I recently heard of a private hospital CEO who had (what may be considered by some) an old-school technique for estimating his company’s profit performance. It went a little like this – each Monday morning he would visit the cafeteria and find out how many Mars Bars they sold over the weekend. Based on this single data point he would be able to estimate, with a high degree of accuracy, occupancy rates, and hence hospital revenue.
The powerful thing about this was it was extremely timely. Rather than waiting 2 weeks for the financial data to arrive, he would be able to take action immediately. Furthermore, it proved to be remarkably accurate over a long period of time … thanks to the longevity of the Mars Bar as a confectionary item. It should be noted, that he also used more traditional metrics to later corroborate his ‘index’. However this was lagging information and the actions required were often implemented already from the index.
- A few of us later got together to brainstorm what other ‘indexes’ we, or people we know, have used in certain businesses. Below are a few that came up.
- A manufacturing CEO attempting to control overtime used to count the cars in the car park 30 minutes after shift completion. Too many cars = too many people.
- An insurance broker always tracked disputed claims. This was a very accurate indicator of probability of future premium renewals and hence, revenue. Furthermore, it identified and provided focus on high risk accounts.
- Many warehouse managers are adept at estimating old inventory by viewing the dust build up on certain products. They don’t require a report from the ‘system’.
- Wholesale business CEOs or Sales Directors regularly monitor number of calls made by his sales reps. This could be tracked daily.
- We often profile CEOs and their impetus to ‘get their hands dirty’ by the type or state of their shoes. For example, if the warehouse has freezing cold concrete floors and the CEO is constantly wearing leather soled shoes, it is unlikely he/she walks around there too much.
What’s your index? Feel free to comment or suggest your favourite.