Best-selling author, speaker, executive coach; peer advisory boards #ChampagneMoment www.ExactlyWhereYouWanttoBe.com.
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Running a successful business comes with many challenges. Fortunately, there are ways to track your performance and identify potential issues before they cause damage. One of the most valuable tools is key performance indicators (KPIs). KPIs are used to provide both lagging and leading indicators of performance and help managers drive their teams toward specific results. Here are six easy ways to incorporate KPIs into your business.
1. Decide what is important to track.
Selecting the right metrics is critical to getting the most benefit from KPIs. Not every measurement will be right for every organization. It’s important to take time to understand what indicators will have the most impact on your department or company. While there are hundreds of different metrics and ways to measure success, you need to pick the ones that best align with your company’s goals and objectives. Some to consider:
• Financial. These KPIs track the financial health of the business, including gross profit margins, revenue and return on investment.
• Customer Perspective. Customer-centric KPIs help the business understand how customers feel about interactions with the company, such as the average net promoter score (NPS) and customer satisfaction rating.
• Sales And Marketing. These KPIs track how well your company attracts and retains customers. Some of the most popular metrics in this category include lead conversion rates, search engine rankings and time to close sales.
• Operational Process And Supply Chain. KPIs in this category—such as order fulfillment speeds, rework rates and production downtime—are common in companies that engage in manufacturing, shipping and distribution. However, they can be used in any company that wants to focus on improving its efficiency and operational excellence.
• Employee Perspective. These KPIs can help ensure you have a happy and productive workforce through metrics such as employee engagement, turnover and time to hire.
• Corporate Social Responsibility. Today’s businesses must address the social awareness of the modern consumer. Tracking things like carbon footprint, water and energy consumption, and production waste can help demonstrate that your company is socially responsible.
2. Don’t track too many metrics.
There is nothing wrong with driving aggressive performance. However, some companies make the mistake of focusing on too many things at once. Instead of dividing your team’s attention across a wide range of metrics, select just five to 10 that will provide the most value.
KPIs can also be cascaded to specific groups within large organizations. For example, the manufacturing team may want to focus on operational process KPIs, while the HR department may select employee perspective KPIs. Ask your department leaders to identify two to three key metrics that they feel are most important to them.
3. Use KPIs to set goals.
When selecting KPIs, you need to determine the appropriate level or range that defines success. These levels can be defined by past company performance or industry benchmarks. Once you understand what performance is good or bad, you can use the KPI results to set goals.
A good methodology to follow is the acronym SMART. This ensures that your KPIs are specific, measurable, achievable, relevant and time-bound. For example, reducing production scrap rates by 10% in six months is a great SMART goal. You can then use a scrap rate KPI to measure performance toward that objective.
4. Automate your KPIs.
Calculating metrics each month or quarter can be highly time-consuming. Each time you want to find out how your company is performing, you have to gather all the data you need and run the appropriate calculations. Automating KPIs is a great way to streamline the process and give you a real-time look at the company’s performance.
Start by listing all of the sources and systems that have the data you need to calculate your KPIs. These tools may include accounting software, computerized maintenance management systems (CMMSs) or production tracking programs. Next, build dashboards and visualization tools and connect them to your data sources. This will enable you to always have access to the latest KPI data.
5. Provide visibility to your entire team.
While some KPIs could contain sensitive data that you don’t want to be shared outside of the boardroom, most can be made available to employees. Making your team aware of what you are trying to accomplish and how you are doing can help them feel engaged and motivated to help the company achieve its targets. Don’t forget to take time to celebrate the wins and recognize the key contributors when your metrics look great.
In some cases, you might even choose to publish KPIs to your clients to give them an objective view of how you are performing your services. For example, if your company provides call center services to clients, helping them recognize how quickly you answer the phone and how satisfied callers are with the interaction can boost their satisfaction.
6. Review and revise KPIs regularly.
Over time, the needs of your business will change. For this reason, companies should take time to revisit their KPIs at least once a year. If you are consistently green on a certain metric, it could be an indication that your goals aren’t aggressive enough. This also allows you to replace KPIs entirely to pursue or focus on other business objectives.
Without KPIs and other metrics, it can be difficult for business owners, leaders and managers to identify how their teams and organizations are operating. At the end of the day, the KPIs you select for your business could mean the difference between success and failure. Whether you are looking for insight into the future or evaluating past performance, KPIs provide indisputable data you need to make smarter decisions every day.
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