8 Tips for Small Business Performance Management

Published on:

August 5, 2021

colleagues in business meeting

Sustainable business growth is a challenge for all businesses, but perhaps no more so than for small businesses. Running a small business isn’t for the faint of heart. Successful small business owners must be able to mitigate risks, seize opportunities and deliver a product or service that meets consumer demand and expectations to grow.

The good news is these challenges can be more adeptly tackled with effective small business performance management techniques. 

What is Small Business Performance Management?

How are you currently measuring performance in your business, if at all? 

Performance is at the heart of sustainable business growth, but it needs to be measured and tracked to be successful and create long-term growth. This process allows businesses to identify strengths, weaknesses, opportunities for improvement so they can continuously improve activities, methods and processes across the business, increasing business performance and in turn increasing growth and profitability. 

Small business performance management refers simply to the processes and techniques businesses use to measure, track and improve business performance.

Around a quarter of SMEs have no business strategy in place at all, but the challenge doesn’t stop here for businesses as executing strategies remains a challenge. Around 87% of businesses fail to execute their strategy.

This comes down to a disconnect between strategy and operations. It stifles business performance and growth. But with set processes in place regarding the measurement and improvement of performance, small businesses are far more likely to successfully align strategy and operations and grow.

With this in mind, let’s dive into our 8 simple tips for small business performance management.

1. Develop Clear Business Performance Goals

What are you trying to achieve?

The goals you choose will be unique to your business and strategy. These goals will help you establish critical success factors (CSFs).

Critical success factors refer to the specific activities the business needs to focus on to meet these goals. For example, for a restaurant to increase sales, a critical success factor would be great customer service. 

Essentially CSFs can help you figure out how to link your goals to your operations and which processes and activities you need to focus on to manage better business performance.

When setting goals, it helps to set SMART goals. These are:

  • Specific
  • Measurable
  • Attainable
  • Realistic
  • Time-bound

2. Choose Your Key Performance Indicators 

Once you’ve defined your goals and you know the activities you need to focus on to reach them, you can look at how you’ll measure them. You can do this using key performance indicators (KPIs).

There are many potential KPI metrics you can use within a business performance management framework and they’ll vary depending on the department and activity. For example:

Management KPIs examples:

  • Customer acquisition costs
  • P/E ratio
  • Net profit margin percentage
  • Return on equity

Finance KPIs examples:

  • Gross profit margin percentage
  • Operating profit margin percentage
  • Working capital
  • Operating expenses ratios

Sales and Marketing KPIs examples:

  • Average order value
  • Average sales cycle length
  • Lead conversion rate
  • Profit margin per sales rep

Service KPIs examples:

  • Average response time
  • First call resolution
  • Net retention
  • Customer satisfaction score

HR KPIs examples:

  • Employee turnover rate
  • Employee satisfaction rate
  • Cost per hire
  • Training costs

The most important thing when choosing KPIs however is to ensure they’re relevant. For example, if one of your goals was to increase customer retention rates by 15% over the course of the year, you’ll want KPIs relevant to your customer experience and service such as net retention, customer satisfaction and more. 

3. Create a Collaborative Business Performance Management Process

The best way to get engaged employees who understand and are committed to improving business performance isn’t to dictate the performance goals and KPIs down to them. This can often leave employees clueless about why these are the KPIs and how they align with larger business goals.

To avoid this, business owners and leaders throughout the business need to make business performance management a collaborative process. Hold meetings with employees where you discuss the larger business goals, how departments are contributing to those and ask them how they think different aspects of business performance could be improved.

These are the people who know your customers the very best, as well as the roles the best. They know where the inefficiencies, challenges and strengths are. They’re best placed to help identify where processes and activities can be improved and how that could be measured, in collaboration with management and leadership.

4. Always Encourage Honest and Transparent Communication

Closely linked to the above, businesses need to be transparent about performance goals, how well the business is doing and how departments are doing.

Discussions relating to managing business performance cannot be contained to business owners and managers. There should be honest and transparent communication across the business.

Collaboration and communication work hand in hand. Better still, modelling honest and transparent communication across the business encourages employees to be able to discuss challenges and opportunities for performance improvement.

5. Utilise Business Intelligence Solutions

There was a time when gathering and analysing performance data was an administrative nightmare, taking up valuable time and resources.

