Growth is motivated by vision and strategy, but it is achieved through numbers and a focused effort to make those numbers go up. That means the bottom line, which everyone realizes, but it also means getting staff across the company to buy into more complex, real-time, or leading key performance indicators (KPI).
These are hardly everyone’s favorite, especially for department leaders who have grown the business to date through commitment and instinct. So, how do you turn on non-finance types to the metrics that actually deliver? How do you build a shared KPI mindset for growth?
Revenue and profit provide clear targets, but simply telling people they need to care about the numbers is not enough. Burying staff in financial data — and unfamiliar software packages — will not motivate and can confuse or distract.
Many small and midsized firms are not data-heavy, so information may be incomplete, unhelpful, or even wrong. Pushing a top-down, target-led agenda can set up counterproductive rivalries or even run people off. Or it can turn staff against metrics, setting back the enthusiasm and the focus for sustainable growth.
A better approach is to go gradually, aligning teams step-by-step with the need, the tools, and the content of a data-driven growth strategy. It’s critical to have a thoughtful internal driver of the process, build buy-in, introduce software with care, and take people – especially senior leadership – with you.
“We wanted to get buy-in to maximize our growth,” said Cindy Frazier, director of finance at Spicer Group, the Saginaw, Michigan-based engineering, surveying, planning, and architectural firm. “We needed to get people away from the feeling that numbers were for finance alone, and software was just for accounting. We were providing tools for managing projects and for building out the company.”
Building By Numbers
Creating a culture of data-driven growth requires determination and care, moving with care to bring people along while demonstrating the value of new tools. Components of this approach include:
- Supporting an internal champion with the skills and patience to drive the culture shift across the company, bringing people along while not allowing them to backslide.
- Educating teams in financial basics, including fundamental concepts of accounting that are central to finance but often challenging for non-finance staff.
- Selling a culture of winning through KPIs, to mobilize teams around the ambition and targets and overcome any “old guard” who must adapt and, failing that, may need to depart.
- Establish benchmarking against similar firms or industry guides to provide a reality check and a challenge, and help drive innovation and competitive research.
- Develop enterprise resource planning (ERP), incorporating accounting and the broader business, to track data on activities, customers, efficiency, and other aspects of growth.
- Simplifying overhead allocation, such as adopting a hurdle rate for gross profit across the company to avoid confusion and reduce dispute with different units, while also recognizing the reality of essential indirect costs.
- Extending company ownership, if possible, to increase stakeholders in profit sharing and give everyone a positive reason to get on board with the drive for growth.
- Incentivizing performance through monetary rewards for targets, kickstarting the process, and powerfully aligning staff and company objectives.
Most finance directors love to start with a strong, robust set of KPI practices. But this will be considered overkill by existing section leaders, who will feel they have been successful without them. Better to start slowly, introduce a few metrics and get them in place, then add a few more. This will allow teams to experience the value of metrics, offsetting the time it takes to use them with an appreciation of the payback. This helps justify the next step in the KPI journey.
Spicing It Up
The Spicer Group was founded in the mid-1940s as a civil engineering and surveying firm. By the 2000s, it had expanded to include community planning and architecture, and revenues hovered above $10 million. But there was no real growth, and in 2009, following the financial crisis, the company suffered a downturn, shedding more than 30% of staff.
To advance to the next level, it was clear the company needed to be driven by a more sophisticated data-informed approach.
Following an extended sabbatical after an earlier stint, Frazier rejoined in 2005 as finance director. Along with pets and Michigan State sports, a public profile lists her as passionate about “maximizing financial performance.”
The first big step was new software, shifting from a standard accounting system to Deltek Vision, which is a more robust system suited to project management in the engineering industry that incorporates ERP.
As Frazier explains, they undertook a broad consultation in selecting and implementing the package, bringing in project managers, senior-level managers, and the company president.
“It helped that people were involved,” she said. "It wasn’t just accounting, pushing a software down everybody’s throats."
