extra time to waste each day because
they’ve mastered their job. As soon as they become truly efficient, they're not
challenged anymore. What people want is a higher purpose. You give them that
higher purpose when you give them targets, show them what to aim for and give
them feedback on how close they are to reaching those goals. That process
starts with the executive team.
Setting goals and writing them down
increases success rates and your chances of achieving those
goals.
Source: 1 https://www.wanderlustworker.com/the-harvard-mba-business-school-study-on-goal-setting/
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How Writing Down Your Goals Drives Performance
The process of writing down your objectives should not just be done by the
company’s leadership. It should be a collaborative endeavor that involves upper
and middle management, as well as lower-level employees. By working with your
people and negotiating your goals, they’ll take ownership of those objectives and
be more motivated to accomplish them.
achieve alignment across various departments and
get everyone working toward the same
objectives
improve focus on the highest value behaviors,
which will increase performance
help define the targets for recognition and reward by providing
measurable goals
Goals Drive Performance
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What are SMART Goals?
For goals to be meaningful, they need to be SMART.
This is important because employee goals aren’t meaningful unless they meet all five
characteristics.
SMART
SPECIFIC
MEASURABLE
ATTAINABLE
RELEVANT & REALISTIC
TIME BOUND
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This is a great theory, but it’s hard to put into action. The best way to start
formulating your goals is for your company’s leadership team to sit down and
“mad lib” about objectives. You can use a simple formula to create smart goals:
I will ________________ by ________________________ by ____________.
For example:
•»I will increase sales to new customers by 15 percent by Q2.
•»I will streamline the new client process to reduce time for onboarding
to 30 days.
•»I will create three blogs a week to generate 25 new web visitors a month.
It’s critical to keep in mind that your objectives need to be realistic based on the
resources at your disposal. That’s why your entire leadership team needs to take
part in the goal setting exercise.
(Action Verb) (Measurable Result) (Deadline)
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Cascading Goals
Operational objectives, by definition, are high level. They’re company wide goals.
However, these goals only generate change in behavior if they translate down to
the department, team and individual employee level. That’s
where the concept of cascading goals comes in: Assigning
smaller but related objectives to departments, teams
and individuals that all contribute to achieving the overall
operational objectives.
When determining cascading goals, it’s critical to keep the line
of sight in mind. This means your employees should be able
to clearly see how their individual objectives contribute to the
greater company goals. Senior managers’ goals are generally
equal to the company’s goals. Junior staffs' goals are typically
80 percent related to their own personal activities, which can
make it easier for them to understand how they’re relevant.
An employee with a clear line of sight should know how
their goal directly affects their team, department and the
overall company goals. Since satisfied employees are key to convincing clients to
purchase more of your service, this personal goal is directly and clearly relevant
to the overall operational objective.
Understanding the Fear of Failure
Some business owners don’t want to write down their objectives and share them with their employees because they’re afraid to expose themselves and fail. Atthe same time, many employees struggle with the samefear. However, every experienced business person knows you can’t predict the future. In that sense, failureis inevitable. The best companies let their employees fail, so long as they “fail fast” and study their failures to see what they can learn from them. Don’t let fear of failure keep you from setting clear goals.
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EKEY TAKEAWAYS – WRITTEN GOALS
Writing down your goals increases motivation and improves your chances of success.
Defining goals should be a collaborative endeavor. When you involve all employees, they’ll own their
objectives and be more motivated to achieve them.
Written goals provide a way to tie an employee’s performance to company goals that are driven by measurable
objectives—revenue, profit, and customer satisfaction. This enables you to provide positive feedback for
achievements in the form of recognition and rewards. We dive deeper into this subject in Step 5.
Fear of failure can adversely impact your company’s success. Don’t be afraid to put your goals out
there. Fail fast and learn from every mistake.
Make sure your goals are SMART: Specific, Measurable, Attainable, Relevant and Time Bound.
Cascading goals refers to the practice of upper management sharing overall business objectives, and using
them to develop department, team and individual employee goals. It’s important that the individual can
always see how their objectives contribute to the larger business goals.
Step 4: Keeping ScoreUnderstand the drivers of your business4
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Step 4: Keeping Score
In this step, we’re going to examine one of the most important aspects of
building a profitable business: Keeping Score.
Keeping Score encourages CEOs to think more strategically by explaining the
importance of key business drivers that help make data-driven decisions. A CEO
must understand how to produce and analyze KPIs, reports and scorecards
about past performance to drive future results.
