In general, you’ll pick a Critical Number that will address either an opportunity or a challenge on the People/Balance Sheet side of the business (e.g., reduce employee turnover, improve customer service scores, or dramatically reduce a credit line with the bank) or the Process/Profit & Loss side (e.g., improve gross margins, reduce production cycle time, or increase sales close ratios).
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2. Demands: Leaders have to balance two often competing demands on the business — People and Process. This requires simultaneously maintaining a great reputation with the employees, customers, and shareholders (the People side of the business); and improving the productivity of how the firm makes/buys, sells, and tracks these transactions (the Process side of the business).
3. Disciplines: To effectively execute, there are three fundamental disciplines (routines): Set Priorities; gather quantitative and qualitative Data; and establish an effective meeting Rhythm. It’s in these meetings, debating the data (the brutal facts!), where the priorities emerge.
4. Decisions: Ultimately, all of the above require some decisions. To scale the business requires getting four key decision sets — People, Strategy, Execution, and Cash — absolutely right, and there are right and wrong answers. Shortchange any one element and you’re not maximizing your opportunity.
Last, move to the middle of the column and ask, “What are a handful of Key Initiatives we must complete this year to achieve our financial outcomes and hit our Critical Number?
Last, choose a handful of Rocks — priorities that must be accomplished to achieve the quarterly financial outcomes and Critical Number. Again, less is more. Finally, place the initials of the person accountable for each Rock in the small corresponding “Who” box.
Find the lead domino: the one initiative that, when pursued, makes it easier to accomplish everything else. Or identify the constraint — the choke point or bottleneck — and address it first. For more on how to choose this “critical” constraint, read my favorite biz book of all time titled The Goal by the late Eli Goldratt. Scaling up is all about eliminating constraints — in the business and for customers.
At ProService Hawaii, a human resources firm based in Honolulu, President Ben Godsey determined that in the 2014 fiscal year, his Critical Number was getting 600 referrals. This was a major stretch goal. The company, which has $311 million in annual sales (2019), had previously averaged fewer than 200 referrals a year, despite its focus on developing a great service culture and innovative products — indicated by a Net Promoter Score (NPS) consistently above 70% (on par with Apple).
The City Bin Co. alternates between a Critical Number and Quarterly Theme that are focused on improving the People side of the business (“180 to One,” “Saving Mrs. Ryan”) and the Process side of the business (“Life Begins at 40,” “Bin it,” “Bin’s Health”). It’s important to find the same kind of balance as you sequence your #1 priorities.