1. Develop business plan
Analyse and interpret business vision, mission, values and objectives
By the end of this chapter, the learner should be able to:
- Develop a mission statement, consulting with employees and customers, to gain a wider perspective of the strengths and weaknesses of their organisation
- Incorporate both company goals and objectives into the mission statement, recognising the difference between the two
- Identify the culture of their organisation, and utilise this to comply with goals and objectives. Company culture includes things such as:
o shared attitudes and beliefs
o communication between staff
o values and behaviours.
Implementing mission statement, goals and objectives
The mission statement briefly defines the purpose of the organisation and the reason for its existence. It provides the framework to help guide the company’s strategies. A mission statement should not remain stagnant though, it should change as a company alters over time.
A mission statement should:
- Be short, yet engage with employees and those outside the organisation.
- Define the beliefs or principles of the organisation
- Give your customers a sense that they're buying into your vision when they purchase your products
Developing a mission statement
Brainstorming with those connected to the business is useful first step in developing a mission statement. Interact with employees and customers, and ask them to describe the company’s main strengths
and weaknesses. Asking others to define your image will build a wider perspective, while senior management doing so on their own may create a narrow minded mission statement. Remember that this consultation may take more than a couple of hours, so set aside some time to create a statement which will truly reflect your organisations core values.
Mission statements are usually too long. People tend to want to include additional information and qualifications in the statement. These statements can in fact have a negative reaction and confuse the reader, clouding the real meaning of your statement. Each successive draft of your statements should be simplified and clarified by using as few words as possible.
The mission statement differs to a vision statement, which dictates the direction you want the company to move in. This is what you want to include in the mid-term or long- term future. It should be concise and easy to remember. Consequently, if people focus on the vision, their daily activities are automatically directed towards achieving the vision.
Existing mission statements
To test the effectiveness of a mission statement in a business, you could ask its leaders, managers and employees to recall the mission and vision statements of the business to you. If they are unable to promptly tell you both, the statements are of little use. The vision and mission statements ought to guide the everyday activities of each person involved in the business. To be effective, your statements need to be short and simple, capturing the essence of what you want to accomplish.
After implementing your vision, mission and core values, you can then develop the goals and objectives needed to achieve your vision.
Goals and objectives
Goals are general statements of what you want to achieve. This means they need to be combined with your vision. They also need to be integrated with your mission of how you are going to achieve your vision.
Examples of company goals are:
- To improve profitability
- To increase efficiency
- To capture a bigger market share
- To provide better customer service
- To improve employee training
- To reduce carbon emissions.
Goals should meet the following criteria:
- Suitable – does it fit with the company vision and mission?
- Acceptable – does it correspond with the values of the company and employees?
- Understandable – is it stated in a simple manner?
- Flexible – can it be altered if needed?
However, you should avoid setting too many goals which run the risk of not being achieved, or setting goals which contradict each other.
In comparison to goals, objectives are precise, quantifiable, time-sensitive statements of what is going to be achieved and when it will be achieved. They are signposts along the path of achieving your goals.
Examples of company objectives are:
- To earn at least a 15 percent after-tax rate of return on our net investment during the next fiscal year
- To grow market share by 10 percent over the next two years
- To reduce operating costs by 20 percent over the next three years by improving the efficiency of the manufacturing process
- To reduce the call-back time of customer inquiries and questions to no more than three hours.
Objectives should meet the following criteria:
- Measurable: What do you plan to achieve and when by?
- Suitable: Does it fit as a measurement for achieving the goal?
- Feasible: Can it be realistically achieved?
- Commitment: Are people motivated to achieve the objective?
- Ownership: Are those responsible for achieving the objective involved in the objective-setting process?
Action plans can then be created which will help you achieve your objectives. These are statements of specific actions that are going to be taken, including by whom and by when. This enables project managers and team members to monitor progress and establish which actions need to be taken next to achieve their goals and objectives.
Action plans could also create unity within a team, as each individual is aware of their role and should be determined to meet the overall objective.
With action plans, you should consider:
- Giving every individual an individual role – who will be responsible for monitoring their progress and whether they are going to meet deadlines?
- How will individuals be kept motivated during the process of completing an action plan?
- What actions will you take if it appears you will be unable to meet your goal?
Organisational culture can be identified through:
- Values and behaviour
- Communication between staff
- Shared attitudes and beliefs
- Written and unwritten rules.
The culture of an organisation can be utilised to comply with your chosen objectives.
Organisational culture could contribute to achieving objectives in the following ways:
- Involvement – including employees at an early stage in setting objectives may reduce the time spent later on motivating them. Employees who are involved are less likely to get side-tracked or lose concentration. You could ask employees for suggest on how to achieve objectives and reward the best input.
- Consistency – a message of individualism or teamwork should remain consistent in organisational goals and objectives. For example, you should observe messages directed through email, team meetings and notices to examine whether clear values are being directed. A consistent culture can move your organisation forward on a daily basis.
- Adaptability – setting strict rules with punitive punishments for the breaking of those rules could be detrimental to reaching goals. This may prevent innovation and workers from responding to a changing marketplace. If you set an objective of responding to the needs of customers, innovation should be rewarded.
