BizOps: Measuring Operational Performance

Before we can improve something, we must first be able to measure it. When it comes to sales, that's easy: revenue & pipeline-value are good measures. But what about operational performance? Well, just measure cost, right? Yes, but there's more to it.

In order to explore ways in which we can measure the operational performance of a business, let's consider two distinct businesses. A hot dog stand and a dentist's practice.

Hot Dog Stand:

Think of your favorite hot dog stand. As a hot dog consumer, what do you typically want?

1. You want to get your hot dog quickly.
2. You want your preferred meat, relish and toppings. More the variety, the better.
3. You want a high-quality hot dog that is hot, tasty and hygienically made.
4. And you want your hot dog to be reasonably priced.

Dentist's Office:

Now think of your dentist's office. What do you typically want for your dentist's appointment?

1. You want the dentist to see you quickly.
2. You want to get the care that you need, may that be whitening, bonding, filling etc.
3. You want to receive high quality care from a trained professional.
4. And you want the fees to be affordable or otherwise covered by your insurance.

Axes Of Operational Performance:

From the above examples, we see that a business needs to perform well along four axes:

1. Cost: This one is easy to think of.
2. Variety: Different consumers have different needs.
3. Quality: People like nice things.
4. Timeliness: Consumers want to be served quickly.

The above four axes are critical because firstly, they are the overall goals that each business aspires to. But more importantly, the axes will guide you in choosing the performance measures that your business wants to track. They will give you an opportunity to differentiate your business from others, thus giving you a competitive advantage. 

You're Hired!

Imagine that a national hot dog chain hires you to come up with a performance measurement system. What would you measure? Well, now that you know the four axes to operational performance, coming up with hot-dog-specific measures should be easy.

With respect to cost, you could start by looking into staff productiveness. You could consider:

1. Hot dogs made per employee.
2. Number of customers served per employee.
3. Shop revenue to rent ratio, across multiple shops.

For variety, you could consider:

1. Number of items on the menu.
2. Number of unmet customer requests. (Like requests for salsa sauce or white chocolate.)

For quality, you'll probably have to do a quick customer survey, asking questions about cleanliness, courteousness, taste etc. And you'd also like to see if all promises are being fulfilled. For example, if the business promises to use freshly baked bread, is the bread actually freshly baked?

When it comes to timeliness, that's easy. You could consider:

1. The time taken to prepare a hot dog.
2. The average time a customer spends in the queue.
3. The average number of customers in the queue (say, at rush hour).

Competitive Advantage:

Strategy expert, Michale Porter has identified two ways of gaining competitive advantage:

1. Cost Leadership: Being the most affordable solution.
2. Product Differentiation: Being the right solution for the right customers.

Apart from cost, there are three other operational axes that will can help you company gain a competitive edge.