Critical drivers are your business’s core items that maintain momentum and spur growth
The successful operation of your company depends on a set of critical drivers, those core items that keep a business moving and growing. Taking the time to identify these drivers helps you better manage your teams and your business while helping you evaluate the right metrics.
Start putting more time and energy into the most valuable areas. Also known as value drivers, critical drivers should be clearly identified and tracked to have more visibility into what’s happening.
Identifying critical drivers
Critical drivers are the processes that most impact value and efficiency. These are the behind-the-scenes gears that keep things functioning. So how do you identify these items?
There are generally three types that are directly related to value. Growth drivers are processes within the sales, marketing, and business development areas; efficiency drivers are those within operations, and financial drivers are finance processes.
To be considered a critical driver, these processes must be measurable and illustrate performance and progress. They also must be controllable. Here are two questions to ask when identifying critical drivers:
- How much do changes in this process or component impact the business?
- What factors can be controlled by management versus by the market?
Think of all the components of your business like a flow diagram, in which one concept breaks into two others, and so on. Thus, if priorities within your business are working toward growth and profit, start there. Then, outline each component that drives profit. Within those components, like sales, break it down further.
Once you identify the components of your business, you can define the critical drivers within those categories. What processes are most closely tied to your company’s core values and vision? Which processes have the most impact on profit and company value?
All organizations will be different, so there’s no one formula. To start, try to nail down three primary activities that drive your business.
Tracking critical drivers
Tracking key performance indicators (KPIs) is just as crucial across departments and processes. But these metrics are especially important for critical drivers and will help you isolate your main value drivers.
There may be many components that comprise a key process for your business. And while all relevant performance metrics should be tracked and monitored, set up additional measures for the most valuable drivers. Focus on ways to improve these metrics, and improvements to revenue, sales, or profit will follow.
For example, factors driving your sales numbers include KPIs like the number of new customers, the number of leads, the number of conversions, and the number of customers retained. These metrics are tracked over a given period so that changes, like new marketing strategies, can be evaluated. For example, focus on sales KPIs that have the most significant impact on moving sales numbers.
Set clear objectives and benchmarks for each critical driver you define. If you’re not hitting the goals, focus your energy on improving that element. It may take trial and error to see the results you want, but it’s a huge step to simply know where you should be focusing.
Give your time and money more value by prioritizing the core processes that have the biggest impacts on success.
A business advisor can help
One of the easiest ways to identify and track your critical drivers is to work with a professional advisor. These concepts can be challenging to grasp, especially for new or smaller businesses. An advisor can help you isolate value drivers and assist in putting methods in place to track and analyze the performance metrics.
The team at Provident CPA & Business Advisors can assist you in reviewing practices and performance numbers. We utilize the Entrepreneurial Operating System (EOS), which involves nailing down the six essential components of your business: Vision, People, Data, Issues, Processes, and Traction. We’ll make sure you’re tracking KPIs and focusing on critical drivers that can lead to long-term growth and success.
Get in touch with Provident today to learn more about our services.