by Mark Brigman
After you and your partner solidify goals for your partnership, it is imperative that the goals be captured in your scorecard. A partnership scorecard is simply a table that houses all of the key metrics that you and/or your partner intend to track as a means to best manage your partnership. In the goal element, you were able to quantify your major goals; your scorecard will display the running tally that illustrates the partnership’s current level of performance.
As with all strategies for business management, I am a firm believer in keeping it simple—less is more. Rather than attempting to compete with Google on the amount of data you collect, focus on selecting only metrics that will indicate the health of your strategic partnership. At a minimum, identify one metric for each goal that was set. Next, think about other outcomes that are critical to your mission and identify metrics that will provide needed insights there as well. As you identify metrics to track on your scorecard, select metrics for which you have data (a means to measure). If it cannot be measured, it is impossible to track its performance.
A scorecard is not a profit and loss (P&L) statement, and it is not a balance sheet. When you select your metrics, do not go into your accounting software suite and pluck out ten metrics that show up in your P&L statement as a way to manage your strategic partnership. I realize the grand goal of every business leader is to generate revenue and increase profits. Accumulating wealth, buying assets, and amassing revenue is a long-term outcome from successfully accomplishing many years worth of goals. Your scorecard metrics, though, need to be operational level outcomes, which will later turn into revenue for your partnership.
Types of Metrics
There are two types of metrics that your company should use to manage its performance, leading indicators and lagging indicators.
Leading indicators are used as a means to predict or forecast a particular result. They can afford our business leaders and Partner Development Leaders additional time to react to conditions that may be unanticipated—good and bad. Let’s suppose you have a strategic partnership with a company that manufactures handheld GPS units and your company builds the software that makes your unique product “come to life.” One of the goals of your partnership is to produce 200 finished GPS systems per month so they can be shipped to your distribution channels. Your GPS manufacturing partner has critical dependencies, one of which is the procurement of a unique microprocessor. In order for your strategic partner to produce 200 units per month, they must receive at least 210 microprocessors each month. In this case, the acquisition of microprocessors is a leading indicator of achieving the goal of manufacturing 200 finished GPS units per month.
As with any predictor, leading indicators are not flawless, but when constructed with sound data, they can provide valuable insights to help best manage your business. Leading indicators can also be used to find trends within our market and industry. In business, it is always better to be proactive as opposed to reactive. Leading indicators allow us to proactively manage our resources to ensure we accomplish our goals.
With some careful thought, you will find high-value leading indicators all throughout your business process, from marketing and prospecting to customer satisfaction. As a matter of fact, customer satisfaction is a commonly used leading indicator of future sales. The achievement of several industry awards in 2015 and 2016 led General Motors to believe that they will see increased sales of these models in 2017. On the contrary, significant safety hazards from the Samsung Galaxy Note7 battery fires will likely cause consumers to purchase alternative phone models.
Lagging Indicators, or trailing indicators as they are sometimes referred, are performance metrics that represent outcomes. Lagging indicators are given this name because their value can be determined only after (or lagging) a particular action or series of actions. For example, one of the most common lagging indicators used in business is the “gross revenue” metric. Even if your company is not publically traded, it is likely that your finance and/or accounting teams compile a quarterly financial statement. Accounting software packages such as QuickBooks™ generate quarterly financial performance reports that provide the gross revenue metric.
Although lagging indicators are very valuable for your business, their application is limited. That is, when we use these types of metrics, we are put into a reactive mode with no opportunity to change our current performance level. We can use these metrics only to adjust our plans and resources so that we can perform at a higher level in the future.
Selecting Performance Metrics
Consider the following recommendations as you identify the leading and lagging indicators that your company and partner should use to manage ongoing performances. Keep in mind that some metrics may be both a leading and a lagging indicator. For instance, a customer service survey should inform you of your customer’s current state of satisfaction (lagging) and also signal future sales (leading).
Determine what you need: Start the process by identifying your goals and the critical elements your company and your partner are responsible to deliver. Don’t feel bound to the metrics that you currently collect or by industry trends. Your metrics should be unique to your needs. Use this time to create a wish list of sorts to determine where, how, and when to get the data in the future.
Know what you have: Understand what metrics your company and partner collect today and how they are being used.
Include your stakeholders: Include the managers and individual contributors who are most familiar with your business practices. Many times their insights will be instrumental in identifying the most valuable metrics to collect and how they may be captured.
Alignment of knowledge: Ensure that your team understands the intent behind each metric. Don’t make the mistake of assuming that everyone understands the “big picture” of the strategic partnerships and all of its components. Your team will use the metrics to “pull levers” that allow future performances to be improved. It is only by fully understanding the metrics and levers that we can fine-tune the engine.
Continually evaluate your indicators: After your scorecard is built and your team is collecting and communicating the performance levels, safeguard that the individual metrics are providing the information for which they were intended. Leading indicators should forecast (predict with reasonable certainty) future performances and lagging indicators should provide insights that allow your team to redeploy resources that result in higher levels of future success.
Designing The Scorecard
Although our approach is to design a perfect scorecard on the first pass, most companies hit between 80-90% on their initial design. Plan to make periodic adjustments to your scorecard over the next several quarters. It typically takes a year to identify and implement the major metrics that truly drive your partnership’s success.