1.3 – Consult with key stakeholders
1.4 – Review market requirements for the product or service, profile customer needs and research pricing options
By the end of this chapter, the learner should be able to:
- Recognise all stakeholders and involve them in relevant stages of the development of the business plan, so as to gain community support and a wider range of ideas
- Use the information from, and ideas of, all stakeholders to readdress the visions of the business
- Respond to the internal and external market environment to ensure that their business is successful in achieving goals and objectives
- Understand the accessible market size of their business.
Involving as many people as possible in a change or project is known as a participatory process. In most circumstances, involving as many people as possible will lead to a greater business plan, with better community support and more ideas being put forward. To gain all of the advantages that a participatory process can bring, you need to grasp who the stakeholders are, and at what stage should they be involved in the strategic and business planning process.
What is a stakeholder?
- A stakeholder can be any person who has an effect or may be affected by the business by plan
o the more they stand to benefit or lose by it, the stronger their interest is likely to be
- They can be both internal and external
- Key stakeholders can play an important role in influencing what you do or do not achieve
Stakeholders may include:
- Board members
- Business partners
- Technical advisors
- Government agencies
- Community from which business draws its resources
In developing a strategic or business plan, as is central to this unit, stakeholders in various capacities can deliver beneficial feedback on the organisational vision, mission, values and objectives.
When senior management have decided who should be involved in developing a business plan, there then needs to be consideration about how they will be involved, and at what stage.
Stakeholders could be involved in the following ways:
- A series of consultation meetings
- Completing questionnaires
- An open day with workshops
- Creation of budget and project schedule
- Identification of project risks
- Planning for data management.
Analyse the internal and external market environment
Examples of internal organisation environment factors:
- Financial resources such as funding, investment opportunities and sources of income
- Physical resources such as company’s location, equipment, and facilities
- Human resources such as employees, volunteers and target audiences
- Access to natural resources, patents, copyrights, and trademarks
- Current processes such as employee programs, software systems, and department hierarchies.
Examples of internal factors regularly affecting the typical organisation are:
- Management culture
- The structure of Boards and Governance
- The overall values of the organisation
- The extent to which employees support management
- The amount of support provided by shareholders or stakeholders in the business.
External environmental factors
Businesses do not work within a vacuum; there are factors outside of your control which will have an effect on your objectives, and therefore actions have to be taken to respond to such factors. The chances of your organisation gaining success in achieving goals and objectives could be dependent upon your ability to adapt to varying external forces.
Examples of external environmental factors may include:
- Competition – are there other organisations developing similar products to you in the marketplace?
- Suppliers – the financial situations of your suppliers
- Legal – how will changes to employment legislation impact on the running of your business
- Economic – what impact will taxation, interest rates, demand, government spending etc. have on the business?
- Technological – how will product innovation and advances in production technology impact on your business plan?
External environments may consist of agencies of:
- Those external services used for promoting, selling and distributing your products and services
- These consist of wholesalers, retailers, and agents for distribution as well as market servicing and also financial institutions
- They also have their own external factors that in turn impacts on you
- They may be individuals or organisations of varying size.
External environmental factors can be heightened for international customers and markets. This is due to the complex nature of what is involved in reaching and servicing those markets. Exchange rates are another external factor which must be considered regarding international customers – how will currency fluctuations impact on company profits?
Profile customer needs
Developing a thorough customer profile provides you with a structured look at the needs and desires of those who may seek your product, the features which they prioritise, and the messaging that will enable them to find you in the market place. It will also enable you to anticipate and prepare for prospective demands.
To improve your understanding of customers, you ought to be attentive to them whenever you are in contact. There are fantastic potential rewards to this: customer loyalty can be increased and new business could be a secondary effect through positive word-of-mouth recommendation.
Here are three main ways that you could improve your understanding of customers:
1. Put yourself in your customers’ shoes - think about all of the occasions customers come into contact with your organisation e.g. meetings, phone calls, deliveries etc. You should constantly consider keeping customers satisfied, through for example maintaining tidy premises, ensuring your customer care assistants are friendly, returning calls promptly, and delivering goods within the specific timeframe. Everyone from the front desk to the delivery staff should focus on exceeding customer expectations.
2. Use data – your customer database holds important information that will benefit you in understanding their needs. You can for example look for patterns regarding when customers contact you or make orders. You could also analyse performance data such as the time it takes to respond to orders and deliver goods.
3. Ask for customer feedback – conducting a customer satisfaction survey often results in increased customer satisfaction, making them feel included in the development of the business. Customer feedback may provide information on factors you would be otherwise unaware of, such as staffing behaviour. Offering a reward or discount in a draw may increase participatory rates. However, you should not seek customer feedback if it is going to be ignored. Inform customers of any changes that have been made based on their advice, for example using email, newsletters or a noticeboard.
When releasing a new business plan or product, it is essential that understand the total size of the market, or the overall available revenue. You should also consider the accessible market size, which is the proportion of the market size that your business may realistically sell to.
