This article is an excerpt from the Shortform book guide to "Scaling Up" by Verne Harnish. Shortform has the world's best summaries and analyses of books you should be reading.
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How do you measure business performance? Do you have a system to make sure your growth is on track?
Progress matters, no matter what your organization does or how big it is. Key performance indicators (KPSs) and objectives and key results (OKRs) are two common ways to measure business performance. In fact, they can be used in tandem.
Keep reading to learn about these two methods of measuring business performance.
Measuring Business Performance
Regardless of the size of your business, you want to make sure it’s growing and on track toward your vision. Key performance indicators (KPSs) and objectives and key results (OKRs) are two popular ways to measure business performance.
Measuring Business Performance With KPIs
In Scaling Up, Verne Harnish writes that you can’t implement what you don’t measure. Since every important function in your company now has a specific person assigned to it (and responsible for it), you should make ample use of key performance indicators (KPIs). These are stats that get to the heart of whether a department, functional area, or specific individual is pulling their weight.
There are many types of KPI. They could be hard, quantitative financial data points (like earnings per share or debt/equity ratio) or more “soft” qualitative metrics (like measures of customer satisfaction). As the leader, you just instill into managers the expectation that performance will be measured and evaluated on a regular basis to ensure that implementation is running smoothly. To track progress in real time, you can even insist that certain measures of progress (like cash flow) be submitted to you on a daily basis.
Harnish writes that your strategic thinking group should meet weekly to assess the progress of the growth initiative. They can make use of real-time data and reports from customers, employees, suppliers, and other stakeholders to evaluate how the strategy is going and fine-tune any adjustments that need to be made.
Measuring Business Performance With OKRs
In Measure What Matters, John Doerr argues that the key to developing useful metrics is to identify your company’s OKRs—objectives and key results. The objective is the ultimate goal, what you and your team exist to achieve. If you’re a sales team, then your objective might be defined as total sales or possibly net revenue. Doerr emphasizes that whatever your objectives are, they must be measurable, concrete, and action-oriented: If they’re intangible or not something that individuals can actually do things to work towards, then they’re not truly objectives.
The key results are the rungs on the ladder toward your objective. These are the sub-goals that facilitate the achievement of your ultimate objective. For a sales team, these might be total calls or emails made to customers, new inbound leads, or conversion rate. To implement the OKR system, Doerr advises that you need to start by identifying the most important tasks your company needs to accomplish within a set timeframe. Once you’ve identified your company’s objectives, you then direct departments, teams, and individuals to identify their own objectives. Every objective, regardless of whether it’s an individual or department objective, should align with the company’s top objectives.
Note that KPIs and OKRs are not the same thing. OKRs are a more expansive and encompassing framework for directing a company’s growth. KPIs measure a company’s performance on certain tasks within an existing framework. The objectives within the OKR framework, however, are similar to the “vision” as described by Harnish. Also, individual KPIs can sometimes be synonymous with the key results in the OKR framework.
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Here's what you'll find in our full Scaling Up summary :
- Advice on how to guide your company as it grows from a small company to a large firm
- Why founders need to eventually give up some of their input and power
- How to build an all-star team—from senior leadership to rank-and-file