So how do you do that? How do you build a scorecard to help you make
decisions to increase your company’s success? What should you monitor to help
your business run better, grow faster and make more money? It’s all about how
to put your numbers to work. GrowthForce dives deeper into keeping score in
our latest ebook “The CEO’s Guide to Keeping Score.”
The CEO’s Guide to Keeping Score gives management a road map to improving a
company’s bottom line with actionable statistics. It starts with strategic thinking
through the five areas of business decisions.
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The Five Areas of Business Decisions:
1. Strategy & Planning
2. Sales & Marketing
3. Clients & Services
4. People & Operations
5. Cash & Finance
These five sections of a CEOs brain are design to help visualize
where, as a strategic CEO, you need to spend your time. The
first area of focus is Strategy & Planning which should take up
15-20 percent of your time. Top of mind for every CEO has to be Sales & Marketing because that's how you grow your
business. Clients and service are the driving force of the business, but a strategic CEO figures out how to put strong people
in place to deliver quality services, so delivery of service can't be all consuming.
What that means is people and operations become how you drive profits, since people are the foundation of the company.
This will take up the largest area of your strategic thinking. Without the right people in the right seats on the bus, a CEO will
always be forced to be tactical.
Finally, the front of the CEO brain must always be Cash & Finance. Every business always needs to keep an eye on cash flow,
but in order to be strategic, cash flow needs to be a small part of your day-to-day functioning. If dealing with cash flow
consumes a sizable portion of your world, you can't be strategic. Then you have no choice but to be a tactical CEO.
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To make data-driven decisions, you need to understand the key business drivers of your business. Once you
know those drivers, then you can start developing your KPI reports, to help you keep track. Each driver
should be on its own KPI chart designed to be understood company wide. Share them with your team to have
the biggest impact.
The Core Set of KPIs
The five Scorecards we’re discussing here should be viewed as The Basic KPIs and, depending on your
business model, you should have additional Advanced KPIs and Reports. The set of KPIs outlined herein are
designed for service businesses that make money on people’s time, but the concepts can be used for any
industry. The goal here is to get you started with a basic core set of KPIs and then help you understand how
to build more advanced KPIs based on the drivers for your business.
Five Business Scorecards Every CEO Should Have:
1. The Company Scorecard2. The Sales & Marketing Scorecard3. The Services Scorecard4. The People Scorecard5. The Finance Scorecard
These scorecards follow the five areas of business decisions in the mind of a CEO to understand key business
drivers of your business. (Download our free “Excel Scorecard KPI Template” to see how they work.)
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Financial Intelligence
To make data-driven decisions, you need to understand the key business
drivers of your company. Once you know those drivers, then you can start
developing your KPI reports to help you keep track. Each driver should be on its
own KPI chart. Your KPI charts should be user-friendly and easy to understand
so you can share them company wide to have the biggest impact.
The key to turning financial data into actionable financial intelligence is to be
able to look at each number and compare it to what it was supposed to be. If
a business driver is important enough to track each month, that driver should
have a budget. What resources or processes are vital to the sustained growth
and success of a business? These resources comprise your plan, and your key
metrics need to be measured against that plan. By studying the variances
against the plan, a strategic CEO can more quickly figure out where to focus
their time and where to take action.
Finally, you need to monitor your KPIs over time. This is helpful to prevent you
from reacting emotionally to the most recent financial results. By studying the
trend lines, especially Trailing Twelve Months (TTM) trends, you can understand
what’s really happening in the company in the long term.
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Management Accounting
Management accounting uses unit economics to break down
a business to its most basic elements, so you can gain insights
into profitability based on how you organize your company.
Once you understand your unit economics, then you can
measure what drives each element’s success and make
decisions based on the KPIs you choose for your company.
When done right, management accounting transforms
accounting from a necessary back-office expense into an
integral profit generating tool. Examples of unit economic
metrics for a service business include profit by customer, job
and employee or income and expense per hour paid.
Financial Intelligence
Management accounting aims to provide an organization’s management with the financial intelligence it needs to make strategically sound business decisions. Financial accounting, in contrast, involves keeping financial records (revenue, cash flow, expenses, payroll, etc.) that are primarily intended for third-party stakeholders, such as investors and the IRS.
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How Do You Leverage Your Accounting System to Set Up a KPI Monitoring System?