Steps you should take to gauge market size:
- You should collect information online using sources such as market studies, journals and government reports to estimate the overall market size. Be critical in your evaluation as there may be conflicting reports regarding the demographics of particular areas.
- What is the total numbers of buyers per year in the market?
- What is the quantity of goods per average per year?
- What is the average price per unit?
- Organisations must present the size of their accessible market in their business plans.
These factors can create tremendous pressures on your various resources, including, marketing and management, especially if laws impact on production capacity or your product design, pricing and promotion.
- Who are you are competing with?
- What products have they recently produced?
- How long will it take competitors to respond following the release of your new business plan?
- Are other companies likely to enter the market?
- What are the demographics and psychographics of those you will be targeting in your business plan?
- Are they currently using other products to fulfil a similar need?
- In what method are they currently purchasing these products?
- How can you assess the loyalty of your target customers to their current providers?
- You will need to consider pricing and discount policies
- Set profit targets, pricing strategies and margins
- Consider presentation and display of products/services
- Is your pricing structure going to maximise your profits (how much are your customers prepared to pay)
- Expect pricing to be at the forefront of negotiations
- What pricing strategies are your competitors are using?
Develop performance objectives and measures through consultation with key stakeholders.
By the end of this chapter, the learner should be able to:
- Apply stakeholder’s feedback and ideas to the development of performance objectives
- Develop performance objectives which are:
o within a timeframe
o realistic and obtainable
o clearly worded
- Ensure that performance objectives do not conflict with the strategic direction of the business.
One method that the outcomes from the consultation procedures with stakeholders could be used is through the developing of performance objectives and measures. As a minimum, their views will be considered during the decision-making process.
Performance objectives are specific goals that:
- Are in addition to everyday accountabilities
- Align with the leadership core values
- Can be fulfilled within the evaluation timeframe
- Will contribute to the employee’s success, in addition to the overall success of department, division and organisation.
Performance objectives should include specific targets that are:
- Dictated by the current strategy of the organisation
- Measurable meaning they can be expressed in quantities, percentages, or dollars
- Weighted in relation to their relative importance to the job.
Performance objectives and measures may relate to:
- Efficiency measures
- Input measures such as hours worked and money allocated
- Qualitative indicators including customer satisfaction surveys, staff perception surveys, manager reports
- Quantitative indicators, such as production and sales figures, turnover, staff turnover rate, market share
Consultation with key stakeholders
- Who are the key stakeholders in your organisation?
- How will consultation vary between different stakeholders?
You might decide to organise stakeholders into groups, and consult with them separately. You could allocate specific performance indicators and goals to each group, and if appropriate, suggest that the outcomes of each meeting will aid in forming new performance measures.
Develop performance objectives and measures
While a business plan provides goals for the whole organisation to reach over the course of a given period of time, performance objectives provide tangible goals for your employees. Performance objectives should be grounded on the specific role responsibilities of each employee, combined with the needs and goals of the overall organisation.
Features of key performance objectives:
- Measurable – e.g. the employee should attract x number of new customers.
- Within a timeframe – the employee may be expected to achieve the objective within 2 months, or 6 months for example
- Attainable – setting unrealistic objectives can be damaging to the employee and organisation
- Clearly worded using action words
At the halfway stage of the performance cycle, employees and supervisors complete a midpoint performance assessment. The midpoint performance review provides an opportunity for performance objectives to be adjusted if expectations and priorities have changed. However, if possible you should not alter objectives after the midpoint performance review, as this is likely to prevent employees from having sufficient time to demonstrate their abilities to meet performance expectations.
You need to ensure that performance measures do not conflict with the organisation's strategic direction. Due to the wide array of definitions about organisation readiness, the actions you undertake can be equally “multi” – this simply reflects the complexity of the undertaking.
Identify financial, human and physical resource requirements for the business
By the end of this chapter, the learner should be able to:
- Ensure that there will be adequate resources to support the strategic plan for the business
- Carefully manage any business plans or strategies that may have profound financial implications or strain on the business.
By this stage, you will have considered where you are at now as a business, where you want to be, and what actions need to be taken to reach those targets. Next, you should start thinking about what resources are required to get there.
Prior to the strategic plan being finalised and implemented, you must ensure that there will be adequate resources available for each activity at each stage of the plan. Planning for the provision of resources ought to be viewed as a central aspect of the overall plan. Otherwise, the strategic plan and the objectives within it will not be accomplished if the actions necessary to carry out the plan are not suitably supported by appropriate resources.
What is a resource?
“A resource is any physical or virtual entity of limited availability; a stock or supply of money, materials, staff and other assets that can be drawn on by a person or organisation in order to function effectively”.
You should carry out a resource forecast:
- All planned activities, goals, and objectives, should be assessed for resource requirements
- If the forecast identifies areas where the available resources do not correlate with the levels required, then this must be corrected or the plan must be changed
- Once you are satisfied that the required resources will be available, then the plan can be implemented
Resource use in the performance of the business
Business resources can be grouped into the following categories:
- Financial resources
- Human resources
- Physical resources
Financial resources concern the ability of the business to fund its chosen strategy. Certain plans will place considerable strain on funding, for example if your organisation aims to implement new products, then distribution channels, production capacity and working capital will require a large amount of funding. Such strategies need to be very carefully managed from a finance standpoint.
