The CEO's Guide to Increasing Profits5 Steps to a Profitable Service BusinessBy: Stephen King, CPA

Step 1: Strategy 4Why Do You Exist?Define Your Value DriversWhat is Your Unique Selling Proposition (USP)?Who is Your Ideal Client?What is Your Go-To-Market Strategy?What is Your Pricing Strategy?What is Your People Strategy?

Step 2: Talent Management 13View Your People as AssetsMaslow's Hierarchy of NeedsHuman Capital Strategy ROIThe Cost of TurnoverAttracting and Retaining the Right TalentBehavior-Based Performance Management?

Table of Contents

Step 3: Written Goals 29How Writing Your Goals Drives PerformanceWhat Are SMART Goals?Cascading Goals

Step 4: Keeping Score 36The Five Areas of Business DecisionsThe Core set of KPIsFive Business Scorecards Every CEO Should HaveManagement AccountingUp a KPI Monitoring SystemDon't Change Your Culture

Step 5: Recognition & Rewards 45Incentive CompensationRecognition-Based IncentivesROI on Recognition and EngagementProviding Recognition, Rewards, and Career Development

DEDICATIONThis eBook is dedicated to John H. Stern, my father-in-law, who taught me "people are not the most

important thing in business, the RIGHT people are the most important thing!"

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ON Introduction

Small service business owners are typically passionate about their

companies and knowledgeable about their fields of expertise.

However, many find themselves wearing so many hats and dealing

with so many issues they don’t have the time or insight to address

all the factors that drive business success.

This e-book aims to change that. Using our five-step process,

we’re going to show you how to think strategically about how

people drive performance and, as a result, make more money.

In Step 1, we’ll examine your business strategy, which defines why

your company exists. In Step 2, we’ll discuss the power of written

goals for driving performance. In Step 3, we’re going to look at talent management and why that’s critical to

your success. Step 4 is all about keeping score and what business drivers you need to have at your fingertips.

Step 5 discusses the importance of recognition and reward for driving productivity and performance. Each of

these goals is entwined with the others and, as we work our way through this e-book, you’ll see how adjusting

one will impact the others.

Read on for the inside scoop on what it takes to build and manage a profitable service business—in five

simple, strategic steps!

Step 1: StrategyWhere do you want to go?

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Step 1: Strategy

Building a profitable service business starts with defining

a solid business strategy. This is where you define the

uniqueness of your company and your services so you can

get everyone aligned around your vision, mission, and values.

You need to start here as this is the foundation upon which to

create a high-performing team or enhance the performance of

your current team. Let’s take a look at the questions you need

to ask and answer to define your business strategy.

Why Do You Exist?

Self-knowledge is a critical component of your business

strategy. Ask the who, what, and why questions to determine

why your company exists.

Focus on Who, What, Why

While a business plan is focused on the financial foundation, target market, and operational structure of a business, a business strategy is focused on the who, why, and what of your organization. If you’re approaching a bank or other financier about funding for your company, your business plan can make or break the deal. A business strategy focuses on what’s unique about your business - why someone should hire you or come to work for you.

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Define Your Value Drivers

Value drivers are variables that add significant value to your company.

According to CGMA, today’s business drivers are 68 percent non-financial.

That means the value for a service business is in the people, and those key

value drivers include:

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What Is Your Unique Selling Proposition (USP) ?

This question goes right to the core of the “know thyself” mantra. Regardless of

what industry you’re in, you’ll have competitors that sell a similar service to yours.

To set yourself apart from the competition, you must know exactly what exclusive

benefit you offer that will attract customers—and keep them

coming back for more.

A great example of USP and brand positioning is http://

Salesforce.com - Their USP was that their web based

tools implied the end of software. They developed a "No

Software" logo that helped them "own" the idea in the

minds of their prospects.

Amazon’s USP was originally “Earth’s biggest bookstore.” Did

Jeff Bezos deliver on that? Do we have to ask?

Enterprise has another excellent example of a winning USP: “We can provide

free local pick-up and return service,” and it shows in their tag line “We'll pick

you up.”

Differentiate

Theodore Levitt, a professor at Harvard BusinessSchool, suggested that...

"Differentiation is one of the most important strategic and tactical activities in which companies must constantly engage."

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Who Is Your Ideal Client?

Every business has an ideal client. It’s someone who finds the perfect

solution to their problems or needs in the services or products that your

company provides. The Ideal Client is loyal to your company, loves using your

products or services, and is even likely to recommend you to their friends and

colleagues. In addition, especially for service businesses, the client has to fit

YOUR definition of IDEAL:

Be at the right lifecycle/growth stage of business

Be the right size - revenue or # of employees or both

Have the right attitude or psychographics

Be serviceable at great margins

Have potential for better than average retention and lifetime value

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What's Your Product Go-to-Market Strategy?

