Let’s zero in on an interesting exchange that took place early this year, which involved the validation of the company’s 2003 performance indicators. The top line growth rate was over 60%. This represented more than a P100 million increase over 2002.
Guru: What was your 2001 to 2002 top line growth rate?
Student-entrepreneur: We grew by 20%.
Guru: What makes you think you can triple your latest growth rate?
SE: The strategies we prepared will deliver the results.
Guru: It is now Jan. 22. What are the sales figures for the last three weeks?
SE: As of yesterday, we’re 20% over the first 21 days of January 2002. I review that on a daily basis.
Guru: That’s good! Not all entrepreneurs know their performance on a real time basis. Since January is almost over and sales for month number one of 2003 has registered 20% better than last year, this can only mean that you will have to do way above 70% in the coming months to hit your desired 60%++ growth. How is that going to happen?
SE: We have strategies that will deliver even over 80% of the previous year’s sales.
Guru: Sure, but how do you explain your current performance? Did you do anything different from what you did last December 2002?
SE: No, As a matter of fact, the 20% is a result of things that were done last year, December 2002 included. The major marketing and sales strategic initiatives for 2003 will still happen at the end of February and early March, with the bulk expected during the summer months.
Guru: What are these strategic marketing and sales initiatives?
SE: Fundamentally, these entail increasing the number of outlets, new products, and new marketing arrangements.
Guru: Can we divide the increase in the top line according to expected outcome of each initiative?
SE: Meaning?
Guru: Identify the sales figures that each of the marketing initiatives will generate. You have to do this in pesos, not in percent.
SE: How about sales that are extensions of previous marketing initiatives?
Guru: That is another source of sales. These are sales you would have had even without new initiatives.
What are the lessons that other entrepreneurs can take away from this discussion?
It is good to review the actual performance of the company against planned performance on a short cycle basis. This means reviewing January 2003 performance now, not later. This also implies that the entrepreneur must have a monitoring system that tracks the performance indicators on a real time basis.
One does not need a sophisticated computer system to do this. The total sales can be tallied easily from the cash registers or, at worst, recorded on a piece of paper every time a sale is transmitted to the main office or to the boss directly via phone or text message. As such, there is no excuse not to regularly track actual key performance indicators in real time.
Another lesson is being able to look at strategy as a means to an end–the end being clearly expressed in key result areas and performance indicators. Key result areas are the description/s of what to look for. These must be measurable. Do not forget that if it cannot be measured, it cannot be managed. The performance indicator is the numerical expression. As such, the strategy must be linked to its desired results. In the case presented above, one of the key result areas is top line sales. The performance indicator is xxx million pesos or 6x% over 2002 actual sales.
But the more important lesson is to disaggregate the performance indicator relative to the market strategies or initiatives. In the abovementioned case, how much of the performance indicator would be the result of:
a) spillover effects of previous strategies;
b) new products;
c) new outlets; and
d) new marketing arrangements.
This will allow better understanding of the impact of the strategy on performance. If this is done on a monthly basis, the monthly monitoring would be more meaningful.
Again, we are just reiterating what we stressed in last week’s column. This is a reminder to all that strategic thinking is not a once-a-year activity for entrepreneurs. It is something that must be practiced only a daily basis.
(Alejandrino Ferreria is the dean of the Asian Center for Entrepreneurship of the Asian Institute of Management. For further comments and inquiries, you may contact him at: ace@aim.edu.ph. Published "Entrepreneur’s Helpline" columns can be viewed on the AIM website at http//: www.aim.edu.ph).