Your business plan should include for each br and or service, who you are targeting, as well as what actions you are going to take in the forthcoming period.
Measurement of how well you are doing against the plan is essential and should include metrics beyond the basics of sales and profit. Are you one of many companies I know, who rely on sales alone, look to grow by 5%, 10% or more, and measure success by achieving these set levels? What is wrong with that you might ask? A lot!
Suppose you are in a category or market that is growing at 50%, 100% or more per year, as is the case in many industries in developing countries around the world. This 5% or 10% growth target now looks pretty low, doesn’t it? In fact if you grew sales above the target set in the plan, at say 20%, it would still mean you were losing share! So you need to add market share to your metrics for a start.
Choosing the right metrics
Choosing the right metrics to follow the business is vital for management and planning success:
“what gets measured, gets managed”
as Peter Drucker famously said. It is very true that you need to identify the metrics that are key to your business, in order for you to manage it well. Too much information and their impact is diluted; too few and you may miss valuable performance indicators.
Three things to consider when setting up business KPI’s
- Performance: we have already seen the importance of following market share in addition to sales and profit. Another set of metrics that all companies should follow is br and image and equity, since these act as early warning signs should something be going wrong, and this usually long before sales start to stagnate or decline. In addition to these, other metrics need to be identified that are important for your industry.
For example, I asked this question to IMD Alumni on LinkedIn recently and got the following suggestions:
- Safety, Health and environment for energy and mining industries
- Employee satisfaction and engagement
- Performance metrics such as deal closing or conversion rates
- Impact of policies of the government sector
- Comparative metrics of competitors
- Innovation rate
- Stocks and inventories, especially in emerging markets
- Metrics: Agreement of the most important metrics to follow for your own organisation should be the result of internal discussion. Alignment with all departments and businesses, on both the metrics themselves and the way in which they are to be measured, is vital to the overall success of the exercise. The method used for gathering the information must be valid for each business, category and market, which can be a challenge if they are to be compared. If they are not comparable, then proprietary metrics can be defined for each of them. However, as management should have a holistic view of the company’s performance, the key metrics or KPI’s should ideally use the same collection method.
- Competition: Both internal and external sources can be used to gather the metrics and then these must be reduced to a (very) limited number of essential numbers needed to manage the business. These should include comparisons to the performance of all major competitors, which also need to be identified and agreed for each business and category. The advantage of developing company-wide metrics and KPI’s, is that comparisons can be made across br ands, businesses and regions versus competition, and then summarized in dashboards. These dashboards should be visual as far as possible, with colour coding and graphical rather than tabular results, so that the health of the business can be quickly ascertained. Traffic light signs or colouring seems to be the most used way of highlighting risks and challenges, but you can define whatever works best for your own company.
Identifying and defining the KPI’s for your management to follow is an essential task of your strategic planning and finance groups, but in customer centric organisations, your market research and insight teams can help by bringing the external perspective and metrics that are vital to successful business and br and building.
What metrics do you follow and consider as essential for your industry? What have I forgotten?
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