Key Business Drivers– Major Impact on Business Performance: Managing–Must Factors: Value, Growth, Innovation, Cost…

Business drivers are critically important factors that determine, or cause, an increase in value or major improvement of a business… business driver is a resource, process or condition that is vital for the continued success and growth of a business.

A company must identify its business drivers and attempt to maximize all key factors that are under their control. A key business driver is something that has a major impact on the performance of the business… and needs to be constantly updated to be in sync with the latest trends in their markets, technology…

According to Entrepreneurship; typically there are two types of companies: There are those that do not measure and monitor much and instead drive their business by ‘seat of the pants’ decision making process. Other companies manage and monitor everything. The key is not to get stuck in the weeds and get paralyzed by analyzing too much data– know what the 4-5 key drivers of the business are. Know what leading indicators are most likely to show an increase or decrease in performance for 1-2 quarters ahead, and what the company is doing to improve those measures…

Management must understand the key drivers of their business, measure them, and then fine tune their operations to run as efficiently as possible… The world of business is a competitive– a sink or swim arena… A whole range of internal and external factors affects the performance of every business and the secret is to focus on a handful of key drivers that are:

  • Business factors that have ‘major’ impact on performance…
  • Measurable…
  • Comparable to standard– prior years or industry…
  • Actionable…

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Sales or revenues are one indicator that is easy to monitor and most businesses measure it at least monthly, but many measure it daily or even hourly. But sales, itself, might not be the major driver for the business; in fact, it could a subset of sales, such as– the number of sales calls, or the follow-up service campaign, or the amount of traffic that hits the website, or sales may not be major factors that impacts business performance.

Management must truly know and understand the dynamics of the business and focus on the few factors that have major impact on performance. The range of business drivers varies enormously from business to business. For example:

  • Sales leads in a capital goods or service business.
  • Sales per square foot in a retail business.
  • Machine downtime in a factory.
  • First time fix in a maintenance business.

Even direct competitors may use different drivers to improve their business performance. For example, prime location is not a key driver for an internet-based business, but it is for ‘bricks and mortar’ competitor that relies on well-located retail stores to attract foot traffic. Ask yourself: What are key factors that enable the business to outperform competitors?    Try to identify the ‘few’ business factors that you must focus on by asking yourself several  other basic questions, such as:

  • What drives growth?
  • What drives costs?
  • What drives cash-flow?
  • What drives customer satisfaction?

For most companies key business drivers are related to– major cost-efficiency, growth-effectiveness, customer satisfaction… Business drivers often include ‘soft’ factors, for example; effective networking (i.e., ability to build new business relationships) can prove to be a key driver for many businesses… The measurement of these factors can sometimes be indirect, for example; if you identify employee morale as a driver, you could monitor it by tracking voluntarism, absenteeism…

Drivers often change with business circumstances and time due to, e.g., growing business, changing markets, changing technology…  Also, the key drivers can change with the evolution of a business, for example; a ‘startup’s key value drivers’ might include; assembly of a strong management team, seasoned and influential board of directors and advisory board, development of compelling business plan, ability to produce demonstrable prototype of product…

‘Early-stage venture’s key value drivers’ might include; completion of a first commercial version of the product, attracting first paying customers… ‘Maturing business’ key value drivers’ might include; strengthened management team, expand infrastructure, distribution-customer support… According to Bersin; drivers are business issues or challenges that drive decisions, to change process, system, organization…

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In the article Four Fundamental Drivers for Business Success by Loreen Sherman writes: The four fundamental drivers for success are; innovation, quality, speed, cost competitive. Innovation is important because in a changing world new products and services help the organization gain a competitive advantage by being first to market. Quality is important because organizations grow on repeat business. The product or service must excel for the client to recognize and return for more.

A company’s reputation is esteemed by excellent products. Leadership development helps managers set excellent quality standards and motivate their staff in doing so. These business skills help drive and promote business growth. The world continues to rapidly change with many new technology advances, thus making many products-services more easily accessible.

