Tracking your mission

If an organisation is to meet its mission it should concentrate on its critical success factors. Critical success factors (CSFs) are defined as those key variables or conditions that have a tremendous impact on how successfully and effectively an organization meets its mission or its strategic goals or objectives.

In other words CSFs are those features of a product or key issues in a service that need to be in place and working well if the business is to achieve its goals. Businesses must perform the activities associated with critical success factors at the highest possible level in order to achieve their intended objectives and achieve competitive advantage.

To track the achievement of the CSFs an organisation should develop key performance indicators (KPIs) that will help to measure whether the CSFs are working. By using CSFs and KPIs a business will stay focused on the key actions that will keep it on track to achieving its strategic objectives and therefore its mission.

An organisation should therefore develop an effective performance measurement system that enables managers to evaluate and measure the organisation’s performance. To be effective the measurement system should align the organisation’s objective with individual managers’ objectives.
Managers objectives should cascade from the corporate goals. In this way the achievement of the managers goals results in the achievement of the organisation’s goals.

The performance measurement system should also be linked to the company’s compensation plan and career development plan to provide reward and establish training and skills development needs.  Brian Tracy said that “The true measure of the value of any leader and manager is performance.” We can evaluate the leader/manager through the use of the key performance indicators.

KPIs are used by a company or an industry to gauge or compare performance in terms of meeting its strategic and operational goals. KPIs vary between companies and industries, depending on their priorities or performance criteria.  A good KPI should be quantifiable, it should motivate a manager to perform well and provide an incentive to a manager to make decisions which are in the best interests of the overall company and should only include factors for which the manager can be held accountable; those he can control.

A good KPI should take into account both the long-term objectives as well as short-term objectives of the organisation.
It’s very crucial that KPIs are tailored to an organisation’s specific circumstances and objectives. They should be linked to the key goals of an organisation.

As from above it is very clear that a company’s KPIs should focus on key business drivers or critical success factors; those areas that determine the overall success of the business. These areas are the ones that add value to customer satisfaction.
Previously, performance measurements were mainly financial. However in recent years, the trend in performance measurement has been towards a broader view of performance, covering both financial and non-financial indicators.

The key financial indicators are those measuring financial risk or the gearing of the business, or those measuring business risk, profitability and liquidity. Financial risk is measured by the financial leverage ratio which is calculated by dividing debt with total capital employed (shareholder’s equity plus debt). This ratio refers to the degree a business uses borrowed money and how it is exposed to risks resulting from having too much debt.
Business risk is measured by the operating leverage ratio which is the total contribution (i.e. sales minus cost of goods sold and other variable costs) divided by fixed costs.

This ratio shows whether a business is generating enough revenue to pay for its fixed costs and cover a return for the owners.
The main profitability ratios are the gross margin, the net operating margin and the return on capital employed. All these ratios look at how profitable a business is.

Liquidity is measured by the current ratio and the quick or acid ratio. These two ratios, current ratio and acid ratio, tell us whether or not the company has enough liquid assets to pay its liabilities for the coming year. As a business grows it also employs more people. Some of the financial indicators can therefore be related to employees. The most commonly-used measures are sales per employee, contribution per employee and profit per employee. These measures can flag up issues that might need attention.

The weakness of the above financial ratios is that they are mainly historical and don’t help us in assessing the future viability of a business. It is therefore important that a company uses non-financial KPIs to assess the performance of an organisation.
The non-financial KPIs should be tailored to the mission of each organisation. The critical area to start measuring is customers. You need to see your business through your customers’ eyes. Acquiring and retaining customers is a crucial task for every business.

If customer service is a strategic priority for your business, which it should be, it could be measured by sales data indicating customer buying preferences, what customers are buying, the number of customer complaints received, the number of items returned or by the time it takes to fulfil an order.

Most customer focused KPIs measure quality and customer service. Performance is useful as long as you compare the organisation’s performance against a certain yardstick. Usually organisations look at the trend of the KPIs over a number of years or benchmarking the business performance and potential with other businesses in the same sector.

If your business is targeting rapid and significant growth it may then choose to compare its performance with an established market leader.
A company can also benchmark internally for instance, comparing absenteeism rates between departments. The critical thing when benchmarking is to focus on the key drivers that drive business success in your particular sector.

Stewart Jakarasi is a business & financial strategist and a lecturer in business strategy and performance management.
He provides advisory and guidance on leadership, strategy and execution, preparation of business plans and on how to build and sustain high-performing organisations.

l For assistance in implementing some of the concepts discussed in these articles please contact him on the following contacts: sjakarasi@gmail.com or +266 58881062 or on WhatsApp +266 62110062