How Metrics Can Support Strategic Objectives & Drive Business Growth

Any business owner that has studied Business 101 has learnt one of the oldest but truest statements in business

– you can’t manage what you don’t measure.

It’s here where accounting comes into it’s own – because it helps organisations translate their strategic objectives into metrics, by means of collecting and analysing relevant business data. This can be crucial in the further development and growth of your business.

Strategic objectives in their simplest sense are goals that are externally focused that an organisation would like to achieve. They are the basis of the strategic plan.

Peter Drucker, the management guru defined eight major classifications for strategic growth:

  1. Profitability – achievement of measurable financial well- being and growth.
  2. Financial Resources – identification of the sources of capital and their use.
  3. Market position – the desired share of the present and new markets.
  4. Innovation – development of new goods and services, and of skills and methods required to supply them.
  5. Productivity – efficient use of the resources relative to the output.
  6. Physical resources – equipment and facilities and their use.
  7. Human resources – selection and development of employees.
  8. Social responsibility – awareness and responsiveness to the effects on the wider community of the stakeholders.

Sometimes a strategic plan fails because the plan is put to one side and left to gather dust. However, with strategic metrics to support the strategic plan, there is a higher percentage of success.

Here are 5 core principles which will help you create metrics that will sustain your business in growth mode.

1. Metrics should be tied to a specific goal

Goals within each classification should have a metric assigned to it. Some examples of a strategic goal would be ‘increase sale revenue’ ; ‘size of gross margin’ and ‘reduce overhead costs’. These are excellent goals to aspire to and are straightforward to put a metric beside. You can assign a percentage metric to them, for example ‘increase sales by 10%’ or ‘reduce overhead costs by 10%’.

Size of gross margin: The gross margin is calculated as a company’s total sales revenue minus it’s cost of goods sold, divided by the total sales revenue, expressed as a percentage. Tracking gross margins is critical for growing companies, since increased volumes should improve efficiency and lower the cost per unit which in turn increases the overall margin and profitability.

Overhead costs: These costs are not dependent on the level of goods or services produced by the business but are a fixed overhead cost such as salaries or rents. In any growing business, these can creep up and spin out of control if not monitored carefully.

2. Metrics should be achievable over time

It’s great setting an annual goal of reducing costs for example but you can go one step further by setting specific percentage cost savings periodically. So instead of deciding at the end of the year, whether the goal has been reached or not, it’s a good idea to create smaller goals during the year.

Your metric could be reduce overheads by 2% by the first quarter, a further 5% by second quarter and so forth to achieve an overall 10% target at the end of the year.

3. Measurement must be continuous

Connected to the above point, an organisation should generate quarterly, monthly and weekly financial reports. Some might even need daily financial reports, depending on the size and stock level of some companies.

Knowing how you’re doing – whether good or bad – helps to motivate the team into action. And it’s action that will ultimately drive the company forward.

4. Assign metrics to everyone in organisation

It’s not just the responsibility of the senior team to work toward strategic objectives. Assign metrics to everyone across the organisation. You’ll get more buy-in and support from the organisation.

5. Limit your metrics

It’s easy to get creative when creating metrics when brainstorming. However, a word of caution when brainstorming: don’t create too many metrics because then everyone gets lost in the metrics. They lose focus on what they should be doing.

Accounting software, such as Sage which we train SMEs on, can help to keep track of your metrics.

If you’d like to talk to us about anything in this article, please feel free to contact us. We can help keep your business in shape this year.