If we asked you right now to list the drivers of your business, what would you say? Perhaps you'd ask what we mean by business drivers, or maybe you would say you know what the term means, but you're not sure of your answer concerning your own business.
In business, drivers are those actions, activities, and systems that "drive" the success and results of your business.
Or, as Market Business News puts it:
"A business driver is a component, condition, process, resource, or rationale that is vital for a business to thrive. In other words, it is something that has a major impact on a business' performance."
Here are some examples:
Sales volume
Customer satisfaction
Employee satisfaction
Product quality
On-time delivery
New product development
Innovation
Operational excellence
You get the idea. Business drivers are essential to business success but can be difficult to identify.
But first, how do you figure out the drivers of your business?
The first step is to understand the difference between leading and lagging indicators.
Lagging indicators are outcome-based metrics that measure whether or not you achieved your desired result. They involve looking back to help you figure out what worked (and didn't). For example, if your goal was to increase sales by 10% this quarter, then your lagging indicator would be sales figures for the quarter.
Leading indicators, on the other hand, are predictive metrics that involve looking forward to the road ahead. They help you identify whether or not you are on track to reach your desired result. For example, if your goal is to increase sales by 10% this quarter, then your leading indicators might include things like the number of new leads generated, or the conversion rate of those leads into customers.
Both lagging and leading indicators are important for understanding the drivers of your business. However, leading indicators are more helpful in deciding where to focus your attention and resources to achieve your desired results.
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Once you have a solid understanding of the difference between leading and lagging indicators, you can start to identify the business drivers that are most important for your company.
Start by brainstorming a list of potential options.
Here are a few questions to ask yourself during the brainstorming process that will help you determine which drivers suit your goals best:
What are the business goals that you are trying to achieve?
What leading indicators will help you determine if you are on track to reach those goals?
Which lagging indicators will help you understand whether or not you have achieved your goals?
What processes or activities are most impacted by these business drivers?
Understanding your business drivers is essential for several reasons.
First, it helps you focus your attention on the things that will have the biggest impact on your business. Second, it allows you to make informed decisions that will help you achieve your desired results. Finally, it gives you a better understanding of the business processes and activities most important to your company.
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If you want to be successful in business, you must identify and focus on the most critical drivers for your company. Then, with a clear understanding of your business drivers, you can make informed decisions that will positively impact your business.
Having a CFO as part of your team can help you not only figure out what the drivers of your business are but also help you plan for the future both tactically and strategically.
(Learn more about the reasons you might need to work with a CFO service here)
If you're not sure of where to start, contact Two Roads today, and we'll be happy to tell you more about our CFO advisory services.
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