You can have the best service in the world, but if you don’t know how to get

it in front of the right people in a way that clearly demonstrates how it can

benefit them, it’s not likely to sell. That’s where a go-to-market strategy comes

in. Typically, your go-to-market strategy is used to launch your service in a

coordinated manner that’s specifically designed to support its success. Your sales

and marketing strategy will continue to evolve as your company grows and you

add products or services.

You can create your go-to-market strategy by defining exactly who your

customers are, defining your value drivers, and deciding on a price strategy.

Other decisions to be made around your sales and marketing strategy may include:

»» Direct salesforce vs. online

»» Positioning & Branding

»» Pricing

»» Inbound marketing vs. outbound

»» Channel Strategy

»» Referral Strategy

As a CEO you should have resources, internal or outside agencies to help you

define the strategy that is best for your company and industry.

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Who Are You Serving?

Many new entrepreneurs make the mistake of trying to

sell to as large a target market as possible. While this

might seem logical, the truth is that it’s more difficult to sell

something to everyone than to focus on just a target group.

Why? Because it’s almost impossible to create a selling

strategy that will appeal to everyone.

The smarter choice is to focus on a small segment of

the market. Maybe you’ve heard the saying “The riches

are in the niches.” Basically, this means that if you target

a segment of the market, you can study that group to

determine their exact pain points, the specific benefit they

derive from your service, and the highest price they’re willing

and able to pay. That makes creating an effective marketing

campaign much easier.

Target 4

Target 5

Target 6

Target 2

Target 3

Target 1

Stay On Target

As your company matures and grows, there’s room to branch out into new niche markets either with the same service or new ones. However, the most profitable companies solidify their position with one specific market first.

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What's Your Pricing Strategy?

Pricing is the most important component of a successful go-to-market

strategy. The customer wants a price that’s reasonable in terms of the scope

and quality of the product or service. In some instances, innovation and

timeliness can play a role, too. On the other side of the equation, you need

to cover the cost of creating and marketing the service—and make a certain

amount of profit. The price you ultimately decide on should balance your

needs with those of the customer.

There are four pricing models to choose from:

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KEY TAKEAWAYS – BUSINESS STRATEGY

Self-knowledge is a critical component of your business strategy.

Determining your people strategy is critical to your company’s success. You need to attract people

who are passionate about your vision by creating a company culture where they can thrive and work

towards self-actualization.

When you know your USP, value drivers and ideal client, you know what sets your service apart and

what specific need it meets. That allows the company to be aligned and focused on performance.

Your go-to-market strategy should support your product launch. When designing your go-to-market

strategy, determine what market segment you’re targeting, your value drivers and your pricing strategy.

Step 2: Talent ManagementA great company is built on great people2

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Step 2: Talent Management

In the previous step, we discussed the importance of knowing why people should

come to work for you and what you want them to accomplish. The next step

is to review the way you view your people so you can build an effective talent

management strategy.

Why Do You Exist?

In any business that makes money on its people, payroll is the biggest expense—

especially when it’s paying for healthcare and other benefits. CEOs who view their

employees as expenses instead of assets will try to increase profits by reducing

those costs. They’ll hire fewer employees and spend less on their workforce

overall. However, while this might bring costs down, it also reduces the ROI you’ll

get on your human capital.

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What's Your People Strategy?

If you make money on people’s time, the value of your business lies with your

employees—the people who understand and share your strategic vision, have

in-depth knowledge of your IP and processes, and possess the ability to help

drive your company forward. They’ve built relationships with your customers,

subcontractors and suppliers. And if your company runs on tribal knowledge,

when a member of the tribe leaves, so does the knowledge.

It’s important to realize that the most important sale you’ll ever make isn’t to

any customer. Instead, it’s to an A-player employee who’ll join your company,

help you build a high-performing team, and add to your momentum. And that’s

why you can’t hire just anyone to work for you. We cover more on this in Step 2:

Talent Management.

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What Kind of Company Do You Want?

Company culture encompasses the shared values, beliefs, and behaviors in an

organization. The culture plays a crucial role in how the organization functions

because it determines the overall attitudes towards things like

professional development, collaboration, fun team building

activities, and many other aspects of the workplace.

For example, an investment firm might have a conservative

culture with a linear hierarchy, a formal dress code, reserved

executive parking spots and a strict on-site policy, while also

encouraging professional development and offering regular

company retreats. In contrast, a boutique design agency might

have an informal culture with a relaxed dress code, a matrixed

structure, and flexible work arrangements while prioritizing

things like paid time off (PTO) for volunteering over team

building workshops.

