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The Flevy Blog covers Business Strategies, Business Theories, & Business Stories.
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Editor's Note: Take a look at our featured best practice, Balanced Scorecard (34-slide PowerPoint presentation). What is the Balanced Scorecard (BSC)? The Balanced Scorecard is a strategy performance management tool--a semi-standard structured report, supported by proven design methods and automation tools, that can be used by managers to keep track of the execution of activities by the staff within their [read more]
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Every type of business, not to mention every type of manager, has a different set of vital statistics that really matter. For manufacturing people, it could be inventory turns, on-time delivery, and unit cost. For marketing people, it could be new account closings, market share, and sales growth. For call center managers, it could be the time it takes to answer, number of dropped calls, and employee retention.
If you’re running a business, though, whether it’s a corner store or a multi-product multinational, we would say there are three key indicators that really work: employee engagement, customer satisfaction, and cash flow.
These measurements won’t tell you everything you need to know, but close to it. They get right to the guts of a company’s overall performance, now and in the future.
Employee engagement first. It goes without saying that no company, small or large, can win over the long run without energized employees who believe in the mission and understand how to achieve it.
That’s why you need to take the measure of employee engagement at least once a year through anonymous surveys in which people feel completely safe to speak their minds. 
But watch out. Don’t fall into the common trap of letting these surveys devolve into questionnaires about the little stuff, such as the tastiness of the food in the company cafeteria or the availability of spaces in the parking lot. The most meaningful surveys probe how employees feel about the strategic direction of the company and the quality of their career opportunities. They ask questions such as these: Do you believe the company has goals that people fully grasp, accept, and support? Do you feel the company cares about you and that you have been given the opportunity to grow? Do you think that your everyday work is connected to what company leaders say in speeches and in the annual report? The best employee surveys are getting at one question: Are we all on the same team here?
Growth is the key to long-term viability, which is why customer satisfaction is the second vital sign for general managers. Again, this measurement can be obtained by surveys, but those are rarely enough to give you the gritty data you need for a real read of the situation. No, you need to make visits. And don’t just chat with your “good” customers.
See the ones whose orders are inconsistent or dropping—the ones your salespeople don’t like to see themselves.
Make these visits about learning. Find a dozen ways to ask: “What can we do better?” And don’t leave without finding out if each customer would recommend your products or services. That’s the acid test of customer satisfaction.
Finally, there’s cash flow, which is valuable because it just does not lie. All your other profit-and-loss numbers, like net income, have some art to them. They’ve been massaged through the accounting process, which is filled with assumptions. But free cash flow tells you the true condition of the business. It gives you a sense of your maneuverability—whether you can return cash to shareholders, pay down debt, borrow more to grow faster, or any combination of these options. Cash flow helps you understand and control your destiny.
Without doubt, there are lots of ways to measure the pulse of a business. But if you have employee engagement, customer satisfaction, and cash flow right, you can be sure your company is healthy and on the way to winning.
You can download in-depth presentations on Balanced Scorecard and 100s of management topics from the FlevyPro Library. FlevyPro is trusted and utilized by 1000s of management consultants and corporate executives.
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These best practices are of the same as those leveraged by top-tier management consulting firms, like McKinsey, BCG, Bain, and Accenture. Improve the growth and efficiency of your organization by utilizing these best practice frameworks, templates, and tools. Most were developed by seasoned executives and consultants with over 20+ years of experience.
