by Rho Lall
If you haven't already, I highly recommend reading, "Managing Your Processes Using Averages May Be Hazardous to Your Company’s Health." from my ebook, Bull Doze Thru Bull Sh*t. And if you have questions feel free to ask. Really.
Here are a couple additional power tips:
If you remove the top ten percent of a power curve you are left with . . . a power curve.
That means you can split power distributions into leagues. In middle school, for example, I was captain of the Jr. Varsity Soccer team. I could have played varsity (meaning I could have sat on the bench for the season). My coach knew I would rather play. I felt successful as captain because relative to my JV peers I outperformed. I was happier. I contributed more in the JV league then I would have in the varsity league. You can create similar results for your team.
Another point to consider, performance is dynamic. Take the time to find the areas where you outperform. Take the time to find the areas where your team member outperform. I'd rather have a team of out-performers that excel across a variety of areas than a team of individuals competing against each other in one narrow area.
If you would like to better understand power curves, then check out, Bull Doze Thru Bull Sh*t.
Hate is a strong word. But I do hate seeing averages used as KPIs. The problem is they are so prevalent. The only practice more prevalent is reporting on raw totals: We did this much in sales, we worked this many hours, etc. etc. (See my Key Performance Indicators PDF for a set of great examples.) Averages are terrible:
One. There are better KPIs that communicate more meaningful information.
Two. You can be taken advantage of when you rely on averages.
I asked a girl for her number. She was clearly out of my league and she let me know it. I responded that she was acting like a ten when she was clearly a seven. She agreed! Then she started in on herself about how she needed a nose job. Her error? Only comparing herself to other models (not all women). She blew her nose out of proportion (double pun intended). I got her number (And didn't use it). The lesson. Don't be taken advantage of.
There are better options.
Out of a group of two-hundred KPIs, I have researched the seven top KPIs for Professional Service firms. None of the seven are from taking averages. Six of them are ratios (and the seventh can be). Isn't that interesting. So what is so great about ratios?
Ratios reveal trends and makes large numbers easier to digest.
Ratios provide indicators of organizational performance.
Ratios allow me to compare apples to oranges.
First, ratios can be confusing because we were never taught to use ratios in a professional setting. We learned basic fractions. A half or a quarter is an intuitive number. I know what that looks like. I can imagine a pie which gives a fraction meaning. But if a ratio comes out to be 1.09, that is not intuitive. Is it 109%? 92%? Or something else all together?
Comment below on which you think is right?
Second, not every ratio is great. But the great ones compare two opposing metrics. Let's look at one of my top seven Professional Services KPIs. Revenue Per Employee. If you are in business then revenue is a positive. More revenue is better. More people isn't necessarily better. This ratio reflects the sensitivity between these two metrics. More revenue will drive the ratio up. More employees will drive it down. More employees will only drive the ratio up if synergies increase revenue at a greater rate. This ratio simplifies the relationship between revenue and employees down to a number. It also lets me compare two companies that are drastically different in terms of size and revenue.
Third. When I first started learning KPIs I spent a lot of time memorizing definitions. I tried to wrap my head around them. It was hard. I re-learned grade school fractions on Khan Academy because I thought it would help. It didn't. The memorization didn't either. For every new KPI I had to memorize a new definition. Don't waste time memorizing definitions!
There is a better way.
In my next blog I am going to teach you a very simple visual aid that has helped me break down ratios so I don't have to memorize definitions. Subscribe to my blog so you do not miss it! You might as well pick up my Key Performance Indicators PDF as well. It's free!
I'm shooting to have it out in about a week.
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