To produce the KPIs your business needs on a consistent basis, you may find you need to automate some business
processes. Think of processes such as time tracking and linking timesheets to your payroll to get automated job costing,
or setting up reports to calculate metrics like gross profit—all of which are essential for job costing.
GrowthForce has created a helpful
“Excel Scorecard KPI Template” that
accompanies our ebook “CEO’s
Guide to Keeping Score.” You can
use this template, which comes
pre-populated with the charts and
information contained in the guide,
to build your own KPIs.
You need to understand how to Put
Your Numbers to Work by creating
a monitoring system for leading
indicators, and learn how to read your
KPIs to make data-driven decisions.
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Less is More
When it comes to KPIs, less is more. One mistake business owners often make
is to track metrics just because they can. The fewer items you track, the more
valuable each metric becomes. Note that it costs money to generate reports
and have managers try to accurately interpret them. In addition, if you focus
on everything, you aren’t focused on anything. Limit yourself to as few KPIs as
possible to obtain only the key data you need to make decisions.
Don't Change Your Culture
As we’ve seen, the most profitable companies know that culture eats strategy for
lunch. Whatever you do, don’t let keeping score and your new KPIs change your
culture. In fact, you should do the opposite. Use your KPIs to reinforce your core
values and culture.
The most profitable
companies know that culture
eats strategy for lunch.
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RKEY TAKEAWAYS – KEEPING SCORE
CEOs need financial intelligence to focus their strategic thinking, so they can understand the kinds of
decisions that need to be made and the key business drivers of their business.
Management reporting provides you with actionable insights on how to improve productivity and
performance. Adjusting your KPIs can offer predictive insights as to how changing one or more factors will
impact your business.
Develop KPI reports to help you keep track. Each driver should be on its own, easy-to-understand KPI chart
so you can share it company wide to have the biggest impact.
Compare actual results for each driver to its budget. If its important enough to track, its important
to have a plan. Otherwise, you are only seeing half the picture.
Less is more when it comes to KPIs. Keep the end in mind and get key information to make the
right decisions.
Use KPIs to reinforce core values and culture.
Step 5: Recognition and RewardsIncentivize your team to drive engagement5
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Step 5: Recognition and Rewards
We’ve mentioned before that salary, benefits and other financial incentives aren’t
the only things that employees are looking for in a job. In this step, we’ll take a
closer look at how recognition and rewards impact employee
engagement and performance.
As we learned in Step 2, salary is just that—a salary. An
employee can earn the same amount of money working for
you as they can working for your competitors. But when it
comes to belonging to a strong, fun team; earning respect;
and having opportunities for career growth and personal
development, employers aren’t all created equal.
In fact, career development is the primary reason people join
a company and stay with it. Think of Maslow’s hierarchy of
needs: An individual’s fundamental needs must be met for
them to survive. Financial remuneration—in other words, a
salary and benefits—provides physical safety. However, once
the basic survival needs are met, then respect, recognition,
reward and ultimately, self-fulfillment become important.
Career Developmentis a Benefit
Let’s say you’ve found a good candidate for your IT company’s contact center support role; an aspirational individual who meets all your “ideal candidate” requirements. However, she’s also interviewing with your competitor. You’re both offering comparative salaries, benefits and perks. But while your competitor doesn’t make any mention of career paths, in your company, you provide career development from day one to help employees advance their skills and meet their personal career goals. Since this candidate is looking for a job with a future, which job offer do you think she’ll accept?
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Incentive Compensation
Career development becomes even more powerful when combined with
incentive compensation—i.e. when you add financial rewards to the practice of
recognizing individuals or teams based on their performance.
If you use incentive compensation, it’s important to give your employees
a clear line of sight as to how their objectives contribute to the company’s
overall objective. Use written goals and scorecards to provide them with real-
time feedback. By doing this, their goals become controllable and they feel
empowered. If, in contrast, there’s no clarity about how they’re contributing
to the larger objective, then they’ll feel like the company’s goals are non-
controllable, which in turn may result in disengagement.
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Recognition-Based Incentives
But even more powerful than incentive compensation are recognition-based
incentives. As we discussed earlier in Maslow's Hierarchy of Needs (on page
18), recognition among peers and co-workers can have a long-term impact on
employee work engagement and job satisfaction. A cash bonus is a one-time
incentive. In contrast, being recognized among your peers and fellow co-workers
for going the extra mile and contributing meaningfully to the company is a lasting
achievement—and as we’ve seen, once our fundamental needs are met, we all
want to make a difference in our lives and/or in the world.