Speed relates to how quickly a company can develop and release a product to the market. Cost competitiveness means that your costs are kept within a fair market price to attract and retain customers by giving them high value. Each of these four drivers is important for business success. What are your four fundamental drivers for your business?

In the article Real Drivers for Growth by Sarah Savvas writes: Measuring and giving attention to your key value drivers are the enablers for– increase revenue growth, build customer loyalty, retain quality employees, improve profitability… These are the activities that are most likely to increase business value in the shortest amount of time possible.

The ‘key performance indicators’ (KPIs) from your list of value drivers are the activities that directly impact progress towards your goals and are most critical to success. KPIs are the activities you must track for they are the key facets of any business where quantifying results can reveal problems, suggest solutions, and provide a better understanding of the business… Value drivers and KPIs can be generic, industry-specific, or business-specific. To identify key value drivers in any business, start by using SWOT Analysis (strengths, weaknesses, opportunities, threats)…

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Today’s business environment is not just about survival, it’s about focusing on and creating sustainable value. But, which elements of a business are capable of creating value? Equally important, which elements of a business are capable of destroying value? Proper business planning is the process of uncovering and identifying what creates and drives value…

Value drivers are at the root of business performance because they are frequently ‘leading indicators’ of performance, whereas financial indicators are ‘lagging indicators’ due to the recordation of past performance… Value drivers are factors that have a major influence on the value of a company and they typically include: growth, margins, capital investments, working capital, risk, tax rate, capital structure… In turn, each value driver has its own set of drivers, for example; growth is driven by market penetration, market expansion, degree of competition…

These drivers and the way they influence business value will differ with each organization and industry… According to  tripp; the first key value driver is ‘people’, and the second key value driver is business ‘brand’. Brand can be one of the greatest assets for the business, and as the concept of ‘brand’ continues to change and evolve, it continues to be a critical element for the long-term success of the business.

According to Reputation Institute; measuring-managing business ‘reputation’ is a key business driver and some argue that ‘reputation’ doesn’t matter… But, this view ignores the entire concept of reputation, which focuses on what people expect from a company. It looks beyond products and services in areas such as open and honest communication, playing active role in society on issues that matter– people, leadership and governance, strong performance…

For many companies, creating long-term business value is obviously an explicit objective– yet, only a handful of business people can actually identify, with precision, those factors that have the greatest impact on their business– let alone, linking these factors to concrete activities that management must focus on to maximize it.

The quest for long-term business value starts, therefore with a clear understanding of the variables that actually create value in a significant way, which are the key business value drivers. And these drivers in order for them to be useful, they must be controllable or at least manageable to a certain degree. In most cases, key value drivers need to be broken down into concrete components that can be prompted to action, for example; it’s not enough to determine ‘cost’ as a key value driver– for it to be useful a company needs to go deeper– at least a couple of levels into its components…

Identifying and using key value drivers are not an easy task, because key drivers are interconnected and don’t necessarily work in isolation, for example; what may be achieved by managing one value driver may have unintended consequences at another different level in the organization, or even affect value generated by another driver…

Value driven management aligns the company’s operational and financial tactics with its long-term strategy. It allows management to focus on what can be done today to create value in the future and adjust the course as needed… According to Shelley Mika; many argue that ‘innovation’ is the most important driver, that is; business’ ability to come up with new ideas, rather than settle for marginally better ideas… Better, doesn’t work anymore: Different does…

Management must create conditions in which innovation can thrive in their companies. According to Clifton; four types of people drive innovation: inventors, entrepreneurs, extreme individual achievers, and super mentors… Companies must find and keep visionary leaders who know how to foster innovation and creativity in their employees… Identifying and managing value driver helps management focus their attention on activities that have the great­est impact on value. This enables management to translate the broad goal of value creation into specific actions that most likely will deliver value.

Business drivers are key elements that either build and/or protect the value of the business… To identify the drivers on which to focus, management must address two key questions: Which factors will have most significant impact on the value of the business? Which of those factors can be most effectively managed?