It is a well known fact that 90% of global firms are SMEs, and that
they employ more than 80% of working population and contribute
to more than half’s worlds GDP. Still, it is generally assumed that
principles of strategic planning and enterprise performance are the
lookout of large and multinational enterprises, not for an SME to be
spending time on!
This could not be more far from true - for the very definition of ‘enterprise’ is not just to refer an organization, but also reflects initiative and resourcefulness that is best epitomized by the SME segment.
The very concept of ‘enterprise performance’, in most circumstances and particularly with SMEs, tends to get limited to the financial performance of the organization – be it the turnover, or revenue or the organizational profit and profitability. While all of the above are important, and do define the health of the organization, they are more of a lag-indicator of how the organization performed during the last reporting period, and do not reflect the sustainability of the performance on an on-going basis.
There is much to do with strategy than a mere budgeting session at the beginning of the year. And in order to drive and manage a sustained enterprise performance, one needs to measure it effectively. What cannot be measured cannot be managed, leave alone be driven!
In order to drive enterprise performance for an SME, we may therefore need to define what it entails. And as we know, this has to include both short-term financial objectives, and the long-term organizational behavior leading to its growth. The Balanced Scorecard provides a four-perspective framework across financial, customer, process and organizational learnings to formulate strategy, and translate it into operational terms.
The beauty of the framework is its ability to define objectives, and link it to clear measures, targets and initiatives. In simple terms, it ensures that the language of measurement provides clarity to vague concepts – at an enterprise level.
Typically, the questions that we would need to answer is structured across 4 broad buckets:
1. Financial: What kind of financial performance should the SME firm focus on so that it seen as attractive to stakeholders and external market place (such as Turnover, Revenue, Profit, Margins, ROCE)?
2. Customer: Which customer segments, and their related expectations need to be focused from a product/service and relationship standpoint?
3. Process: How should the processes be managed to deliver customer expectations across planning, innovation, operational excellence, and how do we improve it?
4. Organization & IT: To achieve our vision, how should the organization learn and improve? What technology and MIS framework is required for the above?
The Balanced Scorecard framework helps in defining not just the financial expectations of the organization, but also have it supported through a “balanced” framework that encourages the measurement of non-financial aspects of delivering enterprise performance.
However, it is also important to recognize that the essence of successfully driving performance also entails a few important do’s and don’ts that CEOs of an SME should watch out for:
- Build consensus of the strategic direction with all senior management team on all objectives – both financial and nonfinancial. It is hard to drive performance unless there is clarity. If there is a disconnect at the highest level on what is important for the organization, its hard to expect the rest of the enterprise to have consensus.
- Ensure the clarity of the strategy is not limited to a few at the top of the organization, but have it cascaded across the organization. This is true for most organizations and even more critical for SMEs, where people are essentially the most valuable resource. We seldom come across successful enterprises whose people are unaware of the organizational priorities!
- Bring in clear measures that help assess progress. Unless there is a continuous measurement of the enterprise performance across both financial and non-financial objectives, it is very easy to get carried away by short-term financial performance and leave behind areas that need strengthening. Again, as I said before, what is not measured well, cannot be managed well. For instance, even if your sales performance for last quarter was outstanding, if you are not measuring complaints received and ensure they are addressed in time, the performance is not sustainable!
- This also means the performance measures of everyone in the organization is aligned to that of the enterprise, and is measured. It is quite typical to see SMEs invest a lot of effort and resources on developing Key Performance Indicators (KPIs) for their employees, but not every-time do you see these in alignment to that of the enterprise. For example, if the organizational objective is to grow business in Abu Dhabi, the KPI of the sales-force has to reflect this as well. If your salesman is spending 90% time visiting customers in Sharjah, then its time got some fixes to the sales process!
While all of the above are about defining the objectives and measuring the performance, it is the execution that delivers the value. And this is perhaps where many organizations tend to mix up means with the ends. Now let me explain. An ISO certification exercise or an ERP implementation are only but the means to deliver a better process or technology framework, and cannot be an end in itself. However successful a six-sigma project may be, it only helps in improving the processes of the organization – which in turn delivers the financial benefits through cost-reduction and efficiency.
A good performance management system is also expected to align the objectives for the year with the initiatives – which ensures that priorities are set to deliver what it takes to achieve the targets, and at the same time effort and energy is not pilfered on areas of non-priority.
As organizations grow it is this performance-based culture that drives sustained and balanced growth. This is particularly true for SMEs, and fortunately, it is much easier to have this institutionalized earlier in the growth phase. All it takes is the focus it deserves, and the will to implement it on a sustained basis. After all, every successful corporation in the world today had been an SME some day too!