There’s nothing wrong with having “hope,” but clearly “hope” is not a business strategy, a fact that’s become very evident in recent history, given these tough economic times. Nationwide, company owners who’ve casually relied upon “hope” as a viable way to manage or turn around business have suffered serious professional consequences. Some have faced cutbacks in terms of services, products and staff; others have closed their doors for good.
Fortunately, there is still “hope” for countless other leaders who are looking for a simple but powerful way to measure the health of their business. The strategy is based around setting “trigger points,” which are measurements specifically created to signal important changes in critical performance levels. Trigger points are established to align with a company’s Vital Factors, the specific, key indicators of a business’ health. By monitoring trigger points, leaders can take immediate corrective action and avoid the serious consequences of not acting quickly enough.
So, what do trigger points look like, and how do they work? There’s a perfect example in the story of what happened to a prominent Big Ten football coach a few years back. After a miserable losing streak, the university had some decisions to make about whether or not to keep the head coach on board, so they brought in an interim athletic director to help. At this 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 would move forward, keeping him in charge. If he lost one game, corrective action would be necessary. 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 head coach would need to get his resume together immediately.
Under the leadership of this Big Ten coach, the football team lost the final four games of the season. When the coach was fired, the interim athletic director held a press conference, at which a reporter asked him if the coach had been surprised about being let go. The answer was “No.” The process of setting these performance triggers in place had removed the subjectivity out of the issue, established expectations, and made it very clear what consequences there would be for either success or failure.
When a company follows this lead, it’s the management’s responsibility to develop effective corrective actions attached to the trigger points. Doing so eliminates the emotion that can come when goals are not met. Companies should set five to seven performance triggers that are focused on the most vital areas of their business. Examples of company triggers include revenue, profit, cash flow, customer satisfaction and employee retention.
For instance, a manufacturing company wanted to set up trigger points, and one of those trigger points was related to revenue. So the CEO decided that if revenue fell below $2.5 million two months in a row, the trigger would “turn on,” alerting everyone in the company that immediate corrective action was necessary. In the case of this particular financial shortfall, the options for corrective action included increasing sales goals, cutting overhead or a combination of the two. After two months, the benchmark was not achieved, so corrective action was taken to increase sales goals. Then revenue suffered a third month, so the CEO eliminated overhead by cutting back on staff. As a leader, this CEO had to look for solutions that would protect profits and maintain business viability. Of note, he could have opted to take no action – a decision that’s an action in and of itself – however, this can be the riskiest decision that a leader makes.
Although many companies may set expectations around their Vital Factors, where they fall short is putting in place these important trigger points, which put the leadership on alert and force a decision point. Yet without trigger points, it’s impossible to know when to be proactive and how your company is truly performing. Running a business without trigger points in place is also highly stressful because when the “hope” fails, which it will at some point, the floor drops from under you. That’s scary to say the least, and everyone knows that the biggest mistakes are often made when you’re fearful, under intense pressure, or facing major time constraints.
Even though the economic downturn has exposed the fact that countless companies have used “hope” as a strategy for operating business, it’s also been a major game changer. Savvy business leaders are modifying company systems and management behaviors, putting tools in place that really work. As mentioned, performance triggers should correlate to major Vital Factors, but they should also be designed to work on the micro level, such as with specific projects and programs.
Like the alarm system you “wished you had installed,” performance triggers may have been something you’ve overlooked in the past. And you’re not alone if that’s the case — many other company heads haven’t recognized the need. But now you know why they’re crucial to a company’s livelihood. Putting trigger points in place today could be the best small action you might ever take to save your business from crisis and drive it into a permanent position of success.
Six Steps to Establishing Trigger Points
1. Establish trigger points that relate directly to your company’s Vital Factors, specific measurements of your business’ health.
2. Set no less than five, no more than seven, trigger points for entire company, aligned to your Vital Factors.
3. Have your 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 two months in a row.”
• “Revenue misses goal by five percent two months in a row.”
• Backlog drops below $__ 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 your company’s health while backlogged work would be a leading indicator of your company’s health.
6. Set the target for taking corrective action passed on the number of triggers being pulled.
• Two or three triggers are “pulled” two months in a row; or
• Four triggers are “pulled” within a month.
Note: Your company can also define a “trigger” as a single event — e.g., it could be the loss of a major client.
Lee Froschheiser, president and CEO of Management Actions Programs (MAP), is the co-author of the best-selling book, "Vital Factors, The Secret to Transforming Your Business - And Your Life." For more than 50 years MAP has helped 160,000 leaders and 13,000 organizations create sustainable results using the powerful combination of the MAP Program, business coaching and consulting services. For more information, visit http://www.mapconsulting.comor call 888.834.3040.