Focus on key business drivers for your business to succeed

Focus on key business drivers for your business to succeed

If an organisation is to meet its mission it should concentrate on its key business drivers. A key business driver is something that has a major impact on the performance of your business.
It is therefore very critical to identify and monitor these key drivers if one has to boost the profitability of his business.
There will be a number of both internal and external factors that will affect the performance of every business. However the secret is to focus on a few key drivers that will have a huge impact on the performance of the business once they are acted upon.

Businesses must perform the activities associated with key business drivers at the highest possible level in order to achieve their intended objectives and achieve competitive advantage.
To track the achievement of the key business drivers, an organisation should develop key performance indicators (KPIs) that will help to measure the key drivers.
By focussing on key business drivers and tracking their achievement through use of KPIs a business will be able to achieve its strategic objectives and therefore its mission.
An organisation should therefore develop an effective performance measurement system that enables managers to evaluate and measure the organisation’s performance.
To be effective, the measurement system should align the organisation’s objective with individual managers’ objectives.

Managers’ objectives should cascade from the corporate goals. In this way the achievement of the managers’ goals results in the achievement of the organisation’s goals.
The performance measurement system should also be linked to the company’s compensation plan and career development plan to provide reward and establish training and skills development needs.

Brian Tracy said that “The true measure of the value of any leader and manager is performance.”
We can evaluate the leader/manager through the use of the key performance indicators. KPIs are used by a company or an industry to gauge or compare performance in terms of meeting its strategic and operational goals. KPIs vary between companies and industries, depending on their priorities or performance criteria.

A good KPI should be quantifiable, it should motivate a manager to perform well and provide an incentive to a manager to make decisions which are in the best interests of the overall company and should only include factors for which the manager can be held accountable; those he can control. A good KPI should take into account both the long-term objectives as well as short-term objectives of the organisation.

It’s very crucial that KPIs are tailored to an organisation’s specific circumstances and objectives. They should be linked to the key goals of an organisation.
As from above it is very clear that a company’s KPIs should focus on key business drivers; those areas that determine the overall success of the business. These areas are the ones that add value to customer satisfaction.

Previously, performance measurements were mainly financial.
However in recent years, the trend in performance measurement has been towards a broader view of performance, covering both financial and non-financial indicators.
The key financial indicators are those measuring financial risk or the gearing of the business, or those measuring business risk, profitability and liquidity as explained below.
Financial risk is measured by the financial leverage ratio which is calculated by dividing debt with total capital employed (shareholder’s equity plus debt). This ratio refers to the degree a business uses borrowed money and how it is exposed to risks resulting from having too much debt.

Business risk is measured by the operating leverage ratio which is the total contribution (i.e. sales minus cost of goods sold and other variable costs) divided by fixed costs. This ratio shows whether a business is generating enough revenue to pay for its fixed costs and cover a return for the owners.
The main profitability ratios are the gross margin, the net operating margin and the return on capital employed. All these ratios look at how profitable a business is.
Liquidity is measured by the current ratio and the quick or acid ratio. These two ratios, current ratio and acid ratio, tell us whether or not the company has enough liquid assets to pay its liabilities for the coming year.

As a business grows it also employs more people. Some of the financial indicators can therefore be related to employees.
The most commonly-used measures are sales per employee, contribution per employee and profit per employee.
These measures can flag up issues that might need attention.

The weakness of the above financial ratios is that they are mainly historical and don’t help us in assessing the future viability of a business.
It is therefore important that a company monitors its performance on business drivers which are mostly non-financial and then select appropriate KPIs to assess the future success of an organisation.

The non-financial KPIs should be tailored to the mission of each organisation. The critical area to start measuring is customers. You need to see your business through your customers’ eyes.
Acquiring and retaining customers is a crucial task for every business.
If customer service is a strategic priority for your business, which it should be, it could be measured by sales data indicating customer buying preferences, what customers are buying, the number of customer complaints received, the number of items returned or by the time it takes to fulfil an order.

Most customer focused KPIs measure quality and customer service. In the banking sector, for instance, success will be determined by how a bank deals with its customers.
With the advent of technology and its easy accessibility bank customers are now looking for digital interactions that are simple, appealing and highly personalized and that ensure that service is quick.
Providing amazing customer experience is one of the key drivers and has become one of the decisive competitive differentiator between banks.
It will therefore be very crucial to monitor this business driver so that the bank is ahead of the pack in customer service. Closely aligned to great customer experience another key business driver is digital innovation.

Advances in digital technology are offering a number of channels for customer interaction like online and mobile banking. These channels have already changed how customers engage with the bank.
Tracking how customers interact with the bank through these channels will enable assessment of performance through this key driver.
Performance is useful as long as you compare the organisation’s performance against a certain yardstick. Usually organisations look at the trend of the KPIs over a number of years or benchmarking the business performance and potential with other businesses in the same sector.

If your business is targeting rapid and significant growth it may then choose to compare its performance with an established market leader.
The critical thing when benchmarking is to focus on the key drivers that drive business success in your particular sector.

About the author:
Stewart Jakarasi is a business and financial strategist and a lecturer in business strategy (ACCA P3), advanced performance management (P5) and entrepreneurship. He is the Managing Consultant of Shekina Consulting (Pty) Ltd and provides advisory and guidance on leadership, strategy and execution, corporate governance, preparation of business plans, tender documents 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, call on +266 62110062 or WhatsApp +266 58881062 .

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