Culture Eats Strategy for Lunch

Culture eats strategy for lunch. If an employee doesn’t fit into the culture, chances are he or she won’t be thrilled with the new job and might even bring down other people. Regardless of how good that employee is at the job, he or she is unlikely to become a high performer and will probably leave the company sooner than a committed employee. Think about it: IT companies are known for their casual workplace environments and flexible work arrangements. If you hire an employee who’s more at home in a conventional corporate environment, he or she will feel like a fish out of water.

If you don’t define the culture yourself, one will be defined for you collectively by your employees—and that might not align with your core values. That’s why you need to establish a “culture by design” throughout all levels of the company and lead by example.

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As we saw in Step 1, the CGMA reports that 68 percent of a company’s value

stems directly from the people in the organization. When you view employees as

expenses, all you see is the numbers on the payroll. But when you view them as

assets and hire people who share your core values, you understand how much

value each person currently brings to your company in the form of knowledge,

skills, experience, behaviors, relationships, networks, and more. You also

understand that investing in your people can yield a significant ROI because the

more and better their abilities, the more they can put them to use to meet your

goals.

The Motivational and Financial Cost of Not Having Engaged Employees

While hiring people whose vision and values align with yours is an important first

step, first you need to create a work environment that motivates employees. 2Research shows that on average, U.S. employees in small businesses waste more

than two hours a day at work. That amounts to almost $700 billion per year in lost productivity!

During those two hours, they’re taking long breaks and thinking about focusing on things they are passionate

about. Why are they doing this instead of working? Because they’ve learned how to complete all their

responsibilities in six hours—and they’re not being challenged to work in a manner that clearly shows them how

their contributions make a difference. They need opportunities to develop their careers and to be recognized for

their contributions.

U.S. workers waste $700 billion per

year in lost productivity.

Source: 2 http://www.salary.com/2014-wasting-time-at-work/

1

Source: 1 http://www.cgma.org/resources/reports/rebooting-business.html

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Maslow's Hiearchy of NeedsOnce a business has the right people and talent management system in place, how does a business owner/CEO

motivate employees to contribute “discretionary effort”? As shown in the famous Maslow’s Hierarchy of Needs

pyramid, it is companies and management teams that provide self-esteem (recognition) and self-actualization

(challenge) opportunities. Remember that most employees say they leave because they don’t feel they are being

recognized or challenged at work.

Recognition among peers and

co-workers can have a long-

term impact on employee work

engagement and job satisfaction.

Effective self-actualization tactics

include all-important training and

career development initiatives such

as classes and seminars paid for by

the company.

MASLOW HIEARCHY OF NEEDS

HUMAN CAPITAL MANAGEMENT

CAREER DEVELOPEMENT OPPORTUNITIES

REWARDS &RECOGNITION

COMPENSATION & BENEFITS

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By tying together talent management and human capital strategies, a business

can reduce turnover and the associated overhead costs.

Human Capital Strategy ROI

Two hours a day is 25 percent of a workday—so that means we have an average

of 25 percent more potential in our companies than we’re currently getting.

If you can just increase productivity by as little as 15 minutes per employee per

day, then you’ll gain 1.25 hours per week or a 3.1 percent in productivity. For a

$3 million revenue business, that’s a potential impact of over $90K per year for

every 15 minutes of additional productivity you get from your team!

So how can you do this? Treat people as assets by implementing a human capital

strategy that attracts people who are passionate about your USP, and once hired,

empowers and motivates them by keeping them challenged and working towards

clearly defined personal and company-wide goals.

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The Costs of Turnover

While low productivity can be a concern,

the biggest problem facing many small- to

mid-sized companies is turnover.

The financial impact of turnover is high.

According to some studies, it costs

an average of 90 to 200 percent of an

employee’s base salary to replace him or

her. And for at least one in four companies,

the costs exceed $50,000.

The costs of turnover can involve the following seven factors:

A paid time off (PTO) balance that must be paid out at the end of an employee’s engagement.1The out of pocket recruitment costs associated with updating job descriptions, job ads, sourcing, interviewing, screening, and hiring, new candidates.

2The time and productivity losses for managers and other personnel involved in the recruitment process.3Higher salaries for external hires, which are on average between 18 and 20 percent higher than internal hires, according to a study by the University of Pennsylvania.

4The costs of onboarding and training new hires, such as travel costs and loss of productivity from your best performers or senior managers who are charged with training.

5The administrative costs associated with processing applications, conducting background and reference checks, and scheduling drug tests.6Client losses due to the loss of an employee.7

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Reduced productivity as a result of a

diminished headcount.

Lower morale among the remaining

workers, who often start to question

whether there’s a better job or a better employer out there.

Loss of information due to the

knowledge that leaves the company

along with the worker.

