Key business drivers are resources and activities that drive the operational and financial performance of the business. These drivers no doubt impact every aspect of your business. Being able to identify and monitor your business’ key drivers is critical in growing your business, and keeping it sustainable and profitable.
Examples of Key Business Drivers
Every business is different, so it comes as no surprise that key business drivers will vary from one business to the next. In the end, what may work to improve the performance of one business may not be the best fit for another business’ strategy.
Examples of common key business drivers include
Identifying Key Drivers for your Business
A solid understanding of what drives your business is crucial, as you’ll need them as inputs when developing your business strategy and building a financial model. Identifying these drivers calls for a comprehensive analysis.
It is indeed true that a whole range of factors will affect the performance of your business. If you are looking to improve this performance, then you best focus on a handful of these factors which have proven to have a major impact. These are your business’s key drivers, and they meet the following criteria
These criteria should serve as a guide when choosing your key drivers. You will want to make your drivers very specific, this way, they will easily fit into the above criteria.
What to Do?
Follow this 3-step plan to help you identify your key business drivers as follows
1. A Look at your Financial Statements
Scrutinize your financial statements line by line. You should look at all three major financial statements, that is, your cash flows, sales reports and costs, and repeat the process for every line on the statements, finding out what drives each line.
Take, your revenue report, for example. After analyzing your numbers, you may realize that the ultimate driver is your volume of sales, which is tied to the number of locations you have. In this case, you can confidently list the number of locations as a key driver for your business.
2. Ask the Right Questions
Even with scrutinizing your financial statements, it all comes down to asking the right questions. When you are not looking at these statements and carrying out an analysis of the same, you can ask the right people to get more insights.
Your marketing manager, for example, is in a great position to explain how increased traffic to your business website has taken over as a business driver. Every business owner should make a point to keep communication open with other decision-makers, and always factor in their input when making crucial business decisions.
3. Use Benchmarks
Internal benchmarking is quite straightforward, as you will be gauging your current performance against past figures. You can identify patterns and get facts from historical figures which should help you identify problem areas as well as opportunities for growth. A thorough analysis of the present, as measured against the past, should help you identify your key drivers.
Similarly, you can choose your key drivers following an analysis of data from across the industry. Look at the business models other businesses are using. You will want to pay particular attention to your direct competitors. It shouldn’t be too difficult to assess your industry’s data pool.
The Ultimate Yardstick
Even as you go through analyzing your financial statements, asking the right questions and using benchmarks, always remember to refer back to the criteria already highlighted. Before settling on any factor as a driver, ensure that it fits the criteria.
Monitoring Key Business Drivers
Only by monitoring your key business drivers will you be able to make strategic decisions that will maximize your business’ performance. Continually collect and record data regarding how each factor performs.
Consider, for instance, the number of stores, identified earlier as a key driver. By keeping track of this factor, you can gauge how effective a strategy it would be to add more stores, and the wisdom in doing so as opposed to employing another strategy such as diversifying your offerings.
It is also crucial to remember that your key business drivers may change over time. There is a wide range of reasons for that varying from your business growing, to changes within the industry, and macro factors which may be natural or fiscal.
The Wrap Up
Identifying and monitoring your key business drivers is critical for the very survival and growth of your business. Big or small, follow the right steps to identify these drivers and always stay on top of tracking each one.