Yes many companies fail!
Many SMEs and start-ups under-perform in growth, survival and productivity because they have not adopted well-established good practice management techniques for their types of business. According to industry experts, five in every ten small businesses in Nigeria fail every year, with the percentage nearing 80% in their first five years of existence. While external factors play a role in the dearth of companies, internal factors contribute largely to why companies fail. We can consider some of these factors to be: Failure to Plan, poor (or no) document, managerial inexperience, failure to embrace innovation, and being unprepared for growth etc. The list goes on.
What Is Performance Management?
The good news is we can hedge against the risk of survival through adopting structured business practices early in the inception of a business. Studies have found that firms that acted quickly to institute formal mechanisms such as operation budgets, cash budgets, and financial monitoring systems had higher growth rates. This is the essence of Performance Management.
So what exactly is Performance Management? We can simply call it “reaching your stated objective in relation to a defined stakeholder in an efficient and effective manner”.
Earlier I mentioned the concept of Effectiveness and Efficiency. Why is this relevant to managing the performance of a business? Most of us know Efficiency to be doing things right and effectiveness, doing the right things. Understand that when you obtain the desired result on an objective, then you’ve been effectiveness. Efficiency on the other hand helps you optimise your resources so that you can achieve more with less consumption.
You own an e-commerce business. Meeting a promised delivery time on a product that is supplied faulty may have been executed efficiently, but in summary that service is ineffective. Efficiency and Effectiveness are yardsticks to benchmark the activities you carry out when managing your performance and as such should be equally balanced across your define metrics.
But What Should I Measure and Defined as Metrics?
Performance management is very broad and should cover all aspects of managing your business. management. Many companies fail not because they have a wrong strategy but largely due to failure of execution and implementation. Small businesses need to set up early enough, performance management systems that measure, track and enable businesses achieve their strategic objectives in a continuous manner that is both effective and efficient.
In setting up a performance management system, two key processes should be considered:
- Information gathering system – for decision making. This captures both financial and non-financial information that the company generates from her operations. This would be benchmarked against targets or objectives that the company has planned to achieve. Consider your accounting software to track financial performance, analytics software to manage and track sales and marketing performance, etc.
- Program and Process designing – influencing employees to achieve performance deliverables. A key example here could be your Organizational architecture. Is your business operating structure you set up your business to enable growth or does it include processes that indirectly stifle it?
Performance Management In Action
When we use the term “Management”, we consider it to mean having an oversight or influence on another person’s performance. While this is conditionally true Performance Management in Action needs to foster an environment of trust, transparency and candour to be effective.
As a small business owner, are you gearing up for growth? Do you have established performance management systems that govern the operations of your business? Ayzer assists and provides small businesses with supporting tools and resources to help their businesses learn, grow and scale. If you would like to set up your performance management system or would like to know more about how build sustainability in your business to drive growth, please contact us below.