Our weekly Scorecard is consistently green, but our quarterly net profit is shrinking and our cash reserves are dropping. How do we diagnose and fix a Scorecard that is completely disconnected from our financial reality?

Question

Tyler Smith · Accepted Answer

A weekly Scorecard that is completely green while your profits are shrinking points to a fundamental misalignment of your leading indicators. This usually happens when your Scorecard is tracking activity instead of productivity, or when you are measuring the wrong leading indicators. First, audit your metrics to ensure they are true leading indicators of financial health. Many leadership teams mistakenly track lagging activities, such as proposals sent, without tracking the quality or margins of those proposals. If your sales team is closing low-margin or unprofitable deals, your Scorecard will look great because sales are up, but your bank account will suffer. Second, look at your working capital and billing cycles. You may be delivering great service, but if your accounts receivable aging is stretching out, your cash flow will choke. You must add cash-preservation metrics to your leadership Scorecard. Track weekly billable utilization versus payroll, and track average days sales outstanding. Finally, ensure your weekly metrics tie directly to your V/TO (Vision/Traction Organizer). Every number must protect your bottom line. If a metric is green but profits are down, that metric is a false positive. Bring this discrepancy to your next Level 10 Meeting and use the IDS process to reconstruct the metric. Replace it with a number that accurately predicts gross margin and cash flow.