Traditionally we always measure something, following the results, compare those results with specific targets and make decisions about future steps. In such a way, we are measuring business performances.
This is the only way to increase our knowledge about questions like:
- Is our job good or bad?
- Is it a success or not?
- Do we need to make corrections on our actions or not.
As an entrepreneur, measuring becomes one of the most critical tasks. You need to know the performance of your business. You need to know areas where you can implement improvement. Also, you need to know why you made progress and why you did not make progress.
Let’s look at one possible process you can use for more strategic and systematic measuring implementation.
What is Business Performance?
The word performance is one of the most used words in the business world. It is an act of performing an activity or task. For example, we have 99 extremely satisfied customers from a total of 100. Or today, we have served 300 clients in our bank. These are all the performances of individuals or organizations. You already see that we can have individual and organizational performance. When it comes to performing the work and the results of an individual’s work, it is an individual performance. If the work is performed by a group, department, or company, we are talking about organizational performance.
What is the performance?
Now, what is the performance? Performance results from your activity, i.e., what you have achieved with a specific action. Simply put, performance shows what you have done, what you have achieved, and what are the results of your achievement. For the marketing department, the performance can be the number of potential customers generated in the company’s sales funnel. The procurement function can use performance like quantity and quality of procured raw material, timely arrival, or the number of realized long-term relations with suppliers. When it comes to operations in a company, the success or failure of the business will depend on the performance of different individuals or groups.
Simply put, the operational function creates the result that goes into the customers’ hands, who pay money for that. With that money, the company finances its operations. For these reasons, monitoring and measuring performance becomes one of the most critical activities for your business. Questions such as how much value you deliver to your customers or how many quality products per specific time we produce become crucial in securing a competitive advantage. But this is important only if we know the answers and continuously take concrete steps to improve them.
Suppose you know that your customer is dissatisfied with your product or service. Also, you know the level and the reasons for dissatisfaction. In that case, you will certainly try to eliminate them. It is already a system of continuous improvement. If you improve the input elements and the process itself, the process results will constantly increase competitive advantage.
5 Business Performance Goals
Managing operations daily requires much more specific goals. Five primary performance goals can be applied to any small business operation, whether a manufacturing or service company. The best way to explain these goals is to go through examples.
Let’s say you are:
- A mobile operator store manager.
- Hospital manager.
- Production manager in a company.
What will you want to achieve to satisfy your customers and help your company become more competitive in the market?
You will want to deliver quality. This means that the mobile operator store manager must provide fast and easy service delivery without operators’ mistakes and long waiting lines. As a hospital manager, you will want to provide the highest quality services to your patients, generally with zero error tolerance. As a production manager, you will want to produce high quality without mistakes. Quality is consistent customer satisfaction through meeting their needs and expectations.
You will want to get things done quickly. As a mobile operator store manager, you will want to reduce the time the customer spends from entering the store to leaving satisfied with the service received. If you are a hospital manager, you will want to increase the number of patients you will process over a specific time. As a production manager, you will want to speed up the production process to increase the product’s availability on the market. Speed is the time it takes from a customer’s order to deliver a product or service.
You will want to be flexible. This can allow you to change how you do things to satisfy your customers quickly. As a mobile operator store manager, you will want to meet customers’ different expectations. All customers don’t have the same expectations from your company. As a hospital manager, you can quickly apply new treatments. You can produce various products in your production facilities as a production manager. Flexibility is the degree to which processes can change what, how, and when they do it.
You will want to lower your costs. As a mobile operator store manager, you want to create and deliver exceptional service at no extra cost for the company. If you are a hospital manager, you want to successfully treat more patients at no extra cost. Also, as a production manager, you want to keep production costs minimal. Costs are the price of what you are doing.
You will want to be reliable. As a mobile store manager, you will want to get things done on time and repeatedly deliver the same quality service. As a hospital manager, you want your patients to rely on your expertise. As a production manager, you will want to produce the same quality products on time so that the delivery takes place without interruption. Reliability is a continuous delivery of the same value you promise to deliver.
These performance goals are the essence of providing a competitive advantage to your company. It is so because the quality reduces costs and increases reliability. On the other side, speed reduces inventory and, in such a way, the risk for the company. Being flexible accelerates response, saves time, and maintains reliability when it comes to flexibility. The costs provide a lower sales price. Reliability saves time and money and gives stability to your company.
The Process to Measure and Follow Your Business Performances?
As you already see, business performance is the key to securing a competitive advantage. Companies that provide high-quality value delivered to customers with the lowest possible costs will always have an advantage over the competition. Therefore, measuring business performance is the basis for improving operations, thus getting a more significant competitive advantage.
The difference between a realized performance and the desired performance is the gap that needs to be filled with improvement. For example, a bank may want to process 500 clients daily. Currently, it can process only 300 clients. You can achieve the difference of 200 clients only by improving the performance of the bank branch through one of the following activities:
- Improving processes to maintain quality and increase speed, flexibility, and reliability while not increasing operating costs.
- Education and training of employees will train them to be more efficient and effective. They will process more clients at the same time.
