October 19, 2010

Keeping Score

The premise of open book management is that employees will make better decisions if they understand how those decisions affect profitability. In The Great Game of Business, Jack Stack argues that workers need to know what the measures of success are, should be expected to improve the numbers by taking action in their own area of responsibility, and should have a direct stake in success or failure.

It all makes sense, yet surprisingly enough many companies have no idea what their win rate is, have no idea how long it takes on average to close a deal, and don't know what their best source of leads is. If you're not tracking that stuff, you're playing shortstop with a blindfold on.

Metrics matter. That’s our topic this time.

Tom Sant

Keeping Score

For years we have claimed that our proposal automation tools increase effectiveness and improve efficiency. A recent survey of several hundred Sant clients shows that those claims were completely justified. On average, our clients' win rate improved by 33% and they reduced the time required to create a proposal an average of 42%.

Unfortunately, there were quite a few clients who were unable to participate in the survey. Why? Because they had never measured their win rate before, so they had nothing to compare it to. And they had never tracked how much time goes into creating a proposal, so they didn't know how much time they were saving.

If you want to improve your proposal process, if you want it to produce more wins and spend less time and money along the way, you have to track what you’re doing and measure the results. That’s a basic principle underlying all continuous improvement methodologies, and it applies to the proposal operation as much as it does to the factory floor. Likewise, unless proposal writers and managers know how they're doing, they won't see the need to get better. If nobody is tracking my batting average, why would I bother to take hitting practice?

One of the first steps an organization needs to take is to decide what it is they want to measure. Which measurements are truly meaningful? "Win ratio” is the obvious first answer that comes to mind, but we all know from the experience of the recent recession that win ratios can be very misleading. If you won 30% of the deals in 2008, when the economy was still pretty healthy, but only 26% last year, after it had really tanked, does that mean you had a terrible year? In reality, you might be having a terrific year in spite of the small drop in win ratio. It’s possible that because of the recession, everybody else is doing much worse.

Or, to give another reason why it’s risky to use win ratios as the only metric, what if you’re winning all of the small opportunities and none of the large ones? In that case, your win ratio would be high but the average revenue generated per proposal would be low. If you supplement win ratio tracking by measuring the percentage of dollars won compared to the total amount for which you bid, you might get an idea of how well you did overall.

Other factors might include the ratio of new business won from new opportunities compared to new business won from existing clients. If you have a high renewal rate but are struggling to win new business, that doesn't bode well for your market share over the long term.

Deciding what to measure is not necessarily as easy or intuitive as it might initially appear, but it is the first vital step.

The next step is to gather a baseline of data. After all, if you don’t know where you are, it’s pretty hard to figure out if you’re moving in the right direction. In organizations where the proposal effort is centralized, or where there are controls placed on proposals so that none of them are issued without being reviewed by legal, finance, or senior management, it's a fairly straightforward matter to start tracking results. But in organizations where sales people are able to submit proposals without any further review or approval, tracking the actual win ratio may require a crystal ball or a Ouija board.

The final step is to develop a process for tracking results going forward. Assuming that you have tweaked the system in some way, you will want to know if that tweak has improved your win ratio or reduced the time required to finish a proposal. But unless you have a systematic way of gathering the data, you'll never know for sure what's working and what isn't.

Once you have the three basics covered—you know what to measure, you have a baseline to compare it to, and you have a systematic way of capturing the data—you’re ready to start managing based on the numbers.

At Sant, we believe in measuring results. But why wouldn't we—our results have been terrific. We're happy to share references and case studies to show you just how good they've been. And you can see an interactive, Web-based demo of our software in action on our site, santcorp.com.

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