Five practical things that drive performance

Success isn’t just about measuring performance, it’s about driving it. So, here are five practical things a company can do to drive performance:

1. Understand your current level of performance and the levers that drive it
2. Clearly define who is responsible for each lever
3. Set realistic performance improvement targets for each lever
4. Monitor progress against these targets on a daily basis
5. Act on the results – celebrate success and identify opportunities for improvement.

Here’s what I mean. Days sales outstanding (DSO) is a critical KPI. What but does DSO, the staple of the commercial credit manager, really involve? It’s the product not only of credit control action but of sales, order processing, fulfilment, production/operations, customer service.

If we truly want to drive performance, simply measuring DSO in the credit department or finance function isn’t going to automatically deliver the best results. While some companies share this measure across the business, this is a good start, but it still doesn't drive performance. What drives performance is understanding what that DSO result is made up of, so you can actively target people and departments to improve their part of it.

One of the tools that we use at PwC during a working capital diagnostic is a DSO waterfall, which shows how much of the total trade debtors position is due to which reasons (or levers). Here’s an example:

If we know the precise reasons behind the DSO figure, we can set targets around the organisation that will make a real difference. For example:

• The sales function is asked to maintain price file accuracy and control payment terms
• Operations, production and fulfilment are asked to reduce WIP and billing delays, and to reduce quality related disputes
• Customer service is asked to resolve more disputes more quickly
• All departments are asked to reduce the disputes caused by process and control weaknesses.

This way, you’re measuring DSO but also working to improve it across the business. This is the difference between driving the bus and being a frustrated passenger. If you’re driving the bus, you’re well aware of where you’re heading and how you’re going to get there. Anything short of this and you’re merely a passenger.

We have extensive experience of helping companies to understand the levers of working capital and to understand the opportunities that are available by optimising the performance across these levers. If you want to know more, please contact Niall Cooter or Stephen Tebbett.