Increased stress on the remaining

workers, who must compensate for the worker who’s left, resulting in higher

workloads.

The Human Impact of Turnover

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Attracting and Retaining the Right Talent With Effective Hiring Techniques

80% of all turnover is due to bad hires. Many people share the belief that

attracting the right talent is all about offering them more money than the

competition. You need to be competitive as candidates certainly consider salary,

benefits, and perks while deciding to accept an offer of employment, they’re not

the only factors they consider.

The best candidates also want to work in a positive, supportive environment

that aligns with their core values and provides them with interesting work. When

you communicate your core values and company culture to candidates up front,

you increase the odds of attracting candidates who are passionate about your

business—and who are more likely to be high performers who stay with you for

the long haul because they believe in what they’re doing.

80% of all turnover is

due to bad hires.

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Dynamic Recruitment

The biggest mistake small businesses make is recruiting for the skills to pay

the bills instead of recruiting for the behaviors that will allow an employee to

succeed. Basically, if you want a successful hire, you should not just determine

WHAT you need, but WHO you need. It’s not all about skills and abilities or

knowledge and experience in a specific field. You also need someone who:

•»fits into your company culture

•»shares your core values

•»demonstrates the behaviors associated with your core values

You can train people in skills—but you can’t teach them intrinsic behaviors.

The dynamic recruitment process begins with defining successful behaviors. Ask

yourself the following questions:

•»Who are your best performers?

•»What are the behaviors that make them successful?

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Recruitment Is a Marketing Function

If you think recruiting is about posting a job ad that’s a

summary of the job description and lists the skills you’re

looking for, then you’re missing an important point.

Recruitment is about marketing your company and creating an

enticing offer to the candidates you want.

Today, candidates can find out everything about your company

by doing a quick Google search and reading Glassdoor.com

reviews. You need to be honest about what you’re offering

while simultaneously making it interesting.

Just like you tailor your marketing strategy to your ideal customer, you need to

tailor your recruitment strategy to your ideal candidates. You need to know what

your target candidates care about. That’s where knowledge of current workforce

demographics is important.

Tailor Your Recruitment Strategy

A good recruitment strategy is all about marketing yourcompany to your ideal candidates! Treat prospective employees like you would your most valuable client, and find out what’s important to them.

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There are as many as four key generations in the workforce today, all with

different wants and needs. Baby Boomers and Millennials are currently the two

largest groups in the workforce—and they each want different things from work.

Of course, everyone is different, but some broad strokes apply:

Baby Boomersare goal oriented and motivated by position, perks, and prestige.

Gen X(the one-time “latch-key kids”) are independent, flexible, and prefer a good work-life balance.

Millennialsor Gen Y are tech-savvy, team-orient-ed, and prone to job-hopping.

Gen Zrely on technology. They’re entrepreneurial and hyper aware, and they take multi-tasking to a new level.

(1995 and 2010) (mid 1970's and 2000’s)

(1965 and 1980) (1946 and 1964)

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Behavior-Based Performance Management

Once you’ve recruited candidates who share your core values, you need

to keep them engaged so they’ll perform well and stay with you. According

to PriceWaterhouseCoopers, you can achieve an ROI of 700 percent by

implementing HR best practices. This is where a strong performance

management program can make all the difference.

Behavior-based performance management is not a trip to the principal’s office.

In addition to reviewing an employee’s performance against written goals, it’s

a formal meeting designed to help the supervisor understand the individual

employee’s motivation and career goals. It should be clear that not all employees

share the same motivations and objectives.

For example, an entry-level employee who’s a working parent might want the

flexibility to respond to their children’s needs, while another may want a fast

track to a senior position. Or a mid-career manager might want to spearhead a

new division because they have a passion for innovation and wants the company

to benefit from it.

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Whatever it is, you need to know your employees’ motivations so you can offer

them the career guidance and opportunities they need to stay motivated and

productive. Moreover: You need to regularly take stock of their development to

figure out if they’re on the right track and if anything needs adjusting.

Consider the following training opportunities:

•»soft skills training (goal setting, time management, priority setting)

•»technical skills training

•»management training for first-time managers (interview skills, performance

management skills)

•»leadership development and formal coaching for mid-level managers

When you correctly and consistently implement behavior-based

performance management, it will yield the greatest ROI possible from any

human capital investment.

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KEY TAKEAWAYS – TALENT MANAGEMENT

View your people as assets, not expenses.

Turnover is costly in terms of both finances and human impact. The costs associated with replacing an

employee are between 90 and 200 percent of that person’s base salary, plus, there’s the potential for

losing clients. In terms of human impact, coworkers can become unmotivated and stressed, while you can

also lose knowledge along with the worker who’s leaving.

