KEY SUCCESS VARIABLES

AS CONTROL

INDICATORS

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Introduction

A key variable is a significant indicator of business activity, whose sudden and unpredictable change warrants immediate action by management.

A small change in a key variable will have significant impact on the performance of the organization.

E.g.: profitability, market position, productivity and employee attitude.

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Sources of key variables

Industry characteristics. Environmental factors. Competitive strategy. Stake holders. Significant functions.

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Industry characteristics

In a given industry, there are certain general requirements for success, which apply to all the firms.

E.g.: in insurance industry, the basic requirement for the success of a firm is a positive investment performance.

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Environmental factors

The economic and political climate consist of environmental factors which determine key variables.

E.g.: publishers who depend on the postal services are affected by postal rates.

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Competitive strategy

The strategy that a company adapts usually determines the variables that must be monitored and emphasized. An organization that follows a low- cost strategy will require an analysis of the product cost structure.

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Stake holders

Aspects of the business that are important to key stakeholders, namely customers, executives, suppliers may be considered as key variables.

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Significant functions

In an organization with a function based structure, every manager can identify one or a few key variables related to the function of the unit.

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Identification of key variables

Input variables. Raw material availability. Raw material quality. Raw material costs.

Production variables: Capacity utilization. Losses. Quality control. Maintenance. Costs. Delivery.

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Marketing variables

Order book position. Market share. Institutional sales. Asset management variables. Asset turnover. Working capital turnover.

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Types of variables

Broadly classified as: Strategy. Structural. Process. Environmental.

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Integration Effects Among Variables

Process VariablesEnvironmental

Variables

Strategy Variables Structural Variables

Performance Accomplishment Of

Goals

Key variables and their interaction

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Steps involved in the identification of key variables

Identification of decision variables. Interactions with the environment. Implications for the control

structure. Key success variables and the

control paradigm.

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Identification of decision variables

Decision variables refers to those key success factors which are subject to manipulation through a conscious decision making process.

To summarize, decision variables are those key success factors which help the management to choose a particular course of action and execute it promptly.

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Interaction with the environment

To identify key success factors, environmental variables has to be identified.

Rogers hall has identified 4 critical relationships in a magazine publishing company, which interact with the environment. Specified demand for advertising

pages. Demand for regular subscriptions. Sales and subscriptions. Total cost of producing the

magazine.

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Implications for the control structure

Important Parameters: Efficiency and effectiveness. Economies of scale. Problems of co-ordination. Assignment of profit responsibility. Conflict of profit responsibility.

The control systems prefer a divisional structure in an organization, because within a division, the departments are organized on a functional basis.

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Key success variables and the control paradigm

The hierarchical structure of an organization gives an equal chance to process all the information pertaining to key success factors, and to make business decisions. Through decentralization, the management gives a degree of autonomy in decision making to subordinates.

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Multivariate analysis and key variables

Multivariate analysis helps in identifying the critical control variables and latent factors.

Multivariate analysis help in identifying the wide range of key variables which are latent, yet contribute to the success of the organization.

The motive behind using multivariate analysis is that it helps a firm to relocate the latent factors that play an important role in the identification of key variables.

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Key variables in selected industries

The key variables for various industries are mentioned below:

1. Insurance industry.2. Hotel industry.3. Sugar industry.4. Management training institute.5. Power industry.

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Insurance industry

In an insurance industry, the key variables are number of claims settled in a given period of time, number of claims outstanding against major insurance policy, the number of policies processed in a given period of time, and growth rate in insurance business with respect to each policy.

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Hotel industry

Room occupancy rate. Number of complaints by

customers.Amount of food wasted in the

restaurant. Percentage of revenue contributed

by the restaurant. Percentage of absenteeism among

employees.

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Sugar industry

Price of sugar sold in the open market.

Transport cost per ton of cane. Fuel cost per kg of sugar. Number of production days lost. Support prices by government.

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Management training institute

Number of students appearing for an entrance examination.

Percentage of absenteeism among students.

Number of research projects undertaken and those completed.

Time spent by faculty on teaching and research.

Time spent on management development programs.

Percentage drop out.

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Power industry

The inputs for a power industry are cost and water. The output variables includes transmission losses. The key variables include the following.

Quantity and quality of coal. Availability of wagons for

transportation of coal. Availability of water. Capacity utilization. Preventive and breakdown

maintenance.