Deciding which key performance indicators (KPIs) are the most important to focus on can be overwhelming and can even stop business owners from getting started with the main job of getting down to business.
It’s so easy to miss the more obvious KPIs when you work within an organisation. It, therefore, pays to take a step back and view the organisation from afar. Company leaders can sometimes be too close to the situation to see which KPIs are truly critical for the business, so ask for input or feedback from your more remote observers or users.
Running a business successfully is all about looking at trends and the big picture, and then being able to respond quickly. No two organisations’ KPIs will be exactly the same, so it’s vital that you define and interpret your company KPIs relative to your goals and objectives. The KPIs you decide to track and monitor will depend on the market in which your business operates and the stage at which your business is, in terms of its growth. For instance, my IT support team will monitor the time it takes for them to resolve their customers’ technical glitches. The faster these are cleared up, the happier their clients (and I) will be, and the more productive and cost-effective their engineers can be.
KPIs must be specific and measurable, like any other goal. It’s also important to be able to compare them to a benchmark, whether this is your previous year’s performance or your industry peers. There are two broad categories of KPIs: financial and non-financial. Financial KPIs include such common metrics (which, amazingly, I am still able to recall from my early years as an accountant!) as return on sales, return on net assets, gross margin and working capital as a percentage of sales. Non-financial KPIs, on the other hand, may include quality and customer satisfaction measurements, employee turnover, and response & conversion rates for marketing and advertising campaigns.
As useful as KPIs are, it’s all too easy to get caught up in all the measuring and tracking, and lose sight of what’s most important. KPIs must be linked back to your company’s strategic goals or there’s just no point wasting the time and energy monitoring anything at all. Build your KPIs into the business processes and automate them wherever possible so that it doesn’t require an extra job to measure them. This way, you can spend more time focused on using the information that’s generated to simply tweak your actions to meet your goals and objectives. Basically, if it’s all too time consuming an exercise, then you’re measuring everything the wrong way! Even I (a happily confessed, technophobic dinosaur!), will know that the smart technology available to us today, through any decent accounting solution, does the work for you!
Once the basic monitoring processes are in place, the next step is to interpret the results and then take the appropriate actions – provide more training if feedback shows our people are occasionally falling short of the mark; or carry on delivering just as we are because results show we’re all doing such a great job; or if things are consistently, all too often, showing up as off-target, to be brave enough to go back to our original standards of operating performance and commit to re-writing our entire rule book!
Just as being able to interpret the gauges on your car’s dashboard is an essential part of operating your vehicle, so is accurately reading your company’s KPIs for its success…. that’s if you want your business to absolutely thrive, and not merely survive!