Understanding what drives success is vital to building a thriving enterprise. To be successful, you need to first define what success means for you, and then learn from the mistakes commonly made by other companies. The key is to look beyond surface-level financial metrics, question your statistics, and consider all the factors that can help you achieve your goals.
What is Company Performance?
Company performance is a combination of both the financial and non-financial aspects of an organization. These aspects gauge how well a company is executing their business strategy and can be looked at to identify areas for improvement.
Why is Measuring Company Performance Important?
Measuring company performance is important because it is the first step in transforming your business into a well-oiled machine. Nevertheless, across industries there is a shallow understanding of performance and the measures of success. By only looking at surface-level numbers, companies can develop blind spots, at times working against their own objectives and failing to have the necessary foresight to make the right move.
To avoid commonly made mistakes, you need take into consideration the unique vision and goals of your company. In doing so, you will be able to understand what success means to you and provide your business with a competitive edge over rivals.
Look Beyond Surface-level Numbers
A simplistic understanding of how to measure success is alarmingly common as many companies allow metrics to hijack their strategy. Michael Harris and Bill Tayler label this approach the “surrogation snare.” This occurs when success for both the organization and employees becomes about meeting certain criteria at all costs, without consideration for how they achieve those numbers.
One example is when a company tracks success through sales. Executives may place pressure on employees and management to fulfil quotas and outdo their previous sales quarter. Although this can provide motivation, it also can also lead to skewed statistics and actions that are ethically questionable. In such situations, companies can find themselves working directly against their own long-term interests. Although tracking sales is clearly useful, it cannot be used as the sole measure.
Furthermore, research conducted by Christopher Ittner and David Larcker found that companies that understood the cause and effect of their statistics and took the time to measure non-financial factors reported earnings 1.5 times greater than those that did not.
Our team at Barometer has created a process that demonstrates how to define and measure success, considering both the financial and non-financial aspects that drive your company’s performance.
Define Your Goals and Utilize Key Performance Indicators
Defining your goals is an essential first step in developing a road map for success. Key Performance Indicators (KPIs) are one of the most useful tools for this process as they assess whether your company is meeting its objectives and sticking to its long-term goals. Nevertheless, many organizations will often only focus on low-level KPIs, such as sales. In these cases, the analysis can be hollow and fail to demonstrate how you can drive your company forward.
To effectively develop KPIs, your business should start by defining its goals and determining how to achieve them. Each KPI should be challenged as it is a common mistake to have over confidence in what we believe drives success.
To challenge overconfidence, it is important that you understand a variety of factors and contemplate their relationships.
Consider the growth story of Nova Nordisk.
As a pharmaceutical company, they are often levied with the image of placing profitability over welfare. Nordisk countered this by reporting performance in an integrated manner that considered how profitability was related to non-financial factors.
The strategic areas that Nordisk asses are:
- Access to healthcare
- Employee welfare
- The use of animals
By contemplating a variety of factors, the company understood the interaction between these goals. They perceived how success drivers are often more complex than the initial gut instinct to measure success just through sales or profitability. Nova Nordisk was once a company with only 80 sales reps in the US, it now is one of the most successful pharmaceutical businesses in the American market. Nova Nordisk’s method is a prime example of how measuring a variety of non-financial factors and understanding their relationship to one another can drive financial growth and long-term stability.
Similar to Nova Nordisk, a number of other companies have utilized this approach to assess key performance indicators. It is not merely about the financial statistics, but their interrelation with non-financial factors that drives success and ensures longevity. It is clear that non-financial aspects, such as the quality of product, ethical considerations, and customer service, can have an impact on financial performance over the long term.
At Barometer, we are constantly working to track these non-financial measures through both internal and external factors.
Internal factors relate to the way your company is structured and operates.
Our Barometer research team analyzed reviews from Glassdoor’s 2020 Best Places to Work to uncover the factors that influenced the way employees viewed their workplace. Below are three internal factors we’ve found are important in shaping your company’s workplace.
- Workplace Culture refers to the general relations between people at the company. How does your company promote a feeling of togetherness among its employees?
- Corporate Structure refers to organizational structure, and resources. How well does your company frame its goals and share its understanding with its employees?
- Quality Leadership refers to how managers are perceived at your company. How well does communication between departments run? Do employees feel listened to and do your employees understand how they can help to achieve the goals of the company?
While internal factors are important by themselves, external non-financial factors relate to your company’s public relations. Thus, it is important to understand how the pillars of a well-run company translate into a strong public image.
Such factors include:
- Employer Brand. How is your brand perceived by your employees and job seekers?
- Innovation. How well are you able to bring in new products and alter the market landscape that you work in, ultimately increasing your company’s competitiveness?
- Customer Retention. How well are you able to keep your clients happy?
Make your goals SMARTER
It is important that the factors and goals tracked are SMART. By utilizing this method, you can ensure that your KPIs will not obscure your true levels of performance and that the statistics you are measuring will not blind side your organization.
S – Specific. Use specific wording.
M – Measure. Include measurable goals.
A – Attainable. Aim for realistically attainable goals.
R – Relevant. Ensure your goals are consistent with your vision.
T – Time Bound. Provide a time frame to achieve your objective.
While SMART goals are useful, we have found that they often don't go far enough. Our parent company, PublicRelay, has outlined the necessary next steps to make your SMART goals SMARTER:
E - Ethical Goals. Consider the ethics of your goals. Are they aligned with the values of your company? Goals that speak to your principles and share your vision are more likely to be pursued and ensure the reputation of your brand.
R - Revolutionary Goals. Question your insights and understand their impact. Will your results revolutionize your strategy for success? Revolutionary goal setting helps you to not only prove your worth but provides you with the next steps to take.
Find Out What Success Means to You
The true measures of success are formed by your company’s ambitions and goals; they cannot be reduced to a simple equation. Understanding this and being open to challenging your key performance indicators will allow your company to truly comprehend what it means to perform over the long term.
Here are our four main takeaways when it comes to answering the question of what defines company performance:
- Look beyond surface-level numbers. Performance cannot just be measured by the first set of financial statistics. Understand that statistics can be misleading and always challenge what you first see.
- Success is a long-term game. Consider your roadmap towards success and recognize that this is different and specific to
- Utilize key performance indicators. Move away from generic industry made KPIs and form your own SMARTER goals.
- Understand the connection between non-financial drivers of success and long-term prosperity. Both financial and nonfinancial factors drive success. Understand their relationship to find your competitive edge.
We can take your company to the next level by going beyond low-level KPIs you can use to drive success. We analyze internal and external factors that contribute to success and identify areas for improvement. Understanding and utilizing our data can provide the fuel to boost your company’s performance and keep retention rates low. Click here to learn more about Barometer!