Nevertheless, initial excitement about the software faded somewhat as people realized it would take time to learn. Some modules were not being utilized. Employees continued to work the way they always had.
In 2009, in the wake of the financial downturn, Frazier led the next push, a focus on measuring revenue immediately as it was earned rather than just when fees were billed. She rolled out a new set of metrics: revenue recognition and realization ratios.
“It was becoming difficult to analyze how we were performing when it was tied to something that was more transactional, measured at a much later date, and not immediately as the work was performed,” Frazier said.
The new metrics required the finance department, project managers, and company leaders to undertake a lot of education on the difference between revenue and billings. This is common sense to an accounting person but not always straightforward to those outside the department.
Yet, gradually, everyone became familiar with the realization ratio — understanding it, reviewing it, and comprehending how it impacted the company’s performance. How many billable hours was each staff person putting in versus how many hours were they actually able to bill?
The distinction really sunk in when they started applying it in the software.
“It got everybody looking at their numbers and it was quick and easy,” Frazier said. "They could see it right in the software."
Setting a Goal
With new tools in place, they were eager to grow out of the downsizing that had dropped revenue to $11 million. So, they launched a senior-level goal, “$13 in ’13,” with each area leader tasked with coming up with a target. At that point, achieving $13 million in revenue for 2013 was seen as a significant challenge.
They also caught a marketplace break when the state of Michigan started offering storm asset water management grants to local communities. Their clients applied for and received funding, enabling them to take on important projects they may not have been able to do otherwise.
The company had been feeling a bit beaten down, but this gave them the momentum they needed. Everyone started using the numbers and the software to pull up the margin. They exceeded their challenge target, with revenues rising to nearly $15 million.
By then, everyone could see the benefits of KPIs, and they started tracking their results against the PSMJ Circle of Excellence, the highly respected industry benchmark of the Newton, Massachusetts-based Professional Services Management Journal.
“Sharing our performance levels and saying as a group, ‘We want to be in the top quartile,’ really helped us grow,'” Frazier said.
By 2014, revenues increased to $20 million, and from there, the positive numbers have just kept coming.
One powerful driver has been the expansion of the shareholder group beyond principals to include senior associates.
“Bringing that group into the ownership mindset helped them see the correlation of when their projects are doing better, the company is doing better, and their personal overall compensation improved as a result,” Frazier said.
Maintaining the Pace
In 2017, Rob Eggers — a 20-year veteran senior planner at the company — became president. With revenues now at $27 million, he focused on becoming debt free in 2020 and sticking to it.
Every month, they create a report by service group that shows its utilization, its billings, their realization ratio, and any write-offs. They also prepare a report at the project-manager level, showing year-to-date for all projects, and (gently if clearly) reminding everyone of the ratio target so they can see for themselves where they are falling below the goal.
“It’s all very transparent. Each group has their own page, and there’s a company page,” Frazier said. "I go through that report and write notes — the things I think don’t look so good, and the things I think look great."
The feedback process is critical. Frazier spends about an hour pulling the data and then another 10 hours analyzing it and making comments and discussing it with Eggers. Then she spends up to another 10 hours discussing and sharing the data with non-financial section leaders.
“I feel like if I distribute those reports without the comments, the benefit wouldn’t be there,” she said.
Heading for Platinum
In 2021, the Spicer Group surpassed revenue of $40 million for the first time, growing to around 225 staff spread across 11 offices. Profit as a percentage of overall revenue has also increased. The firm has become a consistent winner of the PSMJ Circle of Excellence status – meaning top quartile of performance. If they keep up the pace this year, they will achieve platinum level for consistent success.
It has been a long journey at Spicer and taken a lot of hard work, but the role of KPI in delivering success has been clear – to most.
“Some people occasionally don’t like their numbers or will claim poor metrics are pulling in old or one-time-only problems,” Frazier said. “But for the most part, everybody's pretty much accepted it. All they have to do is look at the results.”
