The most effective businesses measure the performance of every aspect of their operations so any changes can be quantitatively evaluated. This involves:
Baselining – measuring aspects of the business prior to improvement strategies being implemented
Target Setting – the ultimate target for any business is generally to improve the “bottom right hand corner” or net profit of the business. In order to increase the net profit, every aspect of the business should have specific targets and these should relate to KPI (Key Performance Indicators) for individual positions. For example, for the Sales Department, these could include:
- Prospects contacted on daily/weekly/monthly basis
- Prospects turned into clients
- Repeat business from existing clients
- Volume of Sales
- Profitability of Sales – focus of high profit products/services rather than more marginal items
Regular Performance Reviews
The measuring the effectiveness of firstly achieving these targets and what affect this has on business profitability should be conducted on a regular basis. The time frame will vary from department to department and from business to business balancing the administration of measuring and collating information with the desired results. Some manufacturing companies will measure, graph and post work effectiveness on a daily basis. Whilst this may not be immediately practical for all organisations, it is relatively simple to implement such procedures once the appropriate systems are put in place.
We recommend a total review of the performance of a business on at least a quarterly basis. This review can be conducted once the BAS has been submitted, at which time all financial figures are up-to-date.
Procedures & Policies
Systemising a business has the benefits of standardising work practices, making it easier for new staff to be integrated into an organisation; in addition to improving the saleability of a business. Policies and Procedures should cover all operations including, but not limited to:
- Health, Safety & Environment
- Equal Employment Opportunities Policy
“People are an organisation’s most valuable, most frustrating and most rewarding asset” – Numerous Business Owners
Staff vs Contractors.Having core staff to manage day-to-day operations and production, and contractors available for major projects or production surges is an ideal way to manage overheads and the peaks/troughs of production. One issue to be aware of is the Personal Services Income (PSI) legislation which, in part, differentiates a contractor from an employee. Business owners need to be up-to-date with such legislation to ensure that they are not employing contractors who may subsequently be categorised as employees.
Job Contract. More than just an Employment Contract, a Job Contract can be produced which includes KPI/Job Performance Criteria in addition to resources to be provided to the employee in order to achieve these targets. These KPI and resources can be decided in consultation with the employee giving them some ownership of their role and improving their contribution to an organisation.
Succession Planning. No one individual, including the Managing Director/Owner, should be indispensable to the running of an organisation. This is facilitated by having a succession plan for all major areas of a business, with an “understudy” identified and trained for production, estimating, sales, administration etc.
Profit Sharing. One method of improving employee performance and teamwork is by providing profit sharing. This may require a fundamental change in a business culture in order to be more open in relation to business profitability. There are numerous models available for profit sharing and we have procedures which have been implemented successfully in a number of businesses. Profit sharing can be extended from just staff to include contractors for project work.
Performance & Review. Each employee should have their performance reviewed on a regular basis to provide feedback, highlight areas in which they are performing well, noting areas that could be improved and reviewing targets/goals and resetting targets once achieved. Ricardo Semler (“Maverick!” and “Seven-Day Weekend”) has some fairly radical views on business hierarchy and performance reviews including conducting “bottom up” reviews where the staff review the performance and remuneration of their managers. Whilst this may not be suitable for every business, both books are recommended to see what can be achieved by not following conventional “wisdom”.