Recently a company asked for my help in solving a mystery. Their revenue was growing but their profitability had declined over the past couple of years and they couldn’t figure out why. They thought it might have to do with operations and supply chain, but they weren’t sure.
As I investigated, it soon became apparent that most of their key performance indicators (KPIs) were activity oriented. They measured output per hour, number of purchase orders received, number of lines shipped, number of orders processed, total headcount, etc. One day they received 100 purchase orders and the next day they received 120. Which is better?
When I started to ask questions about average order size, dollars shipped per labor dollar and other elements of economic value, they said, “That’s not the way we measure things.” And that’s why their profit was declining.
To read more about the importance of measuring the right things at the right time, check out my latest Growth Accelerator newsletter.
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