In Pursuit of Profit
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Since the benefits of monitoring and evaluation far outweigh the risks of leaving everything to chance, here are a few things to keep in mind when you track business drivers results.
Focusing on a Key Set of Strategic Business Drivers
When you define your strategic business drivers, as we discussed in Part 1 of this series, it's essential that you don't "kitchen sink" the process. This means that more is not better. Selecting a hand full of business drivers that are the most meaningful to your success will have a more significant impact than creating a list of as many drivers as possible. Once you've created your list of drivers, prioritize them and get ready to translate them into some measurable objectives.
How Business Drivers Become Measurable Goals
Within most organizations, business drivers and even some goals are abstract concepts that are confused with aspiration or vision. To be effective, drivers must be transformed into measurable goals which can be communicated throughout the organization and broken down into executable action plans.
For example, a company that focuses on software development likely has several strategic business drivers that include technology, market, and profits.
Some of the measurable goals that they might produce which are tied to those business drivers could resemble the following:
Business Driver Measurable Goals
Set Responsibilities for Business Driver Monitoring and Evaluation
Having measurable goals is an excellent start, but the only way to know if your organization is achieving its objectives is to measure performance. Shockingly, fewer than 15% of companies make it a regular practice to produce meaningful benchmarks and then take a look back at how their performance measures up against the forecast from the prior year's strategic plan.
When you aren't monitoring your progress, business leaders can't determine whether the projections that underlie their projects and capital investment decisions are predictive of actual performance. Even more important, failure to monitor results sets up a disconnect that risks future errant business decisions. This lack of monitoring performance is one explanation of the tendency for a company to throw good money after bad in an effort to salvage losing strategies.
The solution to this conundrum is obviously to implement a program of vigorous results measurement and monitoring. Monitoring is not only critical to make sure that you stay on track, but it also allows you to make adjustments when necessary as you encounter barriers or learn new information. This is something that we will discuss more in depth in Part 3 of this series.
When you put together your company's strategic plan, you should not only specify who is responsible for its implementation but also who will track and monitor the results. For example, the CEO might expect regular status reports from middle managers regarding the progress towards achieving specified goals.
The frequency of reviews depends on several factors. First, how quickly are things changing within your company and industry? If it's pretty fast, you may need to monitor and report results monthly or even weekly. Otherwise, quarterly reviews of progress might be more standard.
What Metrics Will You Use to Monitor Your Results?
How do you determine if your company's projects and actions are on track to achieve its goals? You measure, of course. What you measure will depend on the goal, and some goals may require several metrics as performance measurements. A study by BDC about business progress surveyed more than 1,100 small and medium-sized companies. It revealed that the fastest-growing businesses were nearly 50% more likely than other firms to use three or more metrics as performance measurements.
The metrics that you use depend entirely on your business drivers and measurable goals. Performance Metrics, also often referred to as Key Performance Indicators (KPIs) are measurements that focus on the effectiveness of organizational functions and that give a company a way to track the achievement of their goals.
The are hundreds if not thousands of KPIs to choose from, but here are a few of the most commonly used in today's businesses:
Other Factors to Consider When Monitoring Business Drivers Results
Even with metrics assigned, you will need a process to measure your achievements. This is the role of benchmarking. Your historical figures act as a benchmark for your future performance. For example, figures for last year or last quarter are the starting point to measure changes in performance. You can also use industry benchmarks as a measurement. This data can often be obtained from government bodies or industry groups.
Before you commit to a metric, make sure that it is appropriate to both your business and the goal that you are trying to measure. There can be a temptation to settle on a particular measurement simply because it is easier to understand or readily available. Once you have the correct measurements in place, make using them and evaluating your results one of your top priorities.
Many organizations seem to spend a significant amount of time planning and establishing objectives when compared to measuring and evaluating progress. The truth is that businesses are fluid, meaning things change. You not only need to have a system in place to measure progress but also one to make adjustments when necessary. This is something that we will discuss in detail in Part 3 of this series.