Last week in this series, we introduced what a business performance review is, its benefits and its components. Today, we will continue with business performance issues and processes.
What do you review at a business performance meeting? Generally speaking, you can review anything and everything that has impacted or could impact the performance of your business. These issues can be grouped into:
• Economic and social factors: All businesses operate within a local and global economy. What is happening globally and locally? How do they impact your business, positively or negatively? What is happening in your local politics, are there elections coming up and how do they impact your business? How do you respond to critical issues?
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• Core activities: This includes issues of supply chain management and product performances. Which products are doing best in what areas, etc?
• Business efficiency: This is about how efficiently resources are used to achieve results. What is the capacity utilisation of the machines that you have? What is your inventory turnover? etc.
• Financial performance: How is your cost structure? What is your turnover? Why is it what it is? How is your dynamic cash flow position? How good are your working capital management ratios? If you are leveraged, how able are you to service the interest component and make any principal repayments as they fall due?
• The customer: Understanding the customer and delivering what they expect is key to your competitive strength and market position (below). Are there any changes in customers’ needs and expectations? Are there new and emerging services? Who is introducing them to the customers?
• Competition and market: What market share do you have, is it growing or shrinking? Who are your competitors, and how are they doing? What are they doing better than you? What competitive advantages do you have or do they have? Can you protect the advantages you have?
• Staff and unit performances: How are the various units in your business and the individual staff doing? Etc.
How do you review your business performance? Your performance review exercise is always about assessing your actual performance against what you have budgeted/planned to do and perhaps benchmark against what others are doing or what can be achieved. This means:
• People: You must have the right team to capture all the information and be able to review the performance of the business. The ‘team’ might just be you at some point when you are starting or along with a part-time staff like my sales agent when I was selling computer components. As you grow, you may need performance reviews at the individual, unit and of course corporate levels. To do this, you need people that understand business and its measures of success very well.
• Information: The people you have can only review the business performance if certain information is available. The first document required document is the performance report. The objective is to match the actual performance against the budgeted plan. Variances should also be captured to understand them, what caused them and what can be done whether they are positive or negative. With modern computers and applications, it is now easy to have all the reports that we need to assess how well our businesses are doing.
• It is not only about numbers: Your performance reviews should not be limited to financials and other ‘numbers’. You should also discuss other issues like your operating structure, staff motivation, strategy, etc. Include all factors that may influence the performance your business can deliver.
• Timing: The frequency of your performance reviews may depend on your industry, type of business, size and the people that must participate, etc. What is important though is that it should be regular and frequent. Enough window should, however, be given to people to achieve significant components of their targets but must not be too wide for people to rest on their oars. Even if you are the only one to conduct it, be regular and religious about it. Individuals and units could review their performances weekly while at the corporate level it could be monthly or quarterly, again depending on your size and the seniority of the people to be involved. Regardless, the least is a quarterly review and also on annual basis.
• Planning forward: In the review of your past performance, you should also keep planning ahead. This means as you assess what you have achieved, you could choose to keep your budget as it is, or you could choose to review it upwards or even downwards. Whatever it is you are doing must be based on intelligent and credible new information and/or realities and should be in the overall interest of the business and its stakeholders.
• Conduct: Many officials are apprehensive of performance review meetings. They expect it to be hostile and condescending where they are dressed down for failures. Consequently, they adopt a defensive attitude to it. This is quite unnecessary and can be avoided by the wise entrepreneur.
Ensure that you create an amiable atmosphere and encourage your people to understand that performance review is about each person, unit and organisation doing the best. Where people and units fall short, they should be encouraged and supported to improve even if they are held responsible.
• Preparation: Participants in a business performance review meeting have to prepare in advance of their presentations. Documents, except those for limited and restricted circulations, should be shared with those who need to review them well ahead of the meeting. Participants should be encouraged to review those documents in advance of meetings for fruitful discussions.
• Format: At the end of everything, the effectiveness of, and the ease with which performance review meetings can be conducted will significantly depend on the format that you create and adopt over time. Your performance review format will be the total structure made up of the various components mentioned above, such as the information and templates provided at sessions, the scope of review, the participants, timing, etc.
Above are some of the business performance issues and processes to be considered. Next week we will conclude the series by taking two specific business performance review issues that need special mention.