Existing finance funds:
- Bank overdraft
- Bank and other loans
- Shareholders' capital
- Working capital (e.g. stocks, debtors) already invested in the business
- Current credit availability
If needed, and affordable, further funding should be obtained.
Are the quality, quantity, and distribution of the human resources within the organisation sufficient to satisfy the needs of the chosen strategies? What skills does the business already possess? Are they sufficient to meet the needs of the chosen strategy? An audit of human resources should take place and assess the following:
- Existing staffing levels
- The expertise and experience of staff
- Job functions and roles
- Standards of training
- Staff turnover
Depending on the changes which will occur in your business plan, changes will also need to be considered regarding human resources. Implementing new products, working in new locations, or changing locations will all require modifications of resources. There may be a need for employment, outsourcing or joint ventures.
Intangible factors you should consider:
- Cultural attitudes
Such factors that do not have a physical presence should not be ignored. There will be a higher chance of achieving your goals with employees who are fully motivated and supportive of the business plan. Including all staff and keeping them informed throughout the process will lessen the risks of these intangible factors.
The physical resources category encompasses a wide range of operational resources concerned with the physical capability of the organisation to deliver a strategy. It may include factors concerning location and production facilities.
- While it may not be realistic for many organisations to change their location with a new business plan, the current location must be analysed in accordance with the strategic plans and decide whether it is suitable.
- If the location does not support the strategic plan, then alternative solutions should at least be explored.
- If a change in location is financially possible, then it could invigorate employees and benefit the organisation in the long term.
The tangible production facilities such as equipment and space must also be deliberated.
Production facilities may include:
- Vehicles/ Delivery agents
- Sales space
If the current production facilities are unable to handle the additional production which may ensue a business plan, then action will need to be taken to rectify this, by investing in new or improved production materials for example.
On the whole, when bearing in mind the resources needed to support the strategic plan, it is not logical to rank them and prioritise which should be addressed over others.
There are a broad range of resources, and all should be treated as equally important. Each stage and each activity area must be resourced suitably; otherwise the chances of the plans being successfully implemented may be significantly reduced. One exception to this statement could be regarding leadership. The leader(s) must guarantee that the proposal is resourced appropriately, and then take responsibility for being the most critical resource of all. Without effective leadership, irrespective of how well other resources are provided and applied, the plans will be unsuccessful.
Consider any permits or licences that may be required for new activity
By the end of this chapter, the learner should be able to:
- Follow legislation throughout all aspects of work
- Work within the guidelines of legal requirements when implementing any changes to the business, including changes to company name and/or address.
Australian Securities & Investment Commission (ASIC) is the regulator for Australia’s
corporate, markets and financial services.
ASIC are an independent Commonwealth Government body. They were founded under and administer the Australian Securities and Investments Commission Act 2001 (ASIC Act), and undertake most of their work under the Corporations Act 2001 (Corporations Act).
There are various legal requirements which you must consider when making changes to your organisation.
Payments fees and invoices
ASIC collect a variety of fees from companies and other entities under Commonwealth laws.
If a payment is up to one month late, there is a $75 late fee. If a payment is over one month late, a $312 late fee will be issued.
Changing company addresses
Your company’s address can be changed through the ASIC website. This is an important task to
complete so that you continue receiving information and notices about late fees.
To update your companies address, you should:
- Use your company’s corporate key to register for online access to ASIC
- Login to the online portal using your company’s Australian business number (ABN) and Australian company number (ACN)
- Enter your username and password
- Select 'Start new form' and select 'Change to company details' (484)
- You will then be able to update your address details online. The updates will show on the ASIC website within seven days.
Changing company name
You should take the following steps if you intend to change your company name as part of the business plan:
1. Is the name acceptable?
o it must not be identical to a name that is reserved or registered to another company
o the name must not include certain words, such as ‘trustee’, ‘consumer’, ‘bank’, ‘ANZAC’, or if the name suggests a misleading connection to the government or Royal Family, or if it misleading to the public.
2. Pass a resolution
o a company must arrange a meeting with its members and pass a resolution to change its name
o unlisted companies need to give at least 21 days notice of the meeting to its members and listed companies must give at least 28 days notice
o the resolution must be passed by at least 75% of the votes cast by members
3. Complete form 205
o lodge details of the resolution
4. ASIC assess your information
o to ensure the proposed name is legally available and acceptable
o form 205 is completed, meeting all the requirements
5. ASIC accept or reject proposal
o if the name is accepted, and you have lodged online, you will be sent a new Certificate of registration on change of name to print. Otherwise, the certificate will be mailed to the lodging party shown on form 205, or the company’s registered address.
o if the name is rejected, ASIC will write to the lodging party or to the company’s registered office giving their reasons for the rejection. If the fee has already been paid, they will apply it to a subsequent proposal, or refund the money when requested.
A business activity can include any activity that is engaged in for the primary purpose of seeking profit. They can include things such as changes in direction to operations like marketing, production and administration. A new activity may require differing licences or permits.
