The beginning of every year is a time for reviewing the events of the past twelve months, while speculating on the year to come. Many businesses will take the opportunity at the end of the year to consider their performance before embarking on the annual round of business planning.
For the commercial manager, responsible for producing profitable income by managing the diverse activities that anticipate and satisfy customer requirements, being fully appraised of the business situation at all times is vitally important. In order to see and assess things as they are, rather than how they are imagined to be, insight should always be both dispassionate and questioning.
In reviewing the commercial activity of the past twelve months, how have the actual performance measurements compared to the predictions and objectives of the business plan and by how much did they differ? Are the reasons for such variance known and understood – if not why not?
Measuring the performance of all business activities is essential, because as Peter Druker said” If you can’t measure it you can’t manage it”. Performance measurements are particularly important to the management of commercial resources. But performance measurements are only indicators that show how effectively resources are being used and the return that are made. Management decisions must be based on the interpretation of facts and measurements, avoiding preconceptions and personal prejudices.
The first questions should always be “What do we need to know?” Who needs to know? Why? These three questions will have different answers at the various management levels of the business structure. Different additional questions will be asked according to what information is required by whom, for what purpose and in what form the answers are required.
Commercial managers should report on the general performance of business getting activities in terms of:
- Enquiry/quotation conversion rate
- Quotation/order conversion rate
- Analysis of lost orders
- Order/delivery time
- Invoice to payment time
- Total marketing cost per order
- Operating Profit
- Net Profit/unit sale
- Stock Turn
- Growth in Customers
Unless the management can be aware and understand what the market is doing and the business conditions in which their business operates, the business may still flounder despite the business performance indicators showing all is well. The question is how is the commercial manager to keep aware of the business’s conditions and the market in which it operates while monitoring the performance measurements?
Having a continuous flow of commercial performance measurements, enables the commercial manager to understand the current performance, but there is an equal requirement for a continuous input of market, economic and business environment information, so that the progress of the business may be seen in the external business context.
To understand a business’s performance relative to its business and market environment requires the application of a business or marketing audit, as it is more commonly known, not as a “one off” procedure, but as a continually rolling programme.
The business or marketing audit is a self-administered method for identifying and realizing under-utilized commercial resources, comprising the analysis of the market, the business, the company's own organizational strengths and weaknesses, the economic environment, the business environment and the competition. Unlike commercial performance indicators, much of a business or marketing audit will provide qualitative rather than quantitative information.
The information collected should seek to identify and confirm what needs to be known, what should be known, what is known and what is not known. Generally held “assumptions” should be identified and examined for factual content. There is no “magic list” of questions, but they should cover as wide a field of enquiry as possible regarding the market and economic conditions in which a business works. The audit will also cover internal procedures and knowledge, which cannot be reported on through business performance measures.
Typically a business or marketing audit can cover over 20 subjects including strategy, planning, market environment, competition, law and many others, with at least as many questions for each subject. Always the question must be asked; Why are we collecting this information? What does it achieve? Will this information help directly indirectly in making decisions?
For effective commercial management to produce steady income for the long term future of the business, performance measurements and a regular marketing audit are essential management tools, providing information for new thoughts and ideas.