What’s your critical number?

January 28, 2013 — 3 Comments

By Bill Fotsch

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A while ago I did some work for a big telephone company, one of the corporate giants that used to be known as Baby Bells. I arrived at a company service office around 7:30 in the morning and went in to talk to the manager. I said, how’re you doing?

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She looked at me suspiciously. What do you mean? she asked.

So I said, well, I was just being sociable, but as long as I’m here, I wonder, how’s the business doing? She said, you mean how are the numbers? And I said, yes, the numbers.

So she pulled out a computer printout, and she was on to page two, buzzing through about twelve different metrics, when I said whoa! Forgive me, I’m just getting started here. I appreciate your diving in like this, but I’m just trying to get a sense of the overall picture of how we’re doing.

To which she again said: what do you mean?

I said, well, I can see you have various metrics here—you have a customer satisfaction metric, you have a time per call metric—but how do you know whether you’re winning or losing? Because some of these things are going to trade off one against the other.

You could almost hear her sigh. She said, you know, I’ll be darned if I know, and I’d appreciate it if you could tell me—I’d really appreciate it. Because there are  always some of those metrics on that page that are wrong, or are heading in the wrong direction.

As part of that engagement, the group in the office agreed on a single critical number. Their job was to make sure that people who ordered telephone service got a dial tone and the features that they wanted on their line. In the company it was known as service order provisioning, or S.O.P. The critical number they agreed on was cost per S.O.P. Simple, sure. But they had never focused on this one number before.

Granted they had plenty of metrics, such as average call time. What’s the best way to minimize average call time? You guessed it: cut the caller off as quickly as possible. Of course, that tends to push the customer satisfaction metric in the wrong direction.

Business is always a game of numbers. Managers and company owners know that, and they usually track several different numbers week in and week out. But what’s the critical number for right now, the one that determines whether you are winning or losing? If you don’t know that, you really can’t know how you are doing—and neither can your managers or employees. People who don’t know whether they’re winning or losing pretty soon stop caring, because after all what’s the point?

That’s why one of our first steps when we work with any client is to sit down with management and employees and identify a critical number—the one number where improvement right now would make the most difference to the business’s success. Then we can start tracking that number, help people understand it, and figure out how to move it in the right direction.

At the Baby Bell, the division reduced its costs that year by over $7 million, which represented a 43% drop in unit costs. And customer service improved. Suddenly, people knew what winning meant—and they put their shoulders to the wheel. Next time somebody asked them how they were doing in the business, they would know the answer.

3 responses to What’s your critical number?

  1. 

    Bill, thanks for an excellent article on the critical number. As you point out, asking people to find this number not only helps them better understand their business, it drives performance and improvement at the same time. Great stuff!.

  2. 

    I understand you are trying to make a point about focusing on the critical issues. But the article is overly simplistic. There are always, always trade-offs. Yes if your cost are extremely bloated you can focus on cost reduction, But that does not equal creating value for customers. It is hardly a metric for longer term growth, but it might be important for short term survival.

    I have always liked the idea of one single critical number. But 40 plus years of experience tells me no such number exist. There are always trade-offs. If I do more of X I get less of Y. So I’m commenting because I think the article is somewhat misleading.

    The best leaders are actually able to keep multiple balls in the air. You can’t focus on a list but you typically need to focus on 3 to five critical issues. Perhaps moving forward on one front at any given moment. But also preparing for the actions necessary to sustain the gains.

    Even in the example you present. There is life after cost reduction. And I have never seen a business grow by simply reducing cost. I don’t know when you were interacting with the baby bell’s and admittedly they were quite bloated early on. But they also needed to focus on strategic direction, innovation and engaging their workforce (which was typically done quite poorly).

    • 

      Michael, I appreciate the point you are making. It may not have been clear in this brief article that a company should regularly revisit the “critical number” adjusting it as the circumstances change. John Case and I just finished a Harvard Business Review article that explains this more directly. It can be found at http://blogs.hbr.org/2013/12/a-winning-culture-keeps-score/. Alternatively, if you would like to see some additional case examples of how a critical number can improve business results and the lives of the employees who drive those results, they can be found at http://www.openbookcoaching.com. Thanks again for your input… Bill

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