Key Performance Indicators and Sustainable Business

Key Performance Indicators and Sustainable Business

In business, success is something that must be measured.

Running a small business is not – by a long shot – easy. And for the small business leader, “failure is not an option”. In large corporations, there are whole departments dedicated to procurement, manufacturing, logistics, marketing, sales and all the rest that goes into running a business. For the small business, these vital functions can roll-up under one person, the one who’s taking all the risk. Indeed, failure is not an option.

But, if failure is not an option, then what defines success?

At one time, the collision repair industry was dominated by small, locally owned shops. For those of us who worked in the industry as consultants, we had a way of describing how many of these small business leaders defined success: If, at quitting time on a Friday afternoon, the shop owner had a fifty-dollar bill in his or her back pocket, the business was considered a success. This may be a caricature, but it’s not far from the truth. For many small business leaders, measuring success is all too often not well defined.

A Google search of, “What are the best 5 indicators of business success”, returns a number of interesting results. The top result, “The 5 best indicators of business growth”, lists these items: inventory is running out, profits or revenue are increasing, you have to hire new employees, your cash flow is improving and there’s buzz around your business. All of these seem at least reasonable. But whether they make sense for a particular small business, and how they are to be measured, are critical considerations. The point, however, is that there are indicators of success, and if the business is to be successful, these indicators ought to be quantified, or measured. After all, what gets measured, gets done!

Key performance indicators (KPIs) is a term that’s been used in business and elsewhere for some time. As the term implies, there are “key” indicators of performance. What these key indicators happen to be is a matter specific to the business, and it takes work figuring which indicators are appropriate to a particular business. Figuring these things out is of primary importance. It does no good to measure things that have nothing to do with the success of the business.

Financial KPIs are probably the most obvious and include such things as total revenue and net profit margin. But these are considered lag indicators. In other words, they’re measures of results and say nothing about the performance of internal processes. Back to the collision repair business, a measure such as repair orders per week (i.e., the number of cars in need of repair per week) would be a key performance indicator that says something about the volume of work that leads to the total revenue figure. What can be done to increase repair orders will likely have something to do with marketing. The point is, while measuring total revenue and profit margin are important, these measures say nothing about what the business is doing that leads to the result. To get at these indicators means measuring things having to do with business processes, not results.

When it comes to sustainable business KPI, and those focused on results, the first thing to recognize is that they go beyond financial measurements. This is where the triple bottom line (TBL) of people, planet, profit comes in.

For the sustainable business (SB) leader, measuring people and planet, or social and environmental performance is essential. A KPI for people might be an assessment or survey of employee satisfaction. One for the planet or environment might be greenhouse gas emissions. As is the case for any business, what’s important for the small SB leader is undertaking the work to figure-out which indicators are most applicable to his or her particular business.

Although sustainable business is an emerging field, the same tools and techniques used in any business apply to figuring-out KPI.  What remains is taking the time and effort to find what works. Over the long run, business success necessitates measuring what matters. Figuring out what matters takes working on the business, not just working in the business.

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