The environment is constantly changing, and actions you thought would lead to guaranteed results – might not turn out so clear-cut in practice. The sooner you spot problems, the sooner you can take corrective action and keep you business on track, or change direction if that is appropriate.
Your customers, employees or suppliers will not take it kindly if you drive your business on full steam ahead – only to have to call in the administrators because you have run out of cash.
Having appropriate measures also allows you to build up data to use in your planning. For instance, if you know that by spending £15,000 pa on advertising, you have regularly attracted 30-50 new customers per year, you can have reasonable confidence that, in the short term at least, similar levels of spending should produce similar results. You would then track the actual results to ensure that this did in fact occur. If not, it begs the questions “what has changed?” and “what are other courses of action available in these new circumstances?”
Until the 1990’s, much of the performance measurement in companies was based on financial accounting measures only. However there are better systems available now.
For example, an approach known as the Balanced Scorecard (by Robert S. Kaplan and David P. Norton) grew out of research to find a better method of measurement, especially given rapid changes in markets, which could render purely historical measures obsolete.
The Balanced Scorecard is a management system to help organisations achieve long term strategic goals and aims to achieve a balance between:
- short and long term objectives
- financial and non-financial measures
- lagging and leading indicators
- external and internal performance perspectives
Whilst initially developed for large companies, its principles and structure are equally applicable to SME’s.
In the system, performance measures are categorised into four areas:
1) Customer Measures
For example; customer satisfaction (evidenced by surveys, mystery shopping), repeat business from last year, annual client retention rate, monthly visits to client sites, order-to-delivery time etc
2) Finance Measures
For example; revenue (by market segment, product/service type), profit (by market segment, product/service type [Gross margin, Pre tax profits]) Creditor days, Debtor days, Breakeven point revenue
3) Internal Process Measures
For example; sales process: number of calls/week, order pipeline, sales conversion rate; new product development: time to-market, % of revenues from products < 1 year old; operations: output units/day, response time, cost/unit, scrap.
4) Learning and Growth Measures
For example; employee retention, employee satisfaction, absence %, training days per year, employee productivity (revenue/person, value add/person), systems/information capability
Look at each of these four areas in terms of your business objectives, the performance indicators, and the action required.
By putting in place, even a simple system, for measuring performance across the different areas of your business you can spot problems before they become too big and quickly determine which activities are really taking the business in the direction you want.
The “Deliver Results in 100 Days” programme is available free from: http://hilarybriggs.co.uk/resources/deliver-results-100-days/