Everyone knows that a business succeeds or fails based on its bottom line. It’s surprising, then, how many leaders are uncomfortable looking at spreadsheets, graphs, and other metrics of profitability. Being able to gather the appropriate data and understand what it means are critical skills of effective executives. Failure to consider financial and operational data will put your change initiatives in far more danger than errors in implementation.
Effective leaders are known to be those who quickly understand the implications of business data and can apply it to operational advantage. Their decisions are financially sound and do not put the business in jeopardy.
Less effective leaders might never have learned how to effectively read spreadsheets and other data sources, so they are embarrassed by their lack of knowledge. As a result, they may depend on others to analyze and present the data, so miss opportunities or details that would impact their decisions. Or they might not even know what data would be useful to them for making decisions. In this instance, they might rely on “seat of the pants” decision-making. Everyone can cite examples of when this type of decision-making was successful. But, for the most part, the best decisions are data-driven.
If you are one of those executives who is intimidated by data, now is the time to rectify that lack of knowledge. Here are some tips to help you gain more comfort and skill in this area.
- Become familiar with the key financial indicators of your organization. Words such as sales growth, net income, cash flow, and earnings per share should not cause you to cringe. If they do, enroll in a class or workshop on financial analysis. You might be embarrassed to admit that your skills are lacking, but the teacher will be delighted to help you learn. After all, that is what they do.
- Ask someone in the organization who is good at financial analysis and data-driven decision-making to be your mentor. Again, they will probably be happy to assist you in recognizing the areas where you are lacking and helping you to increase your skills.
- The finance and accounting departments in your organization are your friends! They are there to be your support system, so do not hesitate to use them. They can help you figure out which metrics would be most useful to your department or unit, and they can set them up and train you in their use. There is lots of help available to you if you ask.
- Do not delegate the task of understanding what the data are telling you. This is your responsibility. You may, however, delegate the task of gathering the data and analyzing it on an initial basis, as well as providing you with regular reports. These operational monitoring systems will provide you with critical information that can inform your decisions.
- Analyze how well your decisions have worked out. If they weren’t successful, you might discover that you ignored data in an area that you didn’t realize at the time was critical. You are not likely to make that mistake again.
Good decisions are based on good data. And data can also tell you when your initiatives are going astray so that you have adequate time to make smaller changes instead of dealing with a catastrophe at a later date. Understanding and making use of data are not the only things that impact the bottom line of your business, of course, but they are a great start.