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Key Drivers: Definition & Analysis

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  • 0:00 What Are Key Drivers?
  • 0:58 Choosing Key Drivers
  • 1:59 Key Driver Examples
  • 3:27 Using Key Drivers
  • 3:55 Lesson Summary
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Lesson Transcript
Instructor: Savannah Samoszuk

Savannah has over eight years of hotel management experience and has a master's degree in leadership.

Businesses use different metrics and methods of analysis to give them an idea of how they are doing. This lesson will define key drivers, provide examples, and explain how to use them.

What Are Key Drivers?

Let's say you wanted to start a pet store. Would you choose a location out in the middle of nowhere? Would you buy from any vendor without comparing costs? Would you provide guinea pig supplies when dog food is in demand? Trying to run a business without knowing what makes your business work well in the market is a bad idea. Research and keep track!

Businesses use many different metrics to gauge their performance. Monitoring the performance and progress is a key aspect of top management. Without it, decisions are made with no guidance, plan, or feedback.

Key drivers are leading factors affecting performance for a company or business. A key driver is something that has a big impact on whether the business does well. It can also show early warning signs for lower performance or results. Let's look at tips for choosing key drivers and see some examples.

Choosing Key Drivers

So how would you choose your key drivers for your business? What matters to your business to make you successful? How do you out-compete similar businesses? Make sure each key driver:

  • affects performance
  • is measurable
  • compares to a standard
  • can be acted upon

For example, if you're a farmer you might say that weather vastly affects the health and number of crops. You can measure how many days you got rain or sun and compare it to last year's standard. However, you can't change the weather, so that would not be a good key driver. You might choose irrigation instead, which you can increase or decrease.

Employee hours might not be a good driver either. A company does not need to track the hours of salaried managers, as it does not directly correlate with performance.

Key drivers can be created from the company's own history or industry standards. If you run a hotel, what did you make last year? How much did other hotels make?

Key Driver Examples

Now that we understand more about what key drivers are and how to choose them, let's take a look at a few examples.

Location

Where an internet content writer works isn't going to affect their business, but something like a Starbucks relies heavily on their locations being convenient for customers. Location is a key factor for most retail stores.

Customer satisfaction

A hotel can't survive without a good reputation and pleased customers. They might look at overall customer satisfaction. A company that delivers products might look at customer satisfaction of delivery time.

Costs

Cost-efficiency compared year over year can impact business. A baker whose ingredients get more and more expensive will affect the price they pass on to customers, and therefore they may need to find other suppliers.

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