Business intelligence technologies have advanced to remove these laborious tasks. The best business intelligence solutions can not only gather performance data, but give insights into real-time performance, contextualise data against external sources and utilise predictive analytics for better planning.

The financial costs involved in business intelligence solutions is often a barrier for SMEs. They simply see it as an additional expenditure, as opposed to an investment.

But these technologies can help save valuable time which can be better dedicated to more creative tasks. They can also help you make better decisions thanks to a mix of insightful quantitative and qualitative data. In particular, the use of real-time analytics allows businesses to better adapt, react and strategise to unforeseen external challenges, making them more resilient and competitive.

6. Record Any Changes Made to Track the Impact on Business Performance

Changes to activities and processes in an attempt to improve business performance shouldn’t be made and forgotten about.

These need to be recorded so you can better understand how they impacted business performance. Recording them allows you to pinpoint when the change was made and the performance of activities and processes after. This can help you better identify which changes had the biggest impact on business performance, both positively and negatively.

7. Make it a Continuous Business Performance Management Process 

You’ve set your goals and KPIs. You’ve got the technology to give you the insights necessary. You’ve identified the processes and activities across your business that can help improve performance and you’ve recorded the changes made.

You’re done, right?

A successful business performance management process is continuous. It is continuously developing by improving performance, reaching goals, setting new goals and repeating the process.

8. Align Performance Metrics Using a Balanced Scorecard

For a long time, performance metrics for businesses were focused firmly on financial results or market share. But performance metrics today consider many other aspects of business and span across departments.

This can present a challenge in itself of aligning all the various performance metrics to present one clear, cohesive image of business-wide performance. Businesses end up prioritising one aspect of performance over another and departments silo to focus on their own performance metrics.

Alternatively, for leaders trying to look at all the various performance metrics available, it’s overwhelming. It’s difficult to contextualise them against each other in any kind of timely fashion. Businesses need a simple solution that presents a balanced view of performance across the business.

That’s why businesses use a balanced scorecard (BSC) to better understand how a business is performing. This performance management tool traditionally gives four important perspectives on business performance: 

  • Financial perspective
  • Customer perspective 
  • Internal business perspective 
  • Innovation and learning perspective

It does this by providing answers to four questions:

  • How do shareholders see us?
  • How do customers see us?
  • What must we excel at?
  • Can we continue to improve and create value?

Each section has a list of goals and corresponding measures to present a clear, unified view of performance across the business. It minimises information overload and allows businesses to see where performance is improving and where further improvement is necessary.

The Benefits of a Performance Management Framework for Small Businesses 

Business performance management can help small businesses better navigate a difficult world.

Markets are increasingly volatile and unpredictable due to economic uncertainty. Globalisation has increased competition and decreased margins. Consumers demand an outstanding customer experience alongside a socially and environmentally responsible brand. Innovation is no longer a plus, but a necessity to survive.

These external challenges can be better navigated with a process of continuous performance review and improvement. They allow businesses to better adapt to changing market conditions with real-time data, so they can plan and strategise for the unexpected. Increasing business performance helps companies become more competitive by offering the same product or service with lower operational costs. It can also help improve the customer experience through continuously improving customer service processes and activities.

Overall, a business performance management process helps businesses plug the gap between business strategy and execution. It can aid companies in developing the exact methods to reach targets, as well as measure the success of those methods to improve future performance. 

Implement a Continuous Improvement Process in Your Small Business

A small business performance management process can help small businesses better plan, strategise and execute said strategy, ultimately helping create sustainable long-term growth.

Small businesses should focus on setting clear goals with relevant KPIs, in collaboration with teams and departments across the business. These performance targets and indeed the performance of the company as a whole should be shared openly with employees and celebrated. Business intelligence solutions should be utilised to give the best analytical insight, aiding better decision making and improving adaptability. 

Our continuous business improvement programme helps SMEs in developing a process of continuous improvement to create long-term business growth through improved performance and increased productivity. 

About Paul Freudenberg

Paul Freudenberg is a business productivity coach and consultant with a focus on operational excellence delivering improved profitability and business performance, and Founder of Awardaroo in 2005. Paul has set the mission of Awardaroo to help raise UK Business Productivity from one of the lowest in the G7 to one of the highest by 2030. Connect on LinkedIn

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