Driving & leading your business
You would not consider driving a car without a simple dashboard of gauges to alert you to potential engine or other problems with your vehicle. So why drive your business without a similar dashboard?
Use some Key Performance Indicators (KPI’s) to monitor your business success.
KPIs are quantifiable measurements of business performance commonly used to evaluate activities that reflect the critical factors of business success. You will find that ultimately there will only be a few KPI’s that will drive the core critical elements of your business.
If you don’t regularly monitor your business you will be open to problems that can seriously undermine performance, profitability and success.
Leading and driving a business successfully is all about looking at trends and the big picture, and then being able to react quickly. KPIs are a vital tool in that process.
KPIs should be unique
To reach your strategic goals, you need to define, measure and track the KPIs that make your business unique. No two organisations’ KPIs will be exactly the same – you must define and interpret your company’s KPIs relative to your goals and objectives.
Which KPIs you decide to track and monitor will depend on the market in which your business operates and your business’s growth stage. For example the quotation success rate by value is a very valuable KPI in a high growth business. Tracking this KPI will focus attention on the parts of the business that are the most successful and remove the “Busy Fool” aspect to your business.
KPI’s to be effective must be specific and measurable. It’s also important to be able to compare them to a benchmark, whether this is a previous performance period for your company or your industry peers. For example, if day’s sales outstanding have improved from the same quarter a year ago, your receivables collections are probably improving, along with your cash flow.
Similarly, you could benchmark your company’s numbers against your industry’s average performance. For example, comparing your accounts receivable days to industry averages will tell you how well your collections efforts stack up against similar companies in your industry.
Financial and Non-Financial KPIs
There are two broad categories of KPIs: financial and non-financial. financial KPIs include such common metrics as return on sales, return on net assets, gross margin and working capital as a percentage of sales.
Non-financial KPIs, meanwhile, may include quality and customer satisfaction measurements, employee turnover, and response and conversion rates for marketing and advertising campaigns.
It’s easy to get caught up in trying to decide which KPIs to track and measure and lose sight of what’s most important, so KPIs must always be linked back to your company’s strategic goals.
Work on your Business and not in it
Deciding which KPIs are the most important ones to focus on can become overwhelming, often stopping business owners from even getting started. It’s easy to miss obvious KPIs when you work within an organisation. it is always beneficial to take a step back and view the organisation from afar.
It is not unusual for company management to be too close to the situation to see which KPIs are truly the critical indicators for their business. Non Executives and outside business advisers can provide valuable assistance with this aspect of your business.
Make sure that you can read the gauges on your dashboard but also that you can interpret the gauges to drive your car / business better. KPI’s are essential to your business success.