Reviewing business performance: The key to attaining a competitive advantage
Understand the necessity of performance indicators can provide a business the tools to insure it will be able to reach it is competitiveness.
Having strategic goals are achieved is determined by how a business creates value for the customer and defines its competitive advantage. The size of the business is dependent on its scope of the product market, this includes the geographic area served, and the role the company plays in the industry. Two additional characteristics in determining strategies are managing the supply chain for buyers and suppliers, along with the company’s innovation capabilities.
Performance is the key to having a competitive advantage. Is the company providing customer satisfaction in price and quality? Internal attributes like productivity of the product, and research and development of new products also play a role in helping to deliver profitability and to grow and meet customer demands.
Methods for assessing performance are both internal and external. Within the company, growth of the number of units and related dollar sales is an indicator of demand. It also tells if the customer base is growing and the products delivered are matching demand trends. A more formal method is satisfaction surveys along with feedback via sales personnel.
Competitiveness indicates how the company measures up against the competition. A growing market share shows the ability to perform better than the competition. This could be in head-to-head comparisons within relevant segments if multiple product lines are offered.
Productivity, an internal indicator, shows the ability to provide products efficiently and effectively based on internal management processes. Are orders being delivered? Is the product being produced with minimal amount of waste? Is the input of materials and time consistent with output of product? Optimally, this ratio will show more productivity over time.
The ability to produce at a profit is vital to continued operations of any company in the long run. It will also allow for the business to attract resources based on the level of return to stakeholders. Profitability can be measured just at the bottom line, but additionally, time-sensitive methods should be employed.
Gross profit margins are an indicator of production efficiency. Are labor and material costs increasing? Will gross margins at production volume capacities provide sufficient dollars to meet fixed costs and do so at a profit consistent with desired returns on investment? Moreover, will cash flow (profit, new investments and depreciation) be at a level to meet credit obligations and provide for working capital necessary for operations on a day to day basis?
Alfred Chandler, Strategy and Structure, purports that, “Structure follows strategy, product efficient results in the determination of the long-run goals and objectives of and enterprise sure what this should be but it’s not a sentence!) This will necessitate adoption of courses of action and the allocation of resources necessary for carrying out those goals.”
No business operates in a static environment. Dramatic external changes call for internal dramatic changes. And, if the company determines it is their best interest to do something (adapt to change) significantly different, resources must be committed along with operational improvements to maintain its competitive advantage.