68 percent of a company’s value stems from non-financial components, i.e. its people.

Employees who aren’t motivated can lose as much as two hours of productivity per day. Keeping

them motivated and adding even as little as 15 minutes of productivity per day can add thousands of

dollars to your profits.

When recruiting employees, you need to keep several things in mind: Approach recruitment as if you were

‘’marketing” your product to your most important customers; hire for behaviors, not skills; and tailor your

recruitment efforts to the specific individual.

Use behavior-based performance management to provide your employees with additional training

and development. This will help you retain top talent.

Step 3: Written GoalsLet everyone know what you're aiming for3

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E Step 3: Written Goals

Perhaps you’re thinking, “My goal is pretty self-explanatory: Make as much money

as possible. Why do I need write that down?”

That’s a valid question. But according to a landmark Harvard study, 1setting goals

and writing down your objectives enhances your motivation and increases your

likelihood of success. Moreover, companies that had written objectives showed a

700 percent increase in growth versus those that didn’t.

The researchers performed hundreds of correlational and experimental studies.

The results clearly showed that setting goals and writing them down increases

success rates and your chances of achieving those goals. It also helps companies

get alignment.

That's really important for an employee. Think about the people who are just

bored at their job. They've got two hours of extra time to waste each day because

they’ve mastered their job. As soon as they become truly efficient, they're not

challenged anymore. What people want is a higher purpose. You give them that

higher purpose when you give them targets, show them what to aim for, and

give them feedback on how close they are to reaching those goals. That process

starts with the executive team.

setting goals and writing them down

increases success rates and your chances of achieving those

goals.

Source: 1 https://www.wanderlustworker.com/the-harvard-mba-business-school-study-on-goal-setting/

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How Writing Down Your Goals Drives Performance

The process of writing down your objectives should not just be done by the

company’s leadership. It should be a collaborative endeavor that involves upper

and middle management, as well as lower-level employees. By working with your

people and negotiating your goals, they’ll take ownership of those objectives and

be more motivated to accomplish them. In addition, writing down your goals and

sharing them with every employee in your company:

achieve alignment across various departments and

get everyone working toward the same

objectives

improves focus on the highest value behaviors,

which will increase performance

helps define the targets for recognition and reward by providing

measurable goals

Goals Drive Performance

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What are SMART Goals?

For goals to be meaningful, they need to be SMART.

This is important because employee goals aren’t meaningful unless they meet all five

characteristics.

SMART

SPECIFIC

MEASURABLE

ATTAINABLE

RELEVANT & REALISTIC

TIME BOUND

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This is a great theory, but it’s hard to put into action. The best way to start

formulating your goals is for your company’s leadership team to sit down and

“mad lib” about objectives. You can use a simple formula to create smart goals:

I will ________________ by ________________________ by ____________.

For example:

•»I will increase sales to new customers by 15 percent by Q2.

•»I will streamline the new client process to reduce time for on-boarding

to 30 days.

•»I will create three blogs a week to generate 25 new web visitors a month.

It’s critical to keep in mind that your objectives need to be realistic based on the

resources at your disposal. That’s why your entire leadership team needs to take

part in the goal setting exercise.

(Action Verb) (Measurable Result) (Deadline)

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Cascading Goals

Operational objectives, by definition, are high-level. They’re company-wide goals.

However, these goals only generate change in behavior if they translate down to

the department, team, and individual employee level. That’s

where the concept of cascading goals comes in: Assigning

smaller but related objectives to departments, teams,

and individuals that all contribute to achieving the overall

operational objectives.

When determining cascading goals, it’s critical to keep the line

of sight in mind. This means your employees should be able

to clearly see how their individual objectives contribute to the

greater company goals. Senior managers’ goals are generally

equal to the company’s goals. Junior staff’s goals are typically

80 percent related to their own personal activities, which can

make it easier to for them to understand how they’re relevant.

An employee goal with a clear line of sight should know how

his or her goal directly affects their team, department and the

overall company goals. Since satisfied employees are key to convincing clients to

purchase more of your service, this personal goal is directly and clearly relevant

to the overall operational objective.

Understanding the Fear of Failure

Some business owners don’t want to write down their objectives and share them with their employees because they’re afraid to expose themselves and fail. At the same time, many employees struggle with the same fear. However, every experienced business person knows you can’t predict the future. In that sense, failure is inevitable. The best companies let their employees fail, so long as they “fail fast” and study their failures to see what they can learn from them. Don’t let fear of failure keep you from setting clear goals.

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EKEY TAKEAWAYS – WRITTEN GOALS

Writing down your goals increases motivation and improves your chances of success.

Defining goals should be a collaborative endeavor, because when you involve all employees, they’ll own

their objectives and be more motivated to achieve them.