Step 1: Identify scorecards needed: Determine which partnerships require a scorecard. As you recall from Chapter 1, there are three categories of partnerships: strategic, functional, and commodity. You will definitely need a scorecard for every strategic partnership and your team can decide the remaining partnerships that warrant this process. If a metric is critical to your business, it should be measured and managed accordingly.
Step 2: Start building the scorecard: Using one scorecard for each partner, list the goals that were established from the Goals Element activity in Chapter 7. Every partnership goal that is established will be accompanied by at least one metric that must be tracked.
Step 3: Identify milestones (sub-goals) to track: Identify all major project deliverables and milestones for your partnership that are not accounted for in the defined goals. Every major milestone must have at least one metric to be tracked.
Step 4: Identify the metrics: Determine all metrics that should be measured in order for your partnership to achieve its goals and milestones. As a general rule, expect to have between 1-5 metrics for each goal and milestone, depending on the complexity and nature of the required tasks. Obviously you are not bound to a m
aximum; use what you need. Use leading indicators wherever possible as they will allow you to proactively manage your resources.
Step 5: Determine the interval: Determine the frequency with which each metric must be collected and reported. Critical metrics may require reporting on a daily or weekly basis, while less critical metrics may only be reported on a monthly or quarterly basis.
Step 6: Set a performance target: Each metric must have a target level to accompany each time interval on the scorecard. The target will provide a quick unit of measure in order to determine current performance. It is a good idea to color code your results, especially for the visual people on your teams. I use the stoplight approach (red, yellow, green). Red generally means the metric is more than 10% off target, yellow means the metric is within 10% of target, and green denotes the metric is at or above target. Feel free to determine what your acceptable tolerances are and know that they will probably be specific to each metric. If +/- 5% is the desired tolerance for a given metric, use it.
Step 7: Designate a scorecard administrator: Assign a single owner who will be responsible for populating/updating the scorecard. Your team will determine the intervals at which the scorecard needs to be updated and communicated. And depending on processes (Chapter 9), this person may be responsible for alerting specific team members and/or the governance team if certain metrics reach critical levels.
Step 8: Designate a metric owner: Accountability is possible only when a person has ownership. Designate an owner (and only one owner) for every metric that is on your scorecard. This owner is responsible for making sure that the proper systems and processes are in place and followed to collect and pass the critical data to the scorecard administrator.
Managing Your Scorecard
As previously stated, know that your scorecard is not static. The metrics and their specific target levels will change as your partnerships mature. Be sure to encourage open dialogue between your team members and your partners to guarantee that the current version of your scorecard provides maximum value. If deficiencies are found, put a plan in motion to get it corrected. The use of scorecards can be very powerful, especially in partnerships. Scorecards allow you and your partner to effectively lead your partner initiative on facts rather than opinions and anecdotes. In the next chapter we will look at various processes that are to be used to manage a strategic partnership. Making adjustments to the scorecard is one of several important processes that your team will need to identify within your partnerships in order to ensure success.
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CHAPTER 9
PARTNERNOMICS.com/C9
Processes Element
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Processes Element
The process element of the SPLM framework focuses on organization and efficiency. If the word process makes you cringe when you hear it, I have good news—you’re normal. It seems that most business leaders, especially entrepreneurs, are not crazy about the subject of process. We all want our business to run smoothly, efficiently, and profitably and we prefer not to be burdened by process. But the truth is, sound processes are the linchpins to free us from the frustrations of inconsistency and ambiguity within our business operations. The thoughtful design and effective implementation of good systems and procedures is THE way to unlock the full potential of your company and partnerships.
Having effective and established processes can truly be the difference between success and failure within a business. And sound processes will definitely be a major factor in determining success or failure within your strategic partnerships. Many business leaders however, fail to realize this very critical element. Unfortunately, many choose not to invest the time and resources necessary to identify, design, and implement high-quality processes—but you must. Lack of process is consistently cited as one of the top frustrations among PDLs that ultimately contributes to a partnership’s demise.
It is imperative that your company establishes core processes to govern its standard business practices, including strategic partnerships. This wise investment of resources will help to further define expectations that will govern the many interactions that your company members have with partners. Sound processes will allow your company to enjoy more control, consistency, predictability, and profitability. Companies that are governed by efficient processes enjoy a multiplier effect when evaluating overall company value.
When considering current or potential partnerships wi
thin your company, what are some of the main challenges that you encounter? What are some of the areas causing you and/or your PDL’s frustration? If a lingering frustration exists, can it be addressed by a new or revised process? Later in this chapter, we will explore the “process” of engineering strategic partnership processes. But first let’s learn how strategic partnerships and processes helped create an entirely new industry several decades ago.
McDonald’s Story
When I think about great processes and how they can accelerate the success of strategic partnerships, I immediately think of Ray Kroc. Although he is best known for leading the massive proliferation of the McDonald’s franchise, it was his keen understanding of strategic partnerships and business process that led him to that opportunity. Ray was an amazing visionary and a hardworking salesman. He was blessed with a mind for efficiency and he understood the “wildcard” power that partnerships offered in business. Through a series of calculated strategic partnerships Ray Kroc leveraged the world-class expertise of other companies in order to create a competitive advantage and eventually create the “fast food” industry.