Using Key Performance Indicators to Get Results
If you want