Using Key Performance Indicators (KPI) To Create Value For Small to Medium Enterprises ( SME’s )

Why does the SME exist and what are its goals?
The SME exists, primarily, to deliver value to its stakeholders, namely:

• Shareholders
• Customers
• Team members and the
• Community

KPI’s contribution to the achievement of goals
The purpose of key performance indicators is to measure value. In addition, they can be used to manage performance improvement. For example, what are the “strategic goals of your business”? From these you should be able to derive a limited set of “critical success factors” that are needed to be achieved to add value to your business.

Many businesses now state their goals and strategies in a mission statement that forms part of their business plan.

A successful SME must have a competitive advantage
What helps create a competitive advantage for a SME?

• Customers/clients who are delighted with the products or services provided by your business.
• The business must be different.
• It must have developed a sustainable competitive advantage.
• It should not be a “me too”. (in other words your business should not be exactly the same as your competitors)
• How can the customers differentiate services or how the services are delivered from those that are being offered by your business as compared to your competitors?

Do you listen to your customers/clients and continuously improve the quality of your products or services as the needs of your customers change?

• Is your business seen as one, which enthusiastically embraces continuous improvement so as to be at the “cutting edge” of customer/client service?
• Does your business create wealth for its owners?
• Are your team members proud to work for you?
• Are they motivated?
• Do they use their initiative or do they leave their “brains at the office/factory/shop door”?
• Are they encouraged to be innovative?
• Is your business respected in the wider community?
• Is it seen as a leader or a “me too”?

Who can influence the future of your business?

Every business needs to be able to identify who the key groups of stakeholders are that can influence it and then define key objectives for the business, so as to service those stakeholders.
The following groups can all influence the future of our business here at Nexia ASR:

• Clients
• Partners
• Team members
• Suppliers

What outcomes are stakeholders looking for in a business?
Taking the business of Nexia ASR as an example, the outcomes that our stakeholders are looking for would probably include:

Clients

• Quality of service
• Delivery on time
• Confidence in professional ability
• Value added services
• Giving value for money
• Being at the “cutting edge of the development of exciting services for clients”
• Giving the client real commercial advice in a “financial director” role, so as to add value to the client’s business and not merely being seen as a preparer of compliance work.

Team members

• Career opportunities
• Security of employment
• Safe working environment
• Remuneration
• A place that offers a stimulating working environment
  Community
• Ethical standards
• Involvement in the community
• Contributions to the community

Partners

• An enjoyable, stimulating place to work
• Wealth creation - so as to enable reinvestment in the business in technology and staff intellectual property
• Profit for reinvestment and lifestyle

Maintaining a competitive advantage
To sustain a competitive advantage a business has to:

• Continually improve processes
• Develop a system of performance measures that measures value delivered
• Implement reporting processes that use performance measures and targets to drive performance improvement in the short and long term

Creation of value and improvement
A business is a machine that creates value. Performance measures should be put in place to measure this value.

Succeeding in the business world doesn’t happen unless you manage it and performance management will not occur on its own.

You have to manage value creation. It just doesn’t happen. If you become a “me too”, then you will remain at the bottom of the pile.

Never assume that you know what a stakeholder wants. Do not internalise. Go out and ask.

The best businesses have a product which is great, can sell vast quantities, know what their customers want and have happy team members and shareholders.

Business activities continue on a daily basis and no one is immune from business failure - no matter how successful they are today. The traditional profit and loss account, balance sheet, statement of source and application of funds, taxation returns prepared for the vast majority of SME’s will not enable them to successfully compete, survive and add shareholder value and value to key stakeholders unless the business utilises more relevant performance management measurement techniques.

How is value created and delivered?
International quality assurance standards – ISO 9000 - describe how value is created, delivered and continuously improved.

• All work is accomplished by a process.

Every process has inputs and the outputs are the result of the process. The outputs are products, either tangible or intangible. The process itself is a transformation that adds value and there are always opportunities to make measurements on the inputs and at various places in the process.

• Any organisation is a network of processes.

Every business is a network of processes and every business exists to accomplish value added work. This work is accomplished through a network of processes. The structure of a network is typically quite complex.

• Performance Improvement.

Consequently to create, improve and provide a consistent quality (i.e. high value) in its offerings, a business must do it through the processes its team members use in their work. All processes should be subject to analysis and continuous improvement.
Customer related processes are the “engine” of any organisation - these must be managed so as to provide maximum customer value.

Remember no customers equals no income equals no business.

In conclusion, it would be fair to say that using KPI’s can add a lot of value to your business and can assist you in being a more accomplished and successful business owner.

For a discussion on how your business’ performance can be improved by using KPI’s, please contact Philip Grant on pgrant@nexiaasr.com.au or 03 9608 0105 or Mark Hammerschlag on mhammerschlag@nexiaasr.com.au or 9608 0165.

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