Essential new ways to unify your people, data, and process for unfair advantage
Value drivers literally measure the activities that create value.
Value drivers help you reinforce strategy. They are more intuitive and meaningful than traditional financial measures.
Lagging indicators like GM ROI (Gross Margin, Return on Investment), current value, and tangible assets are conventional performance management indicators. These describe company-wide performance, but mean little to HR, Stores, IT and Merchandise – basically anyone outside of senior management or Finance.
Financial measures show the effect of strategy, but say nothing about why you are performing the way you are – or how each department might improve.
By focusing on underlying value drivers, you measure, plan and improve the activities that impact sales and profitability – wherever people sit in the organization.
The best performing retailers draw insights from past performance into forward-looking targets that align business results with corporate strategy.
Drivers like footfall (number of people who walk into a store) are intuitive enough to be understood by anyone in the organization. When you target increasing conversion rates, (turning lookers into buyers), every department has a different job to achieve the goal. This means innovation. HR for example, might change recruitment focus from store managers, with a focus on inventory management to ones which are sales trainers.
The essence of value drivers is not new. Strategy Maps and Balance Scorecards translate high-level goals into measurable operational outcomes across different business functions. And what gets measured, gets managed – Lord Kelvin said back in 1883 “if you cannot measure it, you cannot improve it”.
What’s changed is availability of data – lots of data.
There are three prerequisites to align on value drivers.
- Select the right value drivers
It’s not about picking the most obvious ones. Use modelling and sensitivity analysis based on historical and external data to identify which drivers make the highest impact.
- Correlate relationship between functional activity and value drivers.
The crucial translation from the past to the future. This means more data, and more modelling. Working from your gut, or what people already know, means you only repeat the past.
- Frequent feedback loops to measure and adjust performance.
Value drivers must be measurable (ideally derived from operational system data) and made available to everyone in easy-to-understand and easy-to-use formats, like mobile apps.
This is Part 2 in a series on retail value-drivers, how companies use them in planning, reporting and analysis and lessons for mid-sized retailers to punch above their weight and better share information.
See Part 1 Reinventing retail performance – part 1