It has taken you a considerable amount of time and money to craft your strategy, hire a consultant to prepare your business plan, and establish your business. It’s finally time for you to reap the rewards of your labour. But here’s the catch: you haven’t aligned your business strategy to your reporting. You really have no idea how your strategy is doing beyond knowing what you’re making (sales) and how much “profit” you have.
The first year comes and goes, and business is good, the second year comes, and life happens – business slows down, costs increase, and your staff turnover is higher than ever. You do your best to make more money, switch up your production, and do new things, however, you stray further from your initial financial projections every day. This is the all too familiar story of many SMEs. Without aligning your strategy to every part of the business, and the intentional and strategic gathering of financial and operational data, every company will stagnate and eventually die out.
The most successful organizations are those that align their business reporting with their business strategy and use the feedback received to make informed choices that maximize profits and build sustainability. The success of a strategy is determined by its execution, and execution can only be managed with proper measurement. You must have heard the saying that “you cannot manage what you cannot measure”. The same thing applies to strategy. You have no way to manage your strategy where you have not properly measured it. Generating and reporting meaningful metrics in an organization can facilitate management’s understanding of the status of the business and guide the implementation of their strategy.
Cases of Misaligned reporting with strategy
Most companies neglect to align strategy with business reporting because the business goals and plans have not been broken into actionable KPIs and metrics across different parts of the business and where they have, the targets are often ad-hoc and not based on results from careful monitoring. Take for example, in one large service provider we observed, budgets were set based on the Founder’s expectations of what the profit figures should be and not based on any scientific exploration of business margins. When financial results came in, they were focused on reporting the actuals against the arbitrary budget. This singular decision changed the mindset of the operations team from efficiency focused to number-focused. Another example is a financial services provider with a focus on the number of customers even though its incomes are earned only from transactions. While it made sense that increased customer counts meant more transactions, by aligning their reporting to the wrong metrics, the organisation’s focus and budgets were spent on acquiring new accounts, that were mostly inactive, instead of getting existing loyal customers to spend more.
While these decisions seem logical, they cost businesses all over the world millions of dollars every year as capital is wrongly allocated to business efforts. Most organisations know where they want to go but get stifled by poor execution, and most times miss the early warning signs that tell you when to get off the current highway. An HR Lead at a top FMCG company shared that the company wasted over N50 million on an initiative that was meant to reduce staff turnover but ended up triggering the opposite effect. Proper alignment of your reports with your strategy enables your Company to make winning business decisions such as when to add new products, or how to upskill your people to be better at delivering the results that you want.
When we were engaged to provide bookkeeping and financial reporting to an upscale Lagos-based co-working space, we sat with the management to understand their vision for the future and to map out what ‘good’ looks like for their organisation. Then we set to reorganising their financial reporting and aligning the account heads so that they told the story that the business owners needed to see such as cost efficiency across all space plans, monthly burn rate and future predictions for key business spend, markers for obsolesce and failures in the maintenance of key assets. By placing greater emphasis on these metrics, our client was able to achieve their 3 main business strategic goals which were to:
- Ensure that the business space was being maximised throughout the year
- Ensure that there is sufficient cash to replace key business assets as and when due
- Be profitable
Tips to align your strategy with reporting
If you’re embarking on executing your company’s strategy, here are four tips to make sure your business and financial reporting designed to provide you with the information you need to measure your strategy and achieve your goals.
- Define and translate your business objectives to goals, KPIs, and metrics
Use our strategy measurement template here to translate your business strategy into goals, KPIs, and metrics that you can track and assess. Identify the inputs and outputs that have the most impact on your goals such as cost of production and yield, employee chargeable hours to specific tasks against customer revenue, attaching all attributable costs to serving a customer to the specific product or business segment, or computing rental cost per sqm to ensure appropriate pricing and product mix for a leading co-working space. These are the items that belong in your reports.
- Ascertain the analysis segments
How will all this data translate to performance indicators that are actionable insights for your business? Determine how your data will be grouped and segmented to be analysed. This will include things like Account groups, Product segments, Location, Gender, etc. These segments provide a cohesive way to understand the data.
- Communicate
Align all business units in your organisation on the strategy so that employees know what metrics are being tracked and what they should be focused on. Business strategy fails when strategy is not embedded in the teams. A great way to do this is by organising quarterly town hall meetings to reinforce the strategy. Another way is by ensuring that the metrics also reflect in employee performance requirements so that goals are properly shared, and your team can take ownership regardless of hierarchy.
- Track & Adjust
Collate your financial and business reports frequently to see your achievement against set goals. Regular review also enables you to adjust your reporting metrics so that they truly reflect your strategic goals and to quickly spot potential issues before they occur. A strong cadence of organisational monitoring powers organisations to achieve significantly impactful outcomes.
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If you want to increase your chances of success in business, invest the time in ensuring that your business and financial reporting align with and clearly reflect the metrics that align with your strategic goals. Look beyond top-line financial metrics to assess your results of the past and acquire intelligence from organisation-wide reporting that is fully integrated with your strategy to deliver winning performance in the future.
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