Managers’ role in evaluating business performance can be compared to that of turn-of-the-century baseball scouts, who, after serving in the field for so long, can almost naturally determine which stats are most relevant to measure a player’s performance.
However, some baseball scouts discovered over the years that the metrics applied to choose the players were not related to the number of runs scored. Thus, they realized that, for many years, they had been making wrong or inaccurate calculations, and based on that information, they had been making many decisions—and not the best—in devising strategies to achieve more victories. The same can happen to corporate executives.
For example, although there is only a loose connection between value creation and two of the most widely used measures of business performance: earnings-per-share (EPS) growth and sales growth, executives continue to rely on them because they trust too much in their intuition, their experience, and the way they have been doing things for years. If something goes wrong, they readily blame external factors that are beyond their control.
When business performance statistics are correct, they will accurately reveal the cause and effect of each unexpected situation. But you need to clearly define the goal of that metric, assess the financial and non-financial factors that influence it, and find out who supports the objectives.
Don’t forget that metrics defined just six months ago may not be helpful today. Therefore, it is necessary to re-evaluate the indicators periodically. Failure to do so is one of the many reasons companies fail.
Driving the business on the right path
Every company sets its business goals, sometimes boldly and sometimes conservatively. This way, they know what to expect during the next quarter, semester, and operating year.
When these objectives are clear and have been communicated to the entire work team, employees and leaders can quickly identify the path toward maximum profitability.
However, the problem is that the final destination is far away, and the question that everyone asks is, “how do we get there efficiently”? The only plausible answer is: with the help of performance indicators. These metrics are crucial to understand a process, an action, a project’s effectiveness, or to view the industry as a whole. It is only through good indicator management that well-thought-out decisions based on data can be generated.
The indicators
The efficiency and effectiveness of a company help in identifying its strengths and weaknesses. However, measuring performance can be a complex process, if you consider the many variables that can affect the results and also change depending on the industrial sector, the services or products offered, the target audience, and much more.
If you are committed to improving the management of your business, consider the following factors for analyzing and evaluating performance:
- Timing: How often will performance be measured: annually, monthly, or quarterly?
- Human factor: Is the team motivated? Do the team members have the necessary skills? Do they solve problems quickly? How long do they take to complete their tasks? Do they do their tasks right?
- Means: Do the company and the workers have the tools and the time to carry out their tasks correctly?
- Results: This aspect will be measured based on the information on income and business growth (among others). However, we must consider that there are non-tangible results, such as increased visibility, especially among potential customers (as a result of brand awareness).
Speaking on a purely economic level, hundreds of indicators are important.
Performance evaluation should not be based only on quantitative data, that is, based on what is produced. Qualitative data with respect to the quality of the product, in relation to the time and resources used, should also be considered.
Quantitative performance indicators
These indicators are typically calculated by dividing the time taken for production and the number of products produced, by the value of the resources invested. So, for example, if you take the time taken to produce a particular product and divide it by the number of finished products, you can find out how much the production of each piece costs you. In this manner, you can evaluate your ability to produce large quantities profitably, in terms of time and resources invested.
Think of a shoe store. By dividing the number of pairs sold in a month by the monthly salary of the salesperson, you will be able to determine if that worker is productive and profitable for the company. On the other hand, even if you produce thousands of pairs of shoes in a month, if each pair entails an enormous expenditure of resources and time, the revenue from selling the shoes may not compensate for the investment. This would make the product more expensive and less competitive, thereby causing you to lose money.
Qualitative performance indicators
These indicators measure the quality of the products produced, taking into account the time and resources invested in their manufacture. These indicators help to ensure that the quality of the goods is maintained at all costs.
Imagine a business with two manufacturing lines, one for high-tech medical equipment and one for lower technology. The company knows that the number of products sold in the first line will be smaller. However, each sale it closes will be worth much more than even several pieces of the inferior technology equipment sold. Therefore, lowering the quality of your products to produce more can be counterproductive, and cause you to lose customers.
Data is a critical link for evaluating business performance
To be productive, you have to strike a balance between quantity and quality. This means that you will achieve significant profits if you produce large quantities in an efficient manner.
To do this, it is necessary to analyze the production processes continuously, and put them through constant improvement. This implies adapting to the changing reality of the company itself, its clients, its workers, and above all, the market and the industry.
This adaptation also includes changing how data is collected, structured, and presented within the organization. CeleriTech has designed Keenlog Analytics, an intuitive and easy-to-use data visualization platform that works with your SAP Business One and helps you make intelligent business decisions based on real-time supply chain data and sales analysis.
Through a series of dashboards covering sales, purchases, inventory, and CRM, this platform provides you visibility into the logistics and critical finances of your organization. Using its robust analytics data, you can make intelligent business decisions and grow your business.
In a corporate world where every second matters, Keenlog Analytics will help your business thoroughly review your data and lay the groundwork for implementing better business strategies.
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