Assessing the performance of your business

Assessing the performance of your business

Stewart Jakarasi

Assessing the performance of your business is very critical. Once you start operating you need to frequently assess your business performance against the business plan, against your competition and against the general performance of the economy. This assessment will show whether your business is growing or whether there are issues that need urgent attention. Failure to regularly assess business performance could spell disaster for the business. The economic environment is always changing and affecting business performance positively or negatively. It’s therefore very important that you assess the impact of these environmental factors on your business.

Reviewing the performance of your business will highlight if the business is making progress in meeting its business plan and also if it’s appropriately responding to market demands. The assessment can also be used to gauge whether the business is ready to move onto another level.

Your first step in assessing business performance is to review your business plan in light of the changing economic environment. The assumptions that you made when preparing the business plan could have changed dramatically and hence would need a review so that assessment of performance is done on current market conditions. This process will help you identify the emerging risks that are affecting your business which you should respond to.

As you go through the business plan review you need to check your current situation and where you want to be in the future and how you will get there. You need to re-evaluate the markets you are operating in now and ascertain whether you will still be operating in the same markets in future or you need to adjust. You will also need to see how you can create competitive advantage to survive competition.

In your review you should critically appraise your core activities, the products or services you are providing, their critical success factors – those factors that will make your business stand out against the competition. These are the things that you would need to attend to as a matter of urgency because they will determine future success.

Business assessment will require you to look at all internal factors that might restrict the growth of the business. Issues like the ownership or lease period of premises can restrict the expansion of the business. You need to have flexibility to grow the business. Machinery should also be evaluated to see if the technology being operated is up-to-date and that the equipment is not obsolete. Good machinery will determine whether the business will be competitive into the future and if it will operate efficiently.

The performance of the business is highly dependent on staff so you have to assess if the business has the right people to achieve business objectives. Check if the staff is well trained and very motivated to meet goals. You also should look at the professional skills your management team possesses and whether it is well placed to see the growth of the business.

In your assessment of performance you should also carry out competitor analysis. Your competition might have changed since commencing operations. You should gather information on who your competitors are and what they are doing, what they offer, how they price their products, their major customers and what their competitive advantages compared to yours are. Competitor analysis might explain some poor performance the business might be going through and also assist you in coming up with strategies to win and grow market share.

As you review your business plan you should update your marketing plan at the same time. Markets are bound to change with changes in the environment so you should relook at factors such as changes in your market, new and emerging services, changes in your customers’ needs, changes in the competitive activity. Interacting with your customers will help to identify where improvements can be made to your products or services, your staffing levels or your business procedures. A review of the market and customer needs can give you an edge over your competition.

After the review you need to draw a roadmap on how you will achieve your revised goals. Today’s business environment is exceptionally dynamic and it is likely that you will need regular reviews, updates and revisions to your business plan in order to maintain business success.

 

In assessing the business there are a number of useful business-analysis models that one can use to help you think more strategically about your business. One can use the popular SWOT analysis (strengths, weaknesses, opportunities, threats). This model is used to analyse the strengths and weaknesses of your business’ capabilities, and any opportunities and threats to your business. Once you’ve identified all of these, you can assess how to capitalise on your strengths, minimise the effects of your weaknesses, make the most of any opportunities and reduce the impact of any threats. A SWOT analysis can therefore be used to provide a clear basis for examining your business performance and its prospects. It can be used as part of a regular process of business performance review.

Other very useful tools to analyse and explain the performance of the business include the: PESTEL – a framework for understanding the various external factors affecting the business, namely, Political, Economic, Social, Technological, Environmental and Legal; Scenario planning – a technique that looks at various possible views of the future for the business; Critical success factor analysis – a technique to identify the areas in which a business must succeed in order to achieve its objectives and lastly the Porters Five Forces – a technique that analyses five factors that determine the attractiveness of the industry namely, potential entrants, existing competitors rivalry, power of buyers, power of suppliers and substitute products/services. Using these models will help coming up with strategies to improve performance.

The process of assessing business performance will also require that you conduct a financial analysis of your business against strategic goals. This would involve analysing your current financial statements looking at the trends in cash flow, revenue and expenses, current sales of various products or services, level and turnover of stock, review of debtors and creditor days and how the business is being financed. You would use various financial ratios to compare your business’s performance in different time periods, or compare the performance of your own business with the performance of other businesses by comparing your ratios with statistics and other benchmarks that governments and industry organisations publish.

Assessing performance should not only be based on financial ratios, but there are other non-financial measures that are very critical to the business such as quality, speed of delivery, staff morale or customer service. There are a number of measurement tools that can be used to ensure that both financial and non-financial factors are considered. Some of the popular tools are the balanced scorecard, the building block model and the performance pyramid.

When assessing performance management should avoid the following measurement pitfalls. Firstly you should avoid relying only on measuring performance by comparing actual against the company’s budget. You might be doing well against your plan but you might be failing dismally against the competition. It’s therefore very important to ensure that you also compare your performance with the competition or the industry as a whole.

The second factor to consider is that if you only use financial ratios you might end up focussing on current and historical performance rather than looking into the future. Non-financial information will assist you in having a future orientation in performance assessment. For instance if your customer service is good and your product quality is high your business is likely to be successful in the future.

One should therefore avoid putting too much reliance on financial figures only because it creates an attitude where managers will concentrate on those ratios that are considered important at the expense of other issues. You should bear in mind the saying that “What gets measured gets done.” Lastly, financial information is susceptible to manipulation during budget preparation or when computing ratios. So it’s is very critical that other non-financial information is used in assessing business performance.

About the author

Stewart Jakarasi is a business & financial strategist and a lecturer in business strategy and performance management. He provides advisory and guidance on leadership, strategy and execution, preparation of business plans and on how to build and sustain high-performing organisations. For assistance in implementing some of the concepts discussed in these articles please contact him on the following contacts: sjakarasi@gmail.com or +266 58881062 or on WhatsApp +266 62110062

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