New methods of work or changes in location may alter the licenses and permits you require.
For example, licenses may be needed for:
- Working at heights
- Removing asbestos
- Operating a food business
- Running a business from your home or a mobile van
Checking to see if you have the correct licenses and permits is vital in complying with specific laws such as taxation and occupational health and safety requirements. You should search for relevant codes of practice for your industry online. You can be issued with licences and permits by local, state and federal government agencies, as well as training providers.
Codes of practice
Industry standards of conduct are set out by codes of practice. They are guidelines to ensure dealings between you and your customers are fair, and they provide customers with information regarding what you agree to do when dealing with them. Codes of practice can relate to a single organisation or the whole industry. You can therefore decide to develop your own codes of conduct or adopt a code of conduct that is specific to the organisation, though this is mandatory in some industries.
Codes of practice should represent your approach to business, your trading style, and even your business philosophy.
A code of practice is referenced in an act or regulation and may include general statements of principle and practical advice for how a business or industry should operate, and detailed business practices where businesses must comply with specific standards. (Business licences and permits | Queensland Government)
You may decide to cover the following aspects in your codes of practice:
- Duty of care
- Conflict of interest
- Intellectual property and moral rights
- Quality assurance
- Professional conduct
- Equality and discrimination.
Write business plan
By the end of this chapter, the learner should be able to:
- Recognise the importance of producing a high quality business plan which promotes benefits for the business, such as increasing the chances for external funding and clarification of goals and strategies
- Know the standard format and content of a business plan.
Importance of business plan
Writing a high quality business plan can bring a number of benefits to the organisation, and can be particularly important when trying to seek funding. You need to demonstrate to the banks and investors that they ought to invest in your business. If investors are confident that your business if going to be profitable, then they will be more will to part with their money.
Taking the time to write a business plan can also help you to understand the goals you want to achieve and the strategies needed to achieve them. This will be crucial in helping you to achieve your long-term goals, as well as helping you consider possible bumps along the way.
2. Monitor performance
One you have established the number of workers required to fill the gap which your new business plan will bring, and the skills which these individuals will need to have, it may be worthwhile creating pre-employment tests to screen applicants. Pre-employment tests might include testing of cognitive abilities, work-based skills, physical and motor abilities, personality, language proficiency, and even integrity.
Why use testing?
Pre-enrolment testing has a number of advantages. Their main use is it identify the applicants who meet the benchmark on competencies required for success on the job. This can save time and reduce costs in the enrolment process, as you would only need to interview those that have performed adequately at the testing stage, rather
than a large number of candidates whom you may struggle to differentiate between through examining their applications alone. Simply announcing to applicants that you intend to conduct background checks will discourage some candidates from applying, or will at least represent themselves honestly. It should not discourage those applicants who are well qualified and know that their background checks will not produce any issues.
Depending on your type of organisation, testing for work based skills may lower employee turnover. If for example you run an accountancy business, and an applicant claims to have excellent proficiency with spreadsheets, there is a danger that you could hire the individual based on their trust rather than testing to see if such statements can be validated. If it turns out the individual has limited experience working with spreadsheets, and this is a pivotal skill for their role, then it is likely that you will either have to let them go or use resources to train them to the necessary standard. Testing of work-based skills prior or during an interview can therefore save financial resources considerably.
Drug & Alcohol testing
Testing for drug and alcohol usage can also be utilised by employers to improve workplace health and safety. Drug testing may also be useful in pre-employment assessment.
The main benefits of drug testing include:
- To improve workplace safety
- To improve productivity
- To reduce product/service faults
The collection of the urine sample and subsequent testing is carried out in accordance with AS/NZS 4308:2008.
Possible drawbacks to pre-employment testing:
- Validity – without actually placing the candidate into the work environment on a trial basis to examine their skills, it can be difficult to guarantee that a test will measure the specific criterion it is supposed to measure. There needs to be a strong relationship between what the test is measuring and what the competencies that the job entails
- Reliability – a test needs to measure the applicant’s skillset and knowledge, so there can be no room for luck in the test. You should not be able to stumble across the right answer; if the applicant were to take similar tests on different occasions, the score should be very similar for the test to be reliable. Avoiding multiple-choice style questions in pre-employment tests is advised, as applicants might be able to guess the correct answer without having to apply their skills or knowledge.
- Drug testing – testing for drugs and alcohol can be costly, especially if carried out by registered professionals (which is recommended). Additional, there can also be occasional false positive results found in non-drug users. Some over-the-counter or prescription drugs, as well as some herbal supplements, contain chemicals that mimic street drugs in urine tests. This may result in good quality candidates being wrongfully ignored, or employers may have to pay for a more expensive blood test. There is also a possibility that you could face discrimination charges from the candidate.
A performance measurement system provides an efficient way for organisations to collect and make use of data about their programs and operations. A business plan is based on a series of assumptions that might not be valid. However, performance measurement can help turn assumptions into concrete facts and show the way forward for your business. Measurements point to how you are making the business vision a reality.
What are performance measures?
Performance measures quantitatively inform you about your products, services, and the processes that produce them. They can help you manage and improve your organisational performance.
