Why Bother Measuring Your Business Efficiency? - dummies

Why Bother Measuring Your Business Efficiency?

By Marina Martin

The importance of measuring your business efficiency in ways beyond mere dollars in and dollars out cannot be overstated. In fact, Harvard Business School’s Robert Kaplan and David Norton developed the Balanced Scorecard methodology specifically to address this hyperfocus on financial measures and to bring light to other equally important metrics such as customers, growth, and productivity.

Financial efficiency is a key part to running an efficient business — productivity becomes a moot point when your doors are closed — but it’s by no means the only part. Taken too far, you can save every possible cent and still find yourself with a sub-par product sold by a defeated sales team to a dwindling customer base.

The goal of measuring is to get the most information before you start making any decisions about what changes to make, who should be making them, or how to go about making them.

While your business may have some low-hanging fruit that you can improve upon right away, chances are that a thorough survey of the current situation will reveal deeper and even unexpected avenues to pursue. Focus on collecting accurate, broad data first and don’t worry about making any decisions with it quite yet.

If you’re in debt, sending collectors to voicemail and tossing bills into the back of a bottom drawer may temporarily make you feel in control, but it does nothing to actually help you improve the situation. Barring a lucky lottery ticket, the only way to dig out is to open those envelopes, tally up the amounts due, and start making payments.

The same is true when it comes to business efficiency. You can love the idea of being more efficient and follow the suggestions in every other chapter, but if you don’t know where your business is at today, you won’t know where you actually stand. Perhaps your product quality is nearly perfect already, and your focus may be better placed on something like customer service or building overhead.

On the other hand, maybe you’re actually behind the eight ball in an area that you assumed was running at peak efficiency, and some new technology or a more experienced manager can be a game changer. If you don’t measure now, all your improvement efforts are basically shots in the dark.

If you decide to charge full-speed ahead down the path to greater business efficiency, obstacles and frustrations along the way may tempt you to give up. Improvement takes commitment and hard work.

A single scathing complaint letter can make you feel like every customer is about to abandon ship, or an increased supplier fee may dredge up nightmares about not being able to make payroll. Really knowing the big picture — that customer satisfaction is up 290 percent or that overall costs dropped $2 million last year — can motivate you and your team to stay the course.