Written goals provide a way to tie an employee’s performance to company goals that are driven by measurable

objectives—revenue, profit, and customer satisfaction—and providing positive feedback for achievements in

the form of recognition and rewards. They should be helpful to both the manager and the employee in terms

of understanding and evaluating progress and goals. We dive deeper into this subject in Step 5.

Fear of failure can adversely impact your company’s success. Don’t be afraid to put your goals out there.

Fail fast, and learn from every mistake.

Make sure your goals are SMART: Specific, Measurable, Attainable, Relevant, and Time Bound.

Cascading goals refers to the practice of upper management sharing overall business objectives, and using

them to develop department, team and individual employee goals. It’s important that the individual can

always see how his or her objectives contribute to the larger business goals.

Step 4: Keeping ScoreUnderstand the drivers of your business4

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Step 4: Keep Score

In this step, we’re going to examine one of the most important aspects of

building a profitable business: Keeping score.

Keeping score encourages CEOs to think more strategically by explaining the

importance of key business drivers that help make data driven decisions. A CEO

must understand how to produce and analyze KPI's, reports, and scorecards

about past performance to drive future results.

So how do you do that? How do you build a scorecard to help you make

decisions to increase your company’s success? What should you monitor to help

your business run better, grow faster and make more money? It’s all about how

to put your numbers to work. GrowthForce dives deeper into keeping score in

our latest e-book “The CEO’s Guide to Keeping Score.”

The CEO’s Guide to Keeping Score gives management a road map to improving a

company’s bottom line with actionable statistics. It starts with strategic thinking

through the five areas of business decisions.

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The Five Areas of Business Decisions:

1. Strategy & Planning

2. Sales & Marketing

3. Clients & Services

4. People & Operations

5. Cash & Finance

These five sections of a CEOs brain are design to help visualize

where, as a strategic CEO, you need to spend your time. The

first area of focus is Strategy & Planning which should take up

15-20% of your time. Top of mind for every CEO has to be Sales & Marketing because that's how you grow your business.

Clients and service are the driving force of the business, but a strategic CEO figures out how to put strong people in place to

deliver quality services, so delivery of service can't be all consuming.

What that means is people and operations become how you drive profits and, since people are the foundation of the

company this will take up a largest area of your strategic thinking. Without the right people in the right seats on the bus, a

CEO will always be forced to be tactical.

Finally, the front of the CEO brain must always be Cash & Finance. Every business always need to keep an eye on cash

flow, but in order to be strategic cash flow needs to be a small part of your day to day functioning If dealing with cash flow

consumes a sizable portion of your world, you can't be strategic. Then you have no choice but to be a tactical CEO.

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To make data driven decisions, you need to understand the key business drivers of your business. Once you

know those drivers, then you can start developing your KPI reports, to help you keep track. Each driver should

be on its own KPI chart designed to easily be read and understood company-wide so you can share them with

your team to have the biggest impact.

The Core Set of KPIs

The 5 Scorecards we’re discussing here should be viewed as The Basic KPIs and, depending on your business

model, you should have additional advanced KPIs and reports. The set of KPIs outlined herein are designed

for service businesses that make money on people’s time, but the concepts can be used for any industry. This

goal here is to get you started with a basic core set of KPIs and then help you understand how to build more

advanced KPIs based on the drivers for your business.

Five Business Scorecards Every CEO Should Have:

1. The Company Scorecard2. The Sales & Marketing Scorecard3. The Services Scorecard4. The People Scorecard5. The Finance Scorecard

These scorecards follow the five areas of business decisions in the mind of a CEO to understand key business

drivers of your business. (Download our free “Excel Scorecard KPI Template” to see how they work.)

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Financial Intelligence

To make data driven decisions, you need to understand the key business

drivers of your company. Once you know those drivers, then you can start

developing your KPI reports to help you keep track. Each driver should be on its

own KPI chart. Your KPI charts should be user-friendly and easy to understand

so you can share them with company-wide to have the biggest impact.

The key to turning financial data into actionable financial intelligence is to be

able to look at each number and compare it to what it was supposed to be. If

a business driver is important enough to track each month, that driver should

have a budget. What resources or processes are vital to the sustained growth

and success of a business? Those comprise your plan, and your key metrics

need to be measured against that plan. By studying the variances against his

plan, a strategic CEO can more quickly figure out where to focus his time and

where to take action.

Finally, you need to monitor your KPIs over time. This is helpful to prevent you

from reacting emotionally to the most recent financial results. By studying the

trend lines, especially Trailing Twelve Months (TTM) trends, you can understand

what’s really happening in the company in the long term.

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Management Accounting

Management accounting uses unit economics to break down

a business to its most basic element, so you can gain insights

into profitability based on how you organize your company.