Benefits of measurements:
- Help to identify whether you are meeting your customer requirements
- They help you understand your processes
- Ensure that your decisions are grounded on fact, rather than emotion
- Can demonstrate where improvements are needed
- Can reveal if improvements have actually happened following a change, in staffing or machinery for example
- They can help you identify whether suppliers are meeting your requirements.
Mission and vision of success:
The mission statement briefly defines the purpose of the organisation, while the vision statement dictates the direction you want the company to move in. The mission and
vision of success both guide an organisation’s activities and operations.
Activities and operations:
Activities are programs, services, or goods produced by a business. Operations are the organisational infrastructure that supports these activities, including HR, technology, and financial management. Activities and operations include everything an organisation does to represent its mission and realise its vision of success.
What constitutes your performance and measurement? This could for example include financial performance, customer satisfaction, or output measures from technology. The measurements that are used must reflect the assigned work at that level.
How do you compile your data into a format that is easy to analyse, and report to shareholders or stakeholders?
Using the performance data you have compiled, the organisation’s leadership review and interpret the data in order to make well-informed decisions and identify opportunities for improvement.
The business implements any necessary changes to improve its activities and operations. The performance measurement cycle begins again.
A performance measure is composed of a number and a unit of measure:
- The number provides a quantum, e.g., how much
- The unit provides the number with a meaning, e.g., what
- Performance measures are always tied to a goal or an objective, which is the target.
Performance measurement quantum can be:
- Number of reports
- Number of errors
- Number of employees
- Length of time taken to complete...
- Performance measurement can also provide evidence of a variation in a process or a deviation from set specifications.
Performance measures are a very useful tool to allow organisations to better understand, manage, and improve what they do or what they are trying to achieve. A single unit of measure usually represents the basic and fundamental measures of a process or product.
More often, multidimensional units of measure are used. A multidimensional unit of measure is generally expressed as a ratio between two or more fundamental units.
These may be units like:
- Litres per Kilometres travelled (a performance measure of fuel economy)
- Number of accidents per million hours worked (a performance measure of a safety program)
- Number of on-time deliveries per total number of deliveries. (a performance measure of customer service)
A multidimensional unit of performance measurement will provide more useful and detailed information than a single-dimensional or single-unit performance measurement.
Ideally, whatever performance measurement is being used or targeted, it should be expressed in a manner that is most meaningful to those in the organisation tasked to make decisions based on those measures.
Shareholders are primarily interested in:
- Profit and loss accounts
- Long term growth prospects
- Positive company image
- Prospects for capital gain
Financial reports enable shareholders to understand the performance of the business that they have invested in.
A creditor is a person or business that has lent money to anther organisation, or is owed money for goods and services supplied on credit. They will take a keen interest in your annual report.
They will have to:
- Decide whether they should lend more money
- Assess the liquidity and solvency of the firm to determine the likelihood of repayment.
Your accounts will have to be clear and user-friendly; you should not be trying to cover- up losses.
Suppliers will use financial information to assess the ability of the company to continue paying for the goods and services in the future.
Firms that supply goods and services to the business are concerned with:
- The size and value of contracts
- Regularity of orders
- Prompt payments
- Business growth affecting future orders
Employees are mainly interested in:
- Job security
- Working conditions
- Health and safety
- Promotion prospects
- Training opportunities.
Employees may also be interested in the annual report if you offer bonuses based on the company’s profits. They may assess the financial information of the company to determine the ability of the firm to provide employment and reward employees for their efforts.
The government will be interested in your reports to ensure you can:
- Pay taxes
- Comply with laws and regulations
- Contribute to the national economy
- Continue to provide employment
Report system failures, product failures and variances
Your business plan should contain information regarding how you will monitor the performance of your new or modified product or service. Any system or product failures need to be reported using pre-established procedures.
A failure reporting, analysis and corrective action
system (FRACAS) is a system you could implement to monitor product reliability. FRACAS provides a process for reporting, classifying and analysing failures, and planning corrective actions in response to those failures.
Although initially introduced in the aerospace and defence
industries, the FRACAS method has been applied to a wide variety of systems, such as risk reduction systems, process control systems and incident reporting systems. It delivers a disciplined closed-loop process for solving failures at the design, development, production and deployment stages.
FRACAS can be used to:
- Record and capture information about failures and problems
- Prioritise failures and problems
- Identify and implement corrective actions to prevent recurrence of problems
- Provide information from failure analysis and corrective actions in order to support reliable data analysis
The FRACAS method establishes a formal process followed by the entire organisation that promotes the reliability of a product or process.
FRACAS has the following benefits:
- Provides engineering data for corrective actions and preventive actions
- Identifies deficiencies as they are emerging
- Helps to prevent recurrence of failures in future designs
- Provides a centralised location for product and system failures, helping to reduce time and effort for resolving both individual incidents as well as problems
- It is essential for quality/ISO certifications and audits.
FRACAS can be applied at the following periods during a product life cycle:
- Product design stage to identify and eliminate known issues
- Development testing to improve the product, process or service
- Field testing
- Production and operations
- Product support in the field (end-user/customer).
