Does your organization know how it’s really performing? Is it growing as fast as it should? Is it gaining market share, or is it losing it? Is it as profitable as it should be?

The limitations of planning and budgeting

Annual Strategic Planning and Budgeting are the only tools some organizations use to think about their performance, and only then for the purposes of forecasting and reporting. In practice, they produce an annual budget, they report variances against that budget, then they produce their next annual budget based on their actual performance in the previous year.

It could be argued that this is an acceptable way to measure and think about performance in stable and predictable times. But not so today, when markets and industries change so quickly and dramatically.

Why? Because it’s an overly inward looking and self-reinforcing way of measuring and thinking about performance that causes organizations to continue to make bad strategic decisions and causes them to continue to accept bad operating practices for a period that invariably ends in a painful realisation.

As so many organizations find out when the good times end – the end of the mining booms, the oil and gas booms, the housing booms – that their organization is no longer competitive or is no longer a major participant in its markets.

For there’s nothing that’s flattered organizations more than strong market demand.

And there’s nothing that’s punished organizations more than weak market demand - when good performing employees are shown the door for perceived underperformance.

The best way to know how an organization is really performing

  • Measure and think about your performance continuously
  • Use time-series charts to identify significant events and short, medium and long-term trends
  • Use relevant external strategic information and data whenever possible

Let’s illustrate this with some examples:

Use time-series charts to continuously measure performance

Use the charts to display monthly actuals and rolling 12-month measures for an array of Key Performance Indicators (KPIs) of:

  • Revenue
  • Costs
  • Profit
  • Balance Sheet and Cash Flow, and
  • Non-financial measures such as safety and environment

Use the charts to identify significant events, and short, medium and long-term trends.

For example, following is a time-series chart showing monthly actuals and rolling 12-month measures for a revenue item. 

graph1

Use relevant external strategic information and data whenever possible

However, an organization’s performance needs to be considered in the context of the strategic conditions at the time. Production costs need to be considered in the context of volume and production inputs. Sales volume and margins need to be considered in the context of the market and industry conditions, etc.

Where do you get information on market and industry conditions?

Today, the Internet provides a wealth of timely strategic information and data – values, volumes, prices, and profitability of market/industry sectors – kept up-to-date and provided free of charge by government bodies and industry associations.

For example, if you are a retailer of clothing, footwear and personal accessories in Western Australia, consider your revenues in the context of your industry’s revenues: 

graph2

Or if you are a housebuilder in Western Australia, consider your new house sales in the context the new housing building approvals in your industry: 

graph3

(data provided by the Australian Bureau of Statistics)

The benefits

The benefit of doing this is not just to identify positive or negative events and short, medium and long-term trends, so to prompt you to consider making an early strategic or operational intervention.

It’s also timely information that you can use to encourage your organizations to continuously improve its performance given the strategic conditions at the time. 

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