Once you understand your unit economics, then you can

measure what drives each element’s success and make

decisions based on those KPIs you choose for your company.

When done right, management accounting transforms

accounting from a necessary back office expense into an

integral profit generating tool. Examples of unit economic

metrics for a service business include profit by customer, by

job, by employee, or income and expense per hour paid.

Financial Intelligence

Management accounting aims to provide an organization’s management with the financial intelligence it needs to make strategically sound business decisions. Financial accounting, in contrast, involves keeping financial records (revenue, cash flow, expenses, payroll, etc.) that are primarily intended for third party stakeholders, such as investors and the IRS.

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How Do You Leverage Your Accounting System to Set Up a KPI Monitoring System

To produce the KPIs your business needs on a consistent basis, you may find you need to automate some business

processes. Think of processes such as time tracking, and linking timesheets to your payroll to get automated job costing,

or setting up reports to calculate metrics like gross profit—both of which are essential for job costing.

GrowthForce has created a helpful

“Excel Scorecard KPI Template” that

accompanies our ebook “CEO’s

Guide to Keeping Score.” You can

use this template, which comes

pre-populated with the charts and

information contained in the guide,

to build your own KPIs.

You need to understand how to Put

Your Numbers to Work by creating

a monitoring system for leading

indicators, and learn how to read your

KPIs to make data driven decisions.

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Less is More

When it comes to KPIs, less is more. One mistake business owners often make

is to track metrics just because they can. The fewer items you track, the more

valuable each metric becomes. Note that it costs money to generate reports

and have managers try to accurately interpret them. In addition, if you focus

on everything, you aren’t focused on anything. Limit yourself to as few KPIs as

possible to obtain only the key data you need to make decisions.

Don't Change Your Culture

As we’ve seen, the most profitable companies know that culture eats strategy for

lunch. Whatever you do, don’t let keeping score and your new KPIs change your

culture. In fact, you should do the opposite. Use your KPIs to reinforce your core

values and culture.

the most profitable

companies know that culture

eats strategy for lunch.

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RKEY TAKEAWAYS – KEEP SCORE

CEOs need financial intelligence to focus their strategic thinking, so they can understand the kinds of

decisions that need to be made and the key business drivers of their business.

Management reporting provides you with actionable insights on how to improve productivity and

performance. Adjusting your KPIs can offer predictive insights as to how changing one or more factors will

impact your business.

Develop KPI reports to help you keep track. Each driver should be on its own, easy-to-understand KPI chart

so you can share it company-wide to have the biggest impact.

Compare actual results for each driver to its budget. If its important enough to track, its important to

have a plan. Otherwise you are only seeing half the picture.

Less is more when it comes to KPIs. Keep the end in mind, and get key information to make the

right decisions.

Use KPIs to reinforce core values and culture.

Step 5: Recognition and RewardsIncentivize your team to drive engagement5

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Step 5: Recognition and Rewards

We’ve mentioned before that salary, benefits, and other financial incentives aren’t

the only things that employees are looking for in a job. In this step, we’ll take a

closer look at how recognition and rewards impact employee

engagement and performance.

As we learned in Step 2, salary is just that: a salary. An

employee can earn the same amount of money with you as

with your competitors. But when it comes to belonging to a

strong, fun team; earning respect; and having opportunities

for career growth and personal development, employers aren’t

all created equal.

In fact, career development is the primary reason people join

a company and stay with it. Think of Maslow’s hierarchy of

needs: An individual’s fundamental needs need to be met for

him or her to survive. Financial remuneration—in other words,

a salary and benefits—provides physical safety. However, once

the basic survival needs are met, then respect, recognition,

reward, and ultimately, self-fulfillment become important.

Career Developmentis a Benefit

Let’s say you’ve found a good candidate for your IT company’s contact center support role; an aspirational individual who meets all your “ideal candidate” requirements. However, she’s also interviewing with your competitor. You’re both offering comparative salaries, benefits, and perks. But while your competitor doesn’t make any mention of career paths, in your company, you provide career development from day one to help employees advance their skills and meet their personal career goals. Since this candidate is looking for a job with a future, which job offer do you think she’ll accept?

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Incentive Compensation

Career development becomes even more powerful when combined with

incentive compensation—i.e. when you add financial rewards to the practice of

recognizing individuals or teams based on their performance.

If you use incentive compensation, it’s important to give your employees

a clear line of sight as to how their objectives contribute to the company’s

overall objective. Use written goals and score cards to provide them with real-

time feedback. By doing this, their goals become controllable and they feel

empowered. If, in contrast, there’s no clarity about how they’re contributing

to the larger objective, then they’ll feel like the company’s goals are non-

controllable, which in turn may result in disengagement.

