Improve Business Performance With Trigger PointsBy Lee Froschheiser | Posted 2010-06-28 Email Print
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To measure business health and improve performance, management should develop measurements that signal important changes in critical performance levels.
There’s nothing wrong with having hope, but clearly hope is not a business strategy. Nationwide, company owners that have relied on hope to manage or turn around their businesses have suffered serious consequences.
Fortunately, there is a simple but powerful way to measure business health and improve performance. The strategy is based on setting trigger points—measurements that are specifically created to signal important changes in critical performance levels.
Trigger points align with a company’s vital factors: the specific, key indicators of a business’s health. By monitoring trigger points, business leaders can take immediate, corrective action and avoid the serious consequences of not acting quickly enough.
What do trigger points look like, and how do they work? There’s a perfect example in what happened to a prominent Big Ten football coach several years ago. After a miserable losing streak, university officials had to decide whether to retain the coach, so they brought in an interim athletic director to help.
At that point, there were four games left in the season, so the interim athletic director set performance triggers in place. If the coach won all four games, they’d move forward, keeping him in charge. If he lost one game, corrective action would follow. If he lost two out of four, he could expect serious consequences in terms of his job security, and if he lost all four, the coach would be terminated.
Under this coach’s leadership, the football team lost the final four games, and the coach was fired. The process of setting those performance triggers in place had eliminated subjectivity from the issue, established expectations and communicated the consequences.
When a company follows this performance trigger system, it’s management’s responsibility to attach effective, corrective actions to the trigger points. This eliminates the emotion that often comes when goals are not met.
Setting Performance Triggers
Organizations should set five to seven performance triggers that are focused on the business’s most vital areas. Examples of company triggers include revenue, profit, cash flow, customer satisfaction and employee retention.
How do you establish trigger points? Follow these six key steps.
1. Choose trigger points that relate directly to your company’s vital factors, the specific measurements of your business’s health. Your firm can also define a trigger as a single event, such as losing a major client.
2. Set between five and seven trigger points—aligned to your vital factors—for the entire company.
3. Have trigger points reflect stop gaps, the minimum thresholds.
4. Base trigger points on a two-month trend (three months, if possible). For example:
• Cash flow is negative for two consecutive months.
• Revenue misses the goal by 5 percent two months in a row.
• Backlog drops below X amount of dollars two months in a row.
5. Have triggers that are both lagging and leading. For example, revenues over the past two months would be a lagging indicator of the company’s health, while backlogged work would be a leading indicator.
6. Set the target for taking corrective action based on the number of triggers being pulled. For instance, a target might be when two or three triggers are pulled for two consecutive months, or when four triggers are pulled within one month.
While many companies set expectations around their vital factors, they often fall short when creating important trigger points, which can put the leadership on alert and force a decision. Without trigger points, it’s impossible to know when to be proactive and how your company is truly performing.
Operating without trigger points is also stressful because when hope fails—and it will at some point—the floor drops out from under you. That’s scary, and the biggest mistakes often result from fear, intense pressure or time constraints.
Establishing trigger points today could be the best small action you ever take to save your business from crisis and drive it into a permanent position of success.
Lee Froschheiser is president and CEO of Management Actions Programs (MAP) in Sherman Oaks, Calif., which provides business coaching and consulting services to business leaders and companies nationwide. He is also the co-author of Vital Factors: The Secret to Transforming Your Business—And Your Life.