Understand the Drivers of Business

Improving and driving business performance requires a company to clearly define its strategy and develop a plan to execute that strategy or make it a reality. As the adage says, “Failing to plan is planning to fail.” How a company carries out planning and execution processes differentiates it from other companies and competitors.

Many companies are good at strategic planning but fall short when it comes to execution.  In order to be successful at strategic planning, business leaders must be able to thoughtfully analyse past and present business dynamics have the ability to forecast future performance. Since strategic planning influences decision making, done rightly, the organization stands to benefit significantly in the future. Done wrongly, the consequences can be catastrophic and even threaten the existence of the company.

Understanding the key drivers is critical for driving results and improving business performance. Basing decisions on gut feel or misplaced assumptions is a sure recipe for disaster. Strategic planning must provide a clear and accurate picture of the business. This means management team possessing the right information about where the company has been, why it is where it is today and where it can be. It is also important that management are able to simulate all possible scenarios and evaluate their consequences on business strategies.

Creating and comparing these scenarios help management clearly understand the various business drivers and this in turn help focus efforts and resources on what moves the business faster. Evaluating various scenarios and business drivers also help management acquire knowledge on the best possible route. Using tools such as the Balanced Scorecard, Strategy Maps and Driver-based Budgeting help organizations to successfully communicate and implement their strategies.

Business modelling can also be used to understand what drives business performance. The model represents the way business occurs and must reflect the true drives of results. For example, the model helps to clearly communicate where the company does business, how the company makes money and how the company spends money. The quality of the business model influences the quality of decisions made and their outcomes.

An effective business model is accurate, simple but high-level, easily shared across all business units. The business model must accurately epitomize how the business is run, its key drivers and how they are connected to the organization’s overall performance. Without access to the right information to back the model, the majority of the decision making is flawed and business results very poor. It is therefore important to remember that for the strategic planning process to be accurate, the information used must be from a credible source, reliable and relevant.

With regards to simplicity and sophistication, the business model needs to take into consideration of the audience. In other words, the performance management system needs to be relevant and useful to the audience which is interacting with it at any given time. For example, those who build and manage the models used by the organization and those who make use of the models for performing their tasks such as budgeting, forecasting, performance reporting and execution of other processes both have very different expectations  of the organization’s performance management model.

To clearly get a complete view of the drivers of business results, performance management must be integrated organization-wide. Planning must not be viewed only as the domain of the finance department but also as a key initiative across all business units. By allowing other business units to participate in the planning process, Finance can effectively become the agent of change, lead performance improvement initiatives, execute strategy and drive business results.

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