Measuring and tracking the performance of new business models is challenging, especially when incorporating non-financial metrics like social impact and sustainability. Traditional financial metrics often fall short, making it crucial to adopt a balanced scorecard approach and leverage advanced analytics for comprehensive evaluation.
One of the significant hurdles in developing new business models is the difficulty in measuring and tracking performance, especially when the models incorporate non-financial metrics like social impact, sustainability, or customer satisfaction. Traditional financial metrics, such as revenue and profit margins, are often inadequate for capturing the full scope of a business model’s effectiveness in these areas. This lack of appropriate metrics can lead to underestimating the value of new initiatives and may result in their premature discontinuation or lack of proper support.
For instance, a company that launches a sustainability initiative might struggle to quantify the environmental benefits it brings, such as reduced carbon emissions or improved resource efficiency. Without clear metrics, it becomes challenging to justify the investment in these initiatives to stakeholders who are primarily focused on financial returns.
Recommended Approach: To overcome this challenge, companies should develop a balanced scorecard that includes both financial and non-financial metrics. Kaplan and Norton’s Balanced Scorecard approach, widely adopted across various industries, suggests that organizations should track key performance indicators (KPIs) across four perspectives: financial, customer, internal processes, and learning and growth. This holistic approach allows companies to measure success in areas that go beyond short-term financial performance​(TSI).
McKinsey advises companies to identify specific KPIs that align with their strategic goals and to regularly review and adjust these metrics as the business evolves. For example, a company focused on improving customer experience might track Net Promoter Score (NPS) and customer retention rates alongside traditional sales metrics. Similarly, a company emphasizing sustainability might track metrics such as carbon footprint reduction, energy efficiency improvements, or waste reduction alongside cost savings​(TSI).
Boston Consulting Group (BCG) recommends integrating advanced data analytics and real-time tracking tools to measure the performance of new business models accurately. By using digital dashboards and analytics platforms, companies can monitor KPIs in real-time and adjust their strategies based on up-to-date information. This approach not only helps in tracking performance but also enables quick decision-making and agility in response to changing market conditions​(Deloitte United States).
Additionally, Deloitte highlights the importance of stakeholder engagement in the measurement process. By involving key stakeholders—such as customers, employees, and investors—in defining what success looks like, companies can ensure that the metrics they track are meaningful and reflect the broader impact of the new business model. For example, a company that prioritizes social impact might engage with local communities to understand and measure the social benefits of its initiatives, such as job creation or community development​(Deloitte United States).
A practical example of effective performance measurement can be seen in companies like Patagonia, which tracks both financial and environmental metrics as part of its commitment to sustainability. By publicly reporting on metrics like CO2 emissions, water usage, and the environmental impact of its supply chain, Patagonia not only holds itself accountable but also builds trust with its customers and stakeholders.
In conclusion, measuring and tracking the performance of new business models is essential for demonstrating their value and ensuring their long-term success. By adopting a balanced scorecard approach, leveraging advanced analytics, and engaging stakeholders in the process, companies can develop a comprehensive understanding of how their new models are performing across multiple dimensions. This, in turn, supports more informed decision-making and helps sustain the initiatives that drive both financial and non-financial value.
Wraping up
Developing new business models is a complex process that requires strategic thinking, clear governance, and the ability to adapt to market changes. By proactively addressing each challenge and exploring the recommended avenues, companies can increase their chances of success. Don’t hesitate to reach out to our team to discuss how we can help you in your journey