That’s why recognition is such a powerful motivator. Titles such as “employee
of the month” and “top performer” offer fulfillment to people who are already
passionate about your mission—plus, they can be key accomplishments
that make all the difference when the individual applies for a specific role or
promotion. It’s always great to give recognition to employees who delight your
customers, but another way to give recognition is a “kudos” program.
Acknowledge when an employee does something great, whether it is helping
someone else or accomplishing goals out of their comfort zone.
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ROI on Recognition and Engagement
Employee engagement represents the level of commitment employees feel
toward their employers and their jobs. The higher the level of engagement, the
more likely an employee will go the extra mile to perform well and be an advocate
for the company.
A recent Gallup poll about recognition and engagement showed some surprising
insights:1
•»When a manager focuses on someone’s strengths, the likelihood of that
person becoming disengaged drops to a mere one percent.
•»When a manager focuses on someone’s weaknesses, the likelihood of
disengagement rises to 22 percent.
•»When a manager ignores someone, the likelihood of disengagement rises
to 40 percent.
Source: 1https://www.gallup.com/businessjournal/193238/employee-recognition-low-cost-high-impact.aspx
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Another report, this time by the Society of Human Resource Managers, showed
the impact of recognition on employee engagement.1 It found that companies
with employee recognition programs and good career development guidance
saw a 63 percent increase in employee productivity, a 58 percent return on their
profit margins, a 52 percent increase in customer retention and a 51 percent
increase in employee retention.
According to Maslow’s hierarchy of needs, self-actualization—fulfillment of
potential—is the highest level of personal satisfaction. Earning recognition and
having a sense of belonging are important. When you hire passionate people
with the right behaviors and empower them to meet all these needs by fostering
a culture of recognition and engagement, you’ll greatly improve your company.
Providing Recognition, Rewards and Career Development
What all this shows is that if you carefully define who you are and what you want,
if you select your people to be aligned with your core values, if you listen carefully
to what they want from their jobs, if you provide them with the guidance they
want and if you give them the recognition and rewards they deserve, you can
greatly reduce turnover, enhance engagement and improve productivity. And
that is proven to increase profits.
Companies with employee
recognition programs saw a
63% increase in employee productivity.
Source: 1http://go.globoforce.com/rs/globoforce/images/SHRMWinter2012Report.PDF
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KEY TAKEAWAYS – REWARDS AND RECOGNITION
Monetary incentives can be effective, but recognition-based incentives such as a feeling of belonging to
something bigger than you, are long-lasting and fulfill a need for self-actualization.
Recognition and rewards are critical to enhancing employee engagement and performance.
Research shows that employers with good recognition and career development programs scored
significantly higher in terms of productivity, revenue, customer retention and employee retention than
those that didn’t.
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N Conclusion
Now you’ve learned what the five steps are and how to use them. Defining
your business strategy involves knowing what your company stands for, why
customers should buy from you and why people should come to work for you.
Writing down your goals and communicating them to your employees
provides your people with a collective objective to work towards—one that can
be broken down into individual goals for lower-level employees.
Your talent management program ensures you hire people who
share your passion, fit into your company culture and possess innate
behaviors that enable them to become high performers. Keeping score
allows you to track your progress toward your objectives and see how
adjusting specific KPIs will positively or negatively impact your business. Finally,
recognizing and rewarding high-performing employees drives productivity,
enhances performance and improves engagement—all of which ultimately
benefit your bottom line.
There’s no doubt that building a successful service business takes time and
effort. However, with this CEO’s guide to profitability, you’ll be able to ask,
consider and ultimately answer the most important questions all successful
businesses face every day.
Call us! 281.358.2007
Email us! [email protected]
About GrowthForce
GrowthForce provides outsourced bookkeeping, management accounting and
controller services for growing businesses and nonprofits. GrowthForce
combines advanced QuickBooks accounting system design with a fractional
share of a full service accounting department including a U.S. based, dedicated
team of bookkeepers, accountants and controllers. Our customized financial
reporting and KPIs help small businesses and organizations drive performance
and profitability through data-driven decisions.
To view our full library of case studies, white papers, and guides,
please visit www.growthforce.com/resources.
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