You can apply FRACAS in a number of different ways.
Here are some of the best practices for implementing a FRACAS system:
- Tailor the FRACAS system to meet your co business’ requirements
- Define and develop your FRACAS process and then educate your team
- Create a distinction between incidents and problems
- Develop a system for incident reporting, failure analysis and problem resolution, delegating roles to individuals if necessary
- Strive to create data storage of lessons learned to prevent further failures.
When failures simply occur
As has been highlighted earlier, employees should have the required knowledge and skills to successfully implement the business plan. However, any business plan is likely to experience some issues along the way, including potential problems with the product or service. This means employees must also acquire information about identifying failures and ought to be trained properly to capture all of the information needed for reporting it.
Variances in a business plan
In addition to “failures” in product or service, there may be variances between what is
projected in the business plan with actual figures.
Variance analysis involves assessing the difference between two figures. It can be used to observe the differences between the budgets which you set in the business plan and actual costs.
Timing of variance analysis
This could be done on a monthly basis for example. A monthly report would provide quantitative data about expenses, revenue and remaining inventory levels. If there are variances between planned and actual costs, then business goals, objectives and strategies may have to be altered.
When preparing the budget, the business owner should ask managers to submit budgets for the aspect of the organisation which is under their control. They should then be held accountable for adhering to the monthly budget. Ask for explanations if material variances occur, as they may be the result of operational problems. Holding managers to account for their departmental budget will make them more aware of the finances in the department at any given time, as they know this is something they need to watch closely. A variance might be:
- Positive - better than expected
o costs were lower than anticipated in the budget
o revenue/profits exceeded expectations
- Adverse – worse than expected
o costs were higher than expected
o revenue/profits were lower than expected
The degree to which variances should concern management will depend on:
- Whether it is positive or negative – adverse variances should be more of an issue
- Was it foreseeable?
- How large was the variance? In terms of absolute size (monetary terms) and relative size (percentage difference from business plan)
- The cause of the variance
- Is it a temporary variance or part of a long-term trend?
You should not necessarily take positive variances as something that is desired, and adverse variances as problems though; they require more in-depth analysis to see why the variance has occurred. For example, a positive variance may have occurred because you have forgotten to do something in the implementation of the business plan. A variation to the budget might say you have saved $5,000 on advertising; however this could be the result of someone simply not placing the ads or marketing the organisation according to the plan. Alternatively, the monthly report might show production costs are 20% higher than anticipated, but this may have occurred due to an upturn in sales.
3. Respond to performance data
Following on from analysing your performance reports against planned objectives, and KPIs, you may notice that certain individuals or perhaps departments of workers are not meeting targets and are hindering the overall objectives set in the business plan.
The first step you need to take is to identify why the under-performance is occurring. Have they generally performed to the required level and only recently failed to meet standards? Perhaps they have had personal issues with health or family. Alternatively, if they have been consistently under-performing, have you equipped them with the necessary support and training for the job you have given them? To answer these questions, it may be wise to coordinate a confidential chat where you try to discover the cause of the problems. If a department is under-performing, then you may decide to speak to the department manager or the entire group.
If you feel that the issue is based on motivation, you should give the chance to improve; simply criticising the individuals or groups in question is unlikely to cause any great upturn in performance. You could perhaps agree upon a new set of short-term objectives or KPIs which will be monitored and reviewed at a later date. Keep notes of what was discussed at the meeting, and what the individual or group is expected to do from here.
If however, you decide that motivation is not a concern, and they have not been provided with the skills and knowledge require to perform their role effectively, coaching and training is more likely to help bring the individual or group to the level you require to achieve your business goals.
There are a number of ways you could address issues of under-performance when motivation is not an issue.
Training and development activities
Improving the skill level of your staff can bring the following benefits:
- Increased productivity
- Increased motivation
- Improved quality of work
- Increased business profits
- Heightened customer satisfaction.
The purpose and nature of the training activities will vary according to the learning objectives, the needs of the individuals concerned and practical factors such as time, resources, budget, etc.
The following training approaches may be used depending on the needs of the organisation and the individual:
- Computer-based training
- One-on-one sessions
- Group activities.
Computer-based training (CBT) uses technology to deliver knowledge as the user works their way through the program.
More commonly referred to as ‘e-learning’, its benefits are:
- It is a highly accessible and cost-effective method of delivering core information to a wide audience
- Individuals can access modules that directly relate to the skills they require
- There aren’t many restrictions as to where it can take place, so long as the user has access to a computer with sound and video functions
- Smart phones can increasingly deliver e-learning content in the form of applications (or apps) so that users can access the learning anywhere, any time
- It is a highly flexible mechanism for delivering knowledge.
Drawbacks of e-learning:
- Some individuals prefer learning through interaction with others
- The e-learning module may be inflexible in terms of its content – it is difficult sometimes to navigate backwards and forwards through a program to revisit previous material, for example
- If the user is having difficulties, it is not possible them to ask questions if any arise while they are working through the module
- It does not effectively test knowledge and understanding in a workplace environment – testing is restricted to multiple choice questions which don’t allow the user to express their opinions on a matter
- E-learning cannot be used to develop skills as it is a cognitive method of learning rather than a practical one, etc.