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Recognition-Based Incentives

But even more powerful than incentive compensation are recognition-based

incentives. As we discussed earlier in Maslow's Hierarchy of Needs (on page

19), recognition among peers and co-workers can have a long-term impact on

employee work engagement and job satisfaction. A cash bonus is a one-time

incentive. In contrast, being recognized among your peers and fellow co-workers

for going the extra mile and contributing meaningfully to the company is a lasting

achievement—and as we’ve seen, once our fundamental needs are met, we all

want to make a difference in our lives and/or in the world.

That’s why recognition is such a powerful motivator. Titles such as “employee

of the month” and “top performer” offer fulfillment to people who are already

passionate about your mission—plus, they can be key accomplishments

that make all the difference when the individual applies for a specific role or

promotion. It’s always great to give recognition to employees who delight your

customers, but another way to give recognition is a “kudos” program. Noticing

and acknowledging when an employee does something great, whether it is

helping someone else or accomplishing goals out of their comfort zone

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ROI on Recognition and Engagement

Employee engagement represents the level of commitment employees feel

toward their employers and their jobs. The higher the level of engagement,

the more likely an employee will go the extra mile to perform well and be an

advocate for the company.

1A 2009 Gallup poll about recognition and engagement showed some surprising

insights:

•»When a manager focuses on someone’s strengths, the likelihood of that

person becoming disengaged drops to a mere one percent.

•»When a manager focuses on someone’s weaknesses, the likelihood of

disengagement rises to 22 percent.

•»When a manager ignores someone, the likelihood of disengagement rises

to 40 percent.

Source: 1https://www.gallup.com/businessjournal/193238/employee-recognition-low-cost-high-impact.aspx

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Another report, this time by the Society of Human Resource Managers, showed

the impact of recognition on employee engagement. It found that companies

with employee recognition programs and good career development guidance

saw a 63 percent increase in employee productivity, a 58 percent return on their

profit margins, a 52 percent increase in customer retention, and a 51 percent

increase in employee retention.

According to Maslow’s hierarchy of needs, self-actualization—fulfillment of

potential—is the highest level of personal satisfaction. Earning recognition and

having a sense of belonging are important. When you hire passionate people

with the right behaviors and empower them to meet all these needs by fostering

a culture of recognition and engagement, you’ll greatly improve your company.

Providing Recognition, Rewards, and Career Development

What all this shows is that if you carefully define who you are and what you want,

if you select your people to be aligned with your core values, if you listen carefully

to what they want from their jobs, if you provide them with the guidance they

want, and if you give them the recognition and rewards they deserve, you can

greatly reduce turnover, enhance engagement, and improve productivity. And

that is proven to increase profits.

companies with employee

recognition programs saw a

63% increase in employee productivity

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KEY TAKEAWAYS – REWARDS AND RECOGNITION

Monetary incentives can be effective, but recognition-based incentives such as a feeling of belonging to

something bigger than you, are long-lasting and fulfill a need for self-actualization.

Recognition and rewards are critical to enhancing employee engagement and performance.

Research shows that employers with good recognition and career development programs scored

significantly higher in terms of productivity, revenue, customer retention, and employee retention than

those that didn’t.

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ON

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N Conclusion

Now you’ve learned what the five steps are and how to use them. Defining

your business strategy involves knowing what your company stands for, why

customers should buy from you, and why people should come to work for you.

Writing down your goals and communicating them to your employees provides

your people with a collective objective to work towards—one that can be

broken down into individual goals for lower-level employees.

Your talent management program ensures you hire people who

share your passion, fit into your company culture, and possess innate

behaviors that enable them to become high performers. Keeping score

allows you to track your progress toward your objectives and see how adjusting

specific KPIs will positively or negatively impact your business. Finally, recognizing

and rewarding high-performing employees drives productivity, enhances

performance, and improves engagement—all of which ultimately benefit your

bottom line.

There’s no doubt that building a successful service business takes time and

effort. However, with this CEO’s guide to profitability, you’ll be able to ask,

consider, and ultimately answer the most important questions all successful

businesses face every day.

GrowthForce provides outsourced bookkeeping, management accounting

and controller services for growing businesses and nonprofits. GrowthForce

combines advanced QuickBooks accounting system design with a

fractional share of a full service accounting department including a U.S.

based, dedicated team of bookkeepers, accountants and controllers.

Our customized financial reporting and KPIs help small businesses and

organizations drive performance and profitability through data-driven

decisions.

To view our full library of case studies, white papers, and guides,

please visit www.growthforce.com/resources.

www.growthforce.com

281.358.2007

800 Rockmead Drive, Suite 200

Kingwood, TX 77339

contact@growthforce.com

About GrowthForce

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