- New employments will add additional labor force for processing more clients.
- A combination of two or more of the above options is also a unique option that can increase the performance of the bank branch.
The fundamental question you need to answer is what and how to measure when it comes to your business performance.
Remember that different measures give different results for success and failure, and relying on one business performance measure can lead to failure on another measure.
Here is what you can do to implement a systematic approach to measuring and following business performances:
1. Evaluate the measures you follow.
Do you have a strategic approach when you follow measures for the performance of your small business? I know that you follow your sales numbers, whether in traditional notebooks or some more complex database. But, the question is about the strategic approach, which means you have a process you follow on a cyclical basis. For example, on Sunday evening, you will collect each measure to compare them with a previous week, find answers to why some measure is lower or higher, and then decide on the following week’s actions.
When you have something like a strategic and systematic approach, we come to the question of what type of measures you are currently using. Probably you have three, five, or ten measures that you are using. Now list them on a piece of paper or some spreadsheet and start asking yourself the following questions:
What each of those measures tells you?
This question should show you what the measure is about. For example, if you track the number of visits to a website, why do you track them?
You may need to track the number of clicks on the order button to know how many visits you need to receive X number of order clicks. However, the X number of clicks on the order button does not guarantee that there will be a sale. You may need to follow the measure X orders for Y site visits.
The same can be said for any business.
For example, how many people pass by the retail store is one thing, but how many enter the store is entirely different. Also, how many of those who enter the store have bought something is another measure. You can have a completely different meaning when measuring how much they spent in your store.
A restaurant can use the number of Facebook likes on the site. Still, that number says nothing if the restaurant management does not know how many people who liked the page come to the restaurant and how much money they spend. This question aims to introduce you to exactly that reason and review the currently being used measures.
What are good and what are bad measures?
The next question is which of these measures are good measures and which of them you dont need.
Because you already know the reason for using each of these measures, you can easily see which ones are critical and which are not needed. So you can drop the unimportant measures or replace them with new ones you came up with within the previous question.
For example, we will reject the number of visits and use the number of realized orders related to the number of visits. It is much better to use measures that represent the relation. It is either a coefficient from 0 to 1 or a percentage amount. Those measures are the most valuable.
Are there other measures that you are not using that can be valuable for your small business in the future?
Then we ask the question, are there any other measures you do not use that can be helpful for the company? It is not just a matter of putting measures that will not be essential to improve operational processes.
Remember that monitoring some measures is to constantly improve processes and the company to be better and better in terms of those measures daily.
When you complete answering these questions, you can remove measures that are not valuable for you and add additional measures that can bring you more value when you make decisions in your company.
2. Define One Most Important Measure for Your Business Performance
Define one most crucial measure for your company that will impact the most on your business performance.
When you have three to five critical measures, you need to choose one that will tell you the most about your business performance. You can entirely rely on this measure, something that each employee in your business can improve. Or, it can be something you can continuously maintain on the higher possible level, enabling you to be one step ahead of your competition. Do you have such a measure? Think about it now.
For example, a restaurant may have the most critical measure like cost per employee in terms of gross income. Although many restaurant and cafe owners do not use this measure, it says a lot.
Why will this measure be life or death for a restaurant? Because it simply reflects the company’s efficiency through the employees who create costs, but also on which the business model’s success largely depends. This measure gives “restaurants” two vital things, income after breakfast, lunch, or dinner and income per employee.
You can generate this measure at any time. You will base your restaurant’s staff policy on this measure, the offers for the next day, the cost of ingredients used in food preparation, and the menu type. On the other hand, you can easily compare this measure daily, weekly, monthly, or on any other basis.
Suppose the average of this measure monthly is 20%, and with that average, you make enough profit for the restaurant. In that case, any increase will mean a problem. For example, if, after a few months, that number reaches 50%, it means that you have too many employees. Or you will need to change something to attract more guests (change of staff, menu, discount, new marketing strategies, etc.)
3. Create your own process
At this step, you will need to create a process that will always confirm or reject a specific measure you are following regarding your business performance.
Now, when you know what you measure in your business and the most critical measure for your company’s success, you can start building a process that will enable you to use measurement in a most useful and productive way for you and your business.
The first step in the process will require you to start with the one most important measure for your small business that you will follow daily. The process’s start can also be other measures, but they will be part of this process on a longer cycle as each week, month, or quarter. Decide according to the importance and priority of the measures you have defined. The third possible starting point of the process is your customers as one of your business’s most important and influential persons.
The next step is to discover how to improve the measure you follow. For example, you will need to define concrete action steps that, when they are implemented, will improve your measure. Then, your process will continue implementing previously defined action steps that mean implementing changes in your small business.
The next stage or step in the process is to measure the effects of the implemented actions. The output can be positive, which means that everything you have already done improves the measure. The second type of output can be negative, which means that the actions you have already taken aren’t something that improves the measure. You will need to go back to the step when you discover what to do to improve the measure for the negative results.
4. Continuous work on process improvements.
And the last thing you must remember is that you must work on continuous improvement of the process because this process is essential for your business’s success.
Question: How are you measuring business performances in your small business?