Many companies have better access to data than ever before. Despite this, it is not always clear which factors actually drive performance. When the focus is placed on outcomes rather than the underlying drivers, important insights risk being overlooked. Few companies need more KPIs. Instead, more companies need a clearer understanding of which key metrics actually drive the business.
The monthly report is ready. Revenue is above budget, margins look stable, and performance is developing according to plan. On paper, everything looks good.
But how many people in the management team can actually explain why?
It may sound like a strange question. After all, it is Finance’s job to monitor performance. But in many companies, the focus is placed on the outcome rather than the factors driving it. We become good at identifying what has happened, but significantly worse at understanding why it happened.
And that is a problem. Because if we do not understand what drives performance, it also becomes difficult to determine which decisions will actually make a difference going forward.
The result is the answer
A profit and loss report is important. It shows how the business is developing and provides a consolidated view of the company’s financial performance. But the result itself is, fundamentally, an outcome.
It shows what has happened. Not necessarily why it happened.
If revenue increases by 12 per cent:
- Have you gained more customers?
- Are you selling more to existing customers?
- Have you increased your prices?
- Is the growth concentrated in a small number of deals?
If margins decline:
- Have purchasing costs increased?
- Has the product mix changed?
- Has utilisation decreased?
- Have you incurred costs that strengthen the business over the long term?
The income statement rarely provides the full picture on its own. It shows the out
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Many companies measure a lot, but miss what matters most
Don’t start with the KPIs. Start with the business.
A common discussion in many companies is which KPIs to track. But that is actually the wrong starting point.
The question should be:
What drives our financial performance?
Only then can you determine which KPIs are relevant.
- For a consultancy, billable utilisation may be more important than revenue itself.
- For a SaaS company, customer churn may provide a clearer indication of future performance than the current month’s results.
- For a trading business, gross margin can say far more about the health of the business than sales alone.
What they have in common is that the most important KPIs often explain the drivers behind the results, rather than the results themselves.
Faster decision-making for Hagabadet
Running a spa, hotel and experience business means managing multiple revenue streams, numerous profit centres and rapid fluctuations in demand.
Few companies need more KPIs
In fact, many companies would probably benefit more from tracking fewer KPIs. When everything is measured, it becomes difficult to see what really matters.
The strongest organisations are rarely those that track the most KPIs. More often, they are the ones that have identified the few factors with the greatest impact on business performance and monitor them consistently over time.
This makes performance monitoring more focused. Discussions improve, and the link between operational performance and financial results becomes clearer.
That’s where the most valuable insights emerge
When financial reports are complemented by operational KPIs, something interesting happens. The focus shifts from outcomes to drivers.
Instead of discussing why the results turned out as they did, you can start discussing what needs to happen to influence the next outcome. That is when financial performance monitoring moves from reporting to active management.
Not through more reports or more KPIs, but through a clearer understanding of what actually drives the business.
Have you identified your key value drivers?
Next time you review the monthly report, ask yourself four questions:
- Which 3–5 factors have the greatest impact on our financial performance?
- Do we monitor them regularly?
- Can we explain why our results are developing the way they are?
- Do we know which KPIs to look at first if performance changes?
If the answers are not clear, there is likely to be a gap between financial reporting and the business. That gap makes it harder to understand what drives profitability, identify changes early and prioritise the right actions.
Oxceed makes it easy to connect financial reports with the business’s most important KPIs, so finance, management and operations can work from the same view.
With the right figures visible, it becomes easier to understand what drives the business and make better decisions.
Would you like to see how this works in practice? We would be happy to show you how to work with your most important value drivers in Oxceed.
