Performance Measurement & Management in SME’s
If there was one lesson from bluechip businesses that all SME’s could take on board, it would be to establish and trend an appropriate set of key performance indicators (KPI’s) to monitor and manage the business.
Now this may sound very corporate, and a bit complex to implement, but the benefits of a meaningful set of measures, recorded and reviewed regularly, are very significant. The performance trends provide an barometer for the business, and the management information provided can be used to make timely investment decisions (in capacity, people, marketing…etc), provide staff with clear accountability and goals to achieve (making management an easier task) and enable improvement plans to be prioritised and implemented.
There is no “one size fits all” set of measures (or metrics as they are often referred to), and the key to successfully putting a performance management process in place is that the KPI’s fulfill the following criteria:
- They are relevant and meaningful to the business.
- The mix of measures provides a “balanced scorecard”, across financial and non-financial indicators.
- There is a clear link from the KPI’s recorded to the company aims and objectives.
- If appropriate, the measures can be used to set targets – both for the company, and also at an individual level.
The type of relevant indicators will vary according to the business and the sector. For example, in manufacturing, there will be emphasis on operational (capacity, efficiency, productivity), supply chain (lead time, inventory turns, WIP) and financial measures (unit cost, gross margin). A sales focused business may look at conversion rates, enquiry generation, new business and also retained clients, along with financial figures to report growth and marginality.
However, the process to introduce and implement a performance management framework can be daunting. How do you form these into objectives, and use the process to set targets for key staff? How often should you review the KPI’s? Do we now want to conduct performance appraisals with staff? How do we improve the figures? The information is there to help drive and manage the business, and to help you make the right decisions at the right times. All effective barometers can forecast storms, and we have seen businesses collapse because they did not observe trends and see performance declining.
Perhaps the most empowering aspect of having management information at your fingertips is what you can then use it to achieve. Many staff will respond positively to performance reviews and clear targets, as they are now clear about expectations. Even simple measures about labour utilisation can help with recruitment. Above all, if you can see profits being squeezed, then you have the opportunity to look at innovation or rationalisation as options to develop.
For more information, or for a free review on your own business performance management framework, contact us now.