HERE is a short and useful post by our friends at MNP on four signs your business might be in trouble.
The post refers to Key Performance Indicators (KPIs), which it describes as the 3 or 4 numbers (or ratios) that drive everything in the business. For example, KPIs at a manufacturing and distribution company we manage include order backlog, fill rate and the cost of direct materials and direct labor expressed as a percentage of sales.
We find that nearly all troubled companies with operational problems (as opposed to balance sheet problems) have management teams that have lost sight of their KPIs. They fail to understand them, fail to monitor them and fail to take corrective action when necessary.
The start of an operational turnaround therefore is for leadership to step out of the minutia and day to day stresses of running a business and to renew its focus on measuring and improving KPIs. Seems obvious? Its not.
We recently worked on a turnaround in which we agreed with management on the KPIs, measured them over a five year historical period and concluded that every single metric had gotten worse every year. Yet, despite the facts, management insisted the company was not in operational trouble and that improved results were right around the corner.
Confirmation bias, twisting (or ignoring) facts to support what you want to believe (or sell), can be the death of companies. Keep your KPIs simple and believe in them. If they are declining, you have trouble.