Measuring SME Performance

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1 Measuring SME Performance Using metrics to deliver improved performance for SMEs Douglas Hassell 2014

2 SMEs are under more pressure than ever to deliver sustained good performance month on month. Various management techniques and tools are available to improve and sustain performance. This White paper will review what metrics can do for your business. Using the Balanced Scorecard can greatly improve your understanding of your business; it gives you, your management team and your employees a rounded view of your business. The Balanced Scorecard uses multidimensional metrics that give you a view on all of the factors involved in implementing strategy and improving performance. The categories of metrics are what is important to you and your business. SME Balanced Scorecard Model Your Balanced Scorecard will be tailored to your business and for example with include metrics such as proposals submitted, new customers identified, sales revenue, margin, product manufacture and shipping or project delivery, quality assurance issues identified and fixed, staff recruitment status. Tailored Balanced Scorecards provide you with a view of the past, present and future. Also you are provided with both an internal and external perspective of your business.

3 One of the key roles of performance metrics is to support better decision making, reducing uncertainty and quantifying your past, current and future business performance. Consistently making better decisions is a major factor in improving your businesses performance. In addition performance metrics support other aspects of your role: Reporting Performance. On a regular basis you and your management team understand the performance of specific aspects of your business. This delivers awareness and understanding across the management team. Implementing Strategy. Establishing performance targets through metrics enable you and your management team to convert the business strategy into specific actions that have a tangible outcome. Focusing resources. Day to day, understanding the performance of your business through metrics enables the management team to prioritise the business resources effectively and efficiently. Metrics and Improved Performance Key to the successful implementation of value- added metrics to your business is making sure you select and implement the right metrics.

4 Important characteristics for your metrics are: Focus on your strategic business objectives Drive actions across your business (all departments and managers) that relate to your strategy Identify stretch; keep your management team on their toes Both leading and lagging indicators are included Drive improvements to your business Both strategic and operational indicators are covered Provide evidence to act as a catalyst for continued growth Can be used to manage investor communities Relevant to your management teams performance evaluation. The set of metrics you will want to use are not static and will need to be developed over time. For example if your strategy alters and now includes the development of additional operations in another country, you would define additional metrics around the development and performance of that office. When using metrics to improve your businesses performance it is important to concentrate on: Aligning effort Managing accountabilities Improving core competencies Reward setting Through aligning the efforts of your management team, staff and business resources you can improve the delivery of your business priorities. Setting up metrics in areas of importance and getting your whole management team to deliver against related target will deliver focus and prioritization. Metrics are also used to measure specific management team performance against deliverables. Clear goals are set up at a group or individual based level and results are tracked on a regular (real time, weekly, monthly) basis. Your team will understand the importance to deliver against these metrics. Metrics are also very effective in improving core competencies. These metrics are difficult to devise and are tailored to your business but would be based upon benchmarking your business against

5 competitors and best practice, conducting gap analysis and setting objectives to close the gaps. Individual and team rewards are set by defining performance objectives against metrics. Actions are related to improving performance against each metric. Culture change comes from the application of metrics in this way. Your management team will focus individually and as leaders on performance of the their responsibilities and the entire business operation. Applying metrics to your business is not difficult and follows a simple incremental process. Applying Metrics to SMEs As you gain more experience you will need to review and fine- tune your metrics. Reasons for change are improving concepts and approaches, altering strategy and circumstances. You should plan an annual review of your metrics and think ahead for the next stage in managing the performance of your business. Using metrics in your business will have a major impact and will deliver a more focused and coherent management team.