Performance Metrics and what they can tell you about your business
23 May 2015
Measuring performance goes hand-in-hand with annual business planning, feeding into strategic thinking and longer-term projects.
Performance metrics are measurements used to provide clarity about how well your business is performing. They include familiar metrics such as gross profit, net profit, debtor days, stock turnover etc.
But how many of us actually use this information in a meaningful way? How many of us track sales activities (lead and lag measures), HR and customer service metrics, social media and market share measures? And once we have this information, how many of us use it to build history and compare data monthly, annually and most importantly, over the duration of the business?
I want to share a story about a role I once had as a commercial manager. I was really excited to get this role and tasked myself with finding out as much as I could in the shortest space of time. The first thing I wanted to understand was the financial state of the business. My impression was we were in some pain, understandably, as the organisation was positioning to spend a significant amount of money to upgrade the facilities.
What did I do?
I undertook a financial analysis of the previous five annual reports to build a picture of how the business had been tracking, to identify any areas of concern and understand the projections in the context of the major redevelopment we were embarking upon.
The analysis included:
- Identifying a range of appropriate financial performance ratios.
- Undertaking a line-by-line analysis using the selected ratios, over the five-year period.
- Drawing conclusions from the information gathered.
I liken this financial analysis to “telling a story” as it is a factual account of where the business had come from and when the financial story was weaved in with the operational history, it gave me a good understanding of the commercial realities.
I found that revenue was “flat” and had been tracking this way for some time. The power of the financial story is it threw up a range of questions i.e. how effective is our marketing? Do we need to reconsider our pricing strategy? What is our product range? Who are our customers, where are they coming from and what does our ideal customer look like?
For each identified area I went through the same process of asking a series of questions. I then formulated strategies to strengthen or mitigate those areas and developed a position paper for the chief executive.
The result was a significant turn-around, culminating in an industry award and I credit much of this success to developing and integrating performance metrics with business and strategic planning.
The power of performance metrics
I have focused here on financial analysis but of course measuring performance is more than financial analysis, it is about having a range of metrics across every aspect of your business.
With a full suite of measurements the real power is using the analysed information to focus on asking the right questions to build a dynamic vision of how, where, when and what you need to do, to improve performance. This is a process which should go hand-in-hand with annual business planning, and it should feed into your strategic thinking and planning, and your longer-term projects.
I know it works and I hope you will be inspired to think about developing and using performance metrics in your business. As a management consultant I can work with you to develop these metrics to build a stronger business that will help you to achieve your vision.