Business performance & how to measure it
Above all business performance and how to measure it plays a vital part in business success. Similarly also in sustainability and growth. It is not a one-time event rather it is a continuous process.
As a result successful business performance measurement and management can be summarised in the pneumonic Who:
What
How
Outcome
What: is all about what is measured, and more importantly what you should measure? What are you measuring? Are you measuring profitability? Liquidity? Customer satisfaction? Employee satisfaction?
Business success
Firstly you should measure is based on what is critical for your business success. Your mission statement tells the world what your aspirations are. Also how you hope to achieve them, and who will be benefit from this. Your mission statement helps generate critical success factors (CSFs). These are the cause of your success i.e. those areas in which you need to perform best if you are to achieve overall success. Consequently, this will lead to you ultimately achieving your objectives.
For example, CSFs for a retailer would typically be the right product mix. Also product availability, effective marketing to attract customers and correct pricing. They help you generate measures to monitor and manage the achievement of those CSFs. These measures are also referred to as Key Performance Indicators (KPIs) and are vital to your business success.
KPI’s
KPIs should normally be a blend of numbers (quantitative) and non-numbers (qualitative). Targets can be set for these KPIs, and progress measured against these targets. Any variations against these targets prompts investigation and ultimately action taken to rectify the situation. There is a general rule in business that you cannot manage what you cannot measure. Hence you need clues/milestones to identify if you are progressing on your journey.
Look at the example of an individual who decides that their aspiration (mission) is to lead a healthier life style. One identified objective is to reduce their blood pressure to a certain level. A CSF is change of diet; a KPI to monitor this is body weight. If you measure weight loss against a pre-set target then if that weight loss is not achieved, have a closer look at what and when you are eating, and then hopefully put this right.
In the example of the retailer quoted above, appropriate KPIs may be levels of gross profit achieved. Such as customer feedback, repeat purchases, and levels of spend per customer.
How:
Secondly is about how you should measure what is important. The measures, or KPIs can be observations, surveys, financial measures, ratios, and non-financial KPIs. Management information systems play an important role and the power of online accounting systems play a key role. Data capture and reporting is more powerful and can be blended with other business systems, such as your website and CRM systems. These systems facilitate your business success.
Outcome:
Thirdly, is about using what you are measuring and reacting to. In other words it’s about acting and doing something with the information that you’ve gathered. You can see which customers aren’t paying on time. Likewise, what your cash flow is, level of profitability, what customers value. Act on that information. Whether it is having a more effective credit control policy, improving efficiency, cutting down on waste and improving customer value. It’s all about Outcomes and Actions.
Knowledge and understanding helps all businesses, regardless of size, to maximise your potential. It puts you in a firmer position to shape and control your own destiny.
Summary
In conclusion the process of performance measurement and management includes the following:
- Identify what is critical and important for your business to measure.
- Understand the performance standards or goals set by the organisation.
- Apply performance measurements.
- Collect information.
- Analyse and report actual performance.
- Compare actual performance with standard set.
- Take action
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