|
|
|||||
|
what happens if we type these here |
 |
||||
|
You
Are What You Measure
Why is this true? In part because the metrics a firm takes seriously are usually attached to how its employees are rewarded. Rewards help reinforce actions and decisions that achieve the desired measures. Those who excel in achieving the favored metrics are promoted and assume key management roles, which further entrenches those metrics as defining characteristics of the firm. Additionally, managers tend to repeatedly communicate the importance of meeting certain measures, which also influences corporate behavior. This would indicate that choosing the right metrics is crucial, not only to your firm's identity, but to its success. In the same way that metrics reinforce desired behaviors, they can also encourage less desirable behaviors. Misguided or overemphasized metrics will also draw limited corporate resources away from your firm's real priorities. So is your firm measuring the right things? Here's a few suggestions on choosing the optimum metrics: u Align your metrics with your values and priorities. Most firms claim to place great stress on satisfying their clients, for example. But how many of them actually measure client satisfaction? Very few! How then can they honesty claim that it's a priority? These same firms will probably also say they place high value on satisfied employees. But do they survey their employees to gage their satisfaction? You know the answer. You should also take care about emphasizing metrics in a way that can conflict with your firm's values and priorities. Take utilization, for example. Firms that constantly stress the importance of meeting utilization goals may unwittingly encourage employees to stretch out assignments or charge hours they didn't actually work—actions that obviously run counter to your commitment to serving clients well. This can also impede productivity, lowering your net multiplier and thus nullifying the benefit of a little higher utilization on profitability. (See "revenue factor" below) u Don't confuse metrics you monitor with those you manage by. Everybody tracks statistics such as revenue growth, profitability, overhead rate, sales, etc. But how much these metrics influence corporate behavior varies widely. Your managers and other employees readily recognize which metrics really matter to the firm. They're the metrics that are repeatedly talked about, that drive decision making, that managers are held accountable to meet. All other measures may be interesting, but they don't impact the firm. Are you reinforcing the metrics that are most important to your firm, or simply giving them lip service? u If it really matters, then don't be afraid to hold people accountable. The reluctance of managers to demand certain levels of performance is widespread in our industry. This strongly influences the degree to which key metrics are emphasized (or not). I've heard several principals and other senior managers express concern for possibly creating a harsh, unforgiving corporate culture if they truly held people accountable for meeting performance goals. That's why many firms treat budgets (both corporate and project) as goals rather than as requirements. Operations managers and project managers don't worry about meeting budgets because there's no consequences for failing to do so. Does such lack of accountability really contribute to a better place to work? The research, and my own experiences, suggest otherwise. The vast majority of employees want to work for firms committed to success. They want to set the standards high, to compete with the best, to strive for ambitious goals. Furthermore, studies have found that one of the most negative workplace influences is management's failure to deal with under-performers. Establishing metrics that the firm isn't serious about meeting actually works against the goal of creating an attractive corporate culture. There are obviously right ways and wrong ways to manage by the numbers and hold people accountable. Don't assume that taking difficult management actions, such as cutting staff or closing an office, to meet established metrics will automatically discourage your workforce. On the contrary, employee morale often improves after such actions. In general, the strongest company cultures I've seen are in firms that have the will to manage to their metrics, even though it involves taking tough actions at times. u Benchmark against the best. Most firms define metrics in part based on what other firms in their business are doing. This is highly recommended, but too often I've seen firms set goals based on industry averages rather than on the top performers. The common reason for this is that the firm hasn't yet achieved even the median for its industry. So it seems appropriate to select the median as a more reasonable goal than striving for the top 10 to 25 percent. This may work as an intermediate benchmark, but I encourage you to choose at least a few metrics that would place you among the best in your business. It's hard to expect your employees' best performance if the company's targets are only average. Some Key Metrics There are many good performance metrics to choose from, but let me mention a few that warrant particular attention: u Profitability. Typically expressed as a percentage of net revenue (gross revenue minus reimbursable expenses and subconsultant fees), before taxes, bonuses, and other distributions. Profit doesn't get enough emphasis in many technical consulting and design firms, as evidenced by historically middling profits across the industry. The median for A/E firms, according to the 2004 PSMJ Financial Survey, was 9.67%, down from 13.5% five years earlier. Profits for the top 25% of firms was about 15% (varies among different market and service sectors). u Revenue growth. Growth is obviously an important measure, but uncontrolled or unprofitable growth can lead to substantial problems. The top 25% of firms in PSMJ's survey showed a 10-15% increase in gross revenue compared to 2003. Better still, are firms that are able maintain steady growth over the long term without sacrificing profitability. Median revenue growth in our business is currently about 3-5%. u Revenue factor. As noted above, there's a danger in placing too much emphasis on utilization. A better metric is revenue factor, which is utilization multiplied by net multiplier (net revenue divided by direct labor cost). Revenue factor is also the amount of money generated for every dollar of payroll. A good target is 2.0 (or $2 for every $1 of payroll). Using revenue factor avoids the common mistake of treating either utilization or net multiplier in a vacuum. Lower utilization can be compensated for by raising the multiplier, or visa versa—important factors to keep in mind in negotiating contracts, especially large contracts. By the way, according to PSMJ, utilization is declining industry wide (current median of 59.7%) while the median net multiplier (2.92) is at an all-time high. u Overhead rate. The alarming trend in our business is the continuing rise in overhead, in large part due to health insurance costs. PSMJ's data show a median overhead rate (total overhead expenses divided by direct labor cost) of 162.8%, a 20-year high. Controlling overhead costs is emerging as an increasingly important management priority for most technical consulting and design firms. Of course, firms with a higher revenue factor can absorb higher overhead and still make good money. Many firms in the top 25%, for example, spend more on business development but offset the added expenditure by bringing in more work, keeping utilization higher, and producing the work more efficiently. u Net revenue per total staff. This is one of the best measures of your firm's labor efficiency. The calculation is simple: net revenue divided by total staff, expressed in full-time equivalents (FTEs). Be sure to use your average staffing level for the period you are considering. The current median, according to PSMJ, is about $92,000 per total staff, a number that is increasing industry wide. The top 25%, however, generate well over $100,000 per total staff. The data suggest that the number tends to increase as firm size increases. u Proposal win rate. This is an important measure of your business development effectiveness. Proposal success depends on a number of factors, but largely reflect (1) your sales effort in positioning your firm prior to the proposal, (2) your selectivity in choosing only the better opportunities to pursue, and (3) your ability to write a winning proposal. In my experience, most firms are lacking in all three areas. The industry median is about 40%, and very few firms I've worked with even achieve that number. The best firms win over 60% of their proposals. In calculating proposal win rate, make sure to include only competitive proposals. Many firms inflate the numbers by including add-ons and sole source awards (which makes me wonder how bad the real industry median is!). I also strongly recommend tracking client satisfaction. This may ultimately be your most important metric. For some suggestions on how to do this, please refer to the article "Soliciting Client Feedback." How the Best Firms Do It In considering metrics, it's instructive to consider how the best performing firms apply them. According to PSMJ, the following traits characterize the top 10% of firms (based on high profitability):
Which
of these traits characterize your firm? Are you measuring the right
things? Still more importantly, is achieving those metrics truly a
management priority? Copyright © 2005, The Business Edge, all rights reserved
|
|||||
|
Home | Experience | Articles | Links | Contact |
|||||
