Is Revenue Your Measure?

by Jay Deragon on 01/11/2009

Many business leaders stand firm in their belief that every business function and resource must be tied to a measure of revenue contribution. Many believe that tying people to a revenue objective is the best means of holding people accountable for performance.

These beliefs have been part of historical management mindsets for years and they are detrimental to an organizations overall success, especially in a networked world.

What Is Wrong With This Thinking?.

The ecosystem of any business is what ultimately produces the end results. Yet little has been done to measure, monitor and report the elements of a company’s ecosystem as a primary influence on end results. While people are part of the ecosystem no one individual or department has more or less influence on end results other than the organizations leader.

Think about it. Can a marketing department create revenue by itself? Can the sales department create revenue by themselves? Does the IT Department, the HR department, the financial department, the PR department etc. create revenue individually or collectively? The obvious answer is revenue is produced by the collective efforts of people and processes.

When business leaders create individual revenue measures on people and departments they are sub-optimizing business performance. People rise and fall to that which they are measured by and the selfish nature of human behavior will insure that an individual’s measures will be met but typically at the cost of others.

Peter Senge, author of The Fifth Discipline writes: From a very early age, we are taught to break apart problems, to fragment the world. This apparently makes complex tasks and subjects more manageable, but we pay a hidden, enormous price. We can no longer see the consequences of our actions; we lose our intrinsic sense of connection to a larger whole.”

Business as a Whole

Today’s progressive companies are focusing their measures on processes and related dynamics that drive revenue, not just the revenue in of itself. There are four primary elements which drive or influence revenue for any organization. These include:

  1. Relationships: Internal and external
  2. Business Process: Seamless flow or inter-relationships
  3. Value Creation: Innovation, knowledge differential, messaging and satisfaction
  4. Technology: Increase in throughput of information, connectivity and exchange

These four elements represent the primary attributes of any business system and if broken into silo parts each of these elements could not produce sustainable revenue which is the basic requirements for any business.

Revenue represents the collective output of all four elements. No one department or individual could possible influence revenue as much as the value created by all four elements. So, which is the better management method: 1) measure revenue by department or person or 2) ensure than everyone is on the same team focusing on the four elements for the benefit of the business as a whole and the subsequent result on the customer or the market?

What say you?

{ 1 comment }

Dan January 15, 2009 at 12:44 pm

There was a term floating around Boeing for a while; RONA = Return On Net Assets. This was another typical Boeing obsession that was quickly, and luckily quelled. Here’s the gist. Every asset; building, table, chair, machine has a value as an asset. Revenue derived from the asset was divided by the value on the asset to create RONA. One well respected engineer pointed out that if you sold all of the assets and added that revenue to the total revenue of the company, you could attain very high RONA.

Another problem is that RONA fails to capture the human asset. In case you have not noticed, Boeing has forgotten how to build an airplane. Thanks RONA!

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