You may have heard of the expression “if you can’t measure it you can’t manage it” by Peter Drucker.
Knowing how the various activities of the business are performing and if they are meeting the standards expected, is critical in managing business performance.
There are several ways which can be used to focus on controlling the performance of the business; one way is using a well-designed feedback model. Using a feedback model to focus on business control, performance is measured and compared against the standards set. This gives a picture of how the business is performing, sheds light on the activities that need corrective action to improve overall performance and highlights areas of the business that are doing well.
Here are 4 steps to an effective feedback control model to control business performance:
- Set the standards of performance, and this can be the hard part. Firstly, what is a ‘standard of performance’? A standard of performance is something that is observable or measurable that has a range; for example, the standard set for the number of telephone sales calls made in a day is between 5 and 7. If the number of sales calls is below 5, then the standard is not being met, and conversely, if greater than 7 sales calls are being made then performance is above standard. Generally, it can be relatively straightforward to set financial standards e.g. achieve a net profit percentage between 5% and 8%, or operational standards e.g. reject rate between 3% and 1%. However, identifying standards for customer service, key internal business processes or staff involvement may be harder to clarify. The key is that standards should be clearly defined so everyone in the business knows what they need to do and if they are meeting or exceeding the standard.
- Measure the actual performance, this provides the feedback on business performance. Often, measuring performance consists of quantitative measurements from reports and data on a daily, weekly or monthly basis. In addition, measurement could be from observation such as employee participation in decision making and interaction with customers to understand whether activities are meeting customer needs.
- Compare the actual performance against the standards set. Through exception reporting on the feedback it is easy to focus on measures that vary from expected targets, highlighting the areas, or trouble spots, which may need investigation to find the cause of the problem. Alternatively, investigating areas where performance is exceeding targets, may uncover an activity or process which could be used in other activities to improve performance. Taking an inquiring approach to gain a broad understanding of the factors impacting performance is the key to finding out what exactly needs to be improved.
- Act, having compared feedback to the standards, now determine what change is needed and take action. Measuring performance may uncover significant change or corrective action needed to improve performance such as processes and procedures or work flows. Alternatively, it may be the action required is to reward and recognise those whose performance meets or exceeds the standards. The feedback vs standards could be published internally so the staff know how the business is performing; the information can also be used at team meetings to review business performance, and provide a basis for discussion and input on how to further improve business performance.
By taking the time to establish key performance standards, the reports and measures to compare actual performance and the actions required; will provide the feedback to consistently and effectively manage business performance.