Using KPI’s to determine family business success and the effectiveness of succession planning

Using KPI’s to determine family business success

For a family business to grow and enjoy enduring success, it needs to continually analyse and monitor the current state of the business, against where it wants to be. A formal assessment process that is informed by the strategic business plan should be followed and key performance indicators (KPI’s) should be identified and implemented to measure the performance, or lack thereof, across all sectors of the business.

Partner, Global Head of Family Business

KPMG in France

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family business succession

Key performance indicators (KPI's) are the identification of the fundamental goals that drive the business and the measurement thereof. The KPI’s used in corporate business and family businesses are essentially alike and the same process can be followed to determine the correct key performance indicators for your specific business. A key objective of any family business should be to have an effective succession plan though, and it is thus imperative to include this in the overall strategy of the business and make it part of the KPI’s to track the success and durability of the business.

Why performance management is important for the durability of a family business

According to an article by SuccessFactors, employees account for the biggest financial outlay but are also the most significant strength of a business. Many modern companies’ business plans have to focus on the measurement and tracking of financial and non-financial or operational activities – both internal and external to the business. External operational activities include the quality of the product and whether customers are satisfied with the product and the service received. Internal operational activities are the measurement of the level of satisfaction amongst employees, staff retention figures and succession planning in the family business.

Most KPI’s are accomplished through the cumulative efforts of the employees across various sections in the business, creating a shared responsibility amongst the workforce. Using the KPI’s as the foundation, a business can then monitor and analyse performance and use the information to make key strategic decisions to improve the business’s future accomplishments.

The business strategy informs the KPI’s for family owned businesses

According to IBIS Enterprise Development, the industry and environment of the specific business will determine the different aspects that require measurement and monitoring. KPI’s cannot be identified without having a real understanding of the current economic conditions in which the business is operating and the objectives as determined by the business plan.

The process of identifying the correct KPI’s for your business should span across all the sectors of the business, for example: administration; finance; marketing and sales; production, logistics and service delivery; human resources and IT. The starting point is establishing the current performance levels for each of the sectors and thus developing the benchmark KPI for future measurement. Once the benchmarks have been set, the targets for future performance can be applied.

The importance of KPI’s in the succession plan of a family business

Family businesses increasingly understand the importance of developing a talent pool of skilled and knowledgeable people to seamlessly enter into vacant positions when required. The use of succession planning as a retention tool and implementing career development programs for employees is fast becoming a major business imperative. Equally important is the development and implementation of effective KPI’s for the succession plan. The succession plan KPI’s should include the identification of current and future requirements with regard to employee positions as dictated by the business plan, the career development plan for these specific positions and the chosen individual’s growth required to fulfill the requirements of the position.

In conclusion, family businesses that apply KPI’s to continuously measure the overall performance of their businesses, as well as how effective their succession plans are, should be more inclined to achieve success and remain relevant in a changing business environment.

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