Define critical numbers

Step 2: Identify your “critical” number

Data in hand, we’ll meet with your team to review the information and develop a group consensus on the critical issues you face in the next three-to-six months. Most teams quickly agree on a single measure where improvement would make a big difference. One of our clients, an engineering firm, hit on revenue per paid hour. Another—a car dealer—focused on return on assets.

Everyone on your team needs to be involved in developing this measure, and everyone needs to understand it. If the number makes sense from a business point of view, it’s usually not too hard to explain what it is and how it’s calculated.

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Result: Understanding leads to engagement

The key measure always links directly to the financials. That’s no accident. Everyone knows that a business has to make money to survive. The more money it makes, the more opportunities everyone has—job security, bonuses, and chances for advancement. If it’s obvious how improving the key performance measure will boost financial results, you won’t have to convince anybody on the team why it is important. They’ll engage on their own, voluntarily. That’s the power of the open-book approach.

Of course, you don’t focus on the same number forever. Businesses change. The world changes. Maybe this year you need to get inventory under control, so you focus on that. Next year your problem might be boosting profitable sales, and you’ll concentrate on that. This step in the process doesn’t take long, either—maybe another two weeks.

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Next steps

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footstepsStep 3: Make performance transparent with scoreboards

Step 4: Align your incentives

Step 5: Rollout and drive results

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