One-on-one sessions can be carefully tailored to the individual’s requirements meaning unnecessary content and repetition can be avoided, thus reducing the amount of time needed for the training.
Its benefits are:
- It can take place at the learner’s speed
- Learners can clarify points they don’t understand with the benefit of an experienced trainer or operator by their side
- Specific, constructive feedback can be received about their progress which both builds their self-esteem and facilitates the learning process
- The learning can take place in the real work environment with the learner practising and using live equipment and materials – this makes it very easy to transfer the learning from the training environment to the real work environment.
However, it has some drawbacks:
- Having 1:1 trainer to learner ratio is labour intensive and therefore
- If the trainer is a senior staff member within the organisation, they will not be able to perform their normal duties while taking one-on-one sessions
- It requires the trainer to have some basic training skills.
Mentoring is also usually delivered in a one-on-one method; however, the mentor can have a number of mentees. Additionally, it is normally driven by the person being mentored. The mentee should have an idea of what it is they need in order to fill the gap between what they do know and what they should know, and then seeks help and advice from the mentee as and when it is required. They then work together so that the mentee will ultimately succeed in achieving their goals. One key drawback of mentoring is that the mentee can expect too much support from the mentor. They should not treat it is an opportunity to take the backseat and expect the mentor to be doing their work for them. There are nonetheless a number of benefits to mentoring as a method of eliminating under-performance.
When an entire department is struggling to meet its performance objectives, or a number of individuals are having difficulties with the same task, such as interacting with customers, then a group session is likely to cause less of a strain on resources in comparison to coaching them all individually.
One of the major advantages of conducting group based activities is that it enables workers to brainstorm, share thoughts, and produce higher quality solutions to under- performance. While it might be difficult for one person to establish how to invigorate an entire department to improve performance, a number of people working together could decide on new ways of working which will improve productivity and work quality.
The format of such sessions will vary greatly depending upon your type of organisation and the issue which you are trying to solve. It could for example take a strict approach in classroom based session where workers discuss what it going wrong and how it can be solved. Or as is becoming increasingly popular, external activities or days out provide the opportunity for staff to develop a shared understanding to problem solving, and may improve communication so that when it comes to meeting targets within a work-based team, they are more likely to converse effectively in order to achieve those targets.
Possible drawbacks to group sessions:
- Individuals who are under-performing in similar areas may take the mindset that it is an organisation problem rather than a personal one
- They often involve taking employees out of the workplace, so there needs to be a decision as to whether it will be worthwhile in terms of productivity in the long-run
- Those who are meeting KPIs may feel left out - will they be rewarded?
- External group activities can be expensive to run.
Using CI to review system processes
As continuous improvement is about making never ending small changes to improve performance, and this element is about system process and work methods, it is important to firstly consider how CI can be used to improve system processes.
You should consider:
- What are your processes?
- Are they acceptable for the new business plan?
- Reviewing the processes for any problems
- What sort of problems are there? E.g. performance problem
- Where are changes required?
o what impacts will changes bring to the system processes?
Reviewing a system process:
- You ought to define the scope of the review
o what is it that you are hoping to improve?
- Clear instructions should be given beforehand to the person/people responsible for the reviewing processes
o what should they look out for?
o what is a system problem?
- Review key documents/data
- Using independent reviewers or personnel from other departments will make the review more objective, and possibly highlight more problems to resolve
- Deliver appropriate reports
- Convey findings to customers and other stakeholders
Continuous improvement may include:
- Regular improvement meetings and audits conducted by teams and individuals
- Monitoring of department and individual performance
- Responding to industry requirements and legislation
- Amendments and developments to systems, processes, services and products.
Importance of measurement
As suggested in section 3.1, in order to recognise and act on performance across the business, it is vital to establish key performance indicators which are measurable. This is also a cornerstone of CI; you have to be able to measure the efficiency and effectiveness of a system, process, service, or product. For any business process, unless you can implement a method of measurement to see how it is functioning, then there is no way in which you can be sure an alteration has led to an improvement, there is no data to back it up.
In order to measure something in CI, having a set of KPIs is a crucial aspect. You are aiming to increase quality in every aspect over time, so you therefore need a set of indicators which can inform you exactly how well something is performing at any time.
Reviewing work methods
The approach assumes that the best people for identifying improvement are employees, as they are the ones who see processes in action. CI usually works best in businesses that encourage and reward contributions made by employees to the
improvement process, whether through team meetings or individual assessments.
Key features of CI to review work methods:
- Changes to methods coming from employees are less likely to be radical, and therefore should be easier to implement than wholesale changes you may make at the start of a new business plan
- Small incremental changes are less likely to need major capital investment than major process changes
- All workers should continuously attempt to improve their own performance, which will contribute to overall business performance and productivity
- Encourages workers to take responsibility for their work, and can help team working.
Continuous improvement cycle:
- Identify – opportunities in the process of workflow
- Plan – how can current processes and methods be improved?
- Execute – implement the changes
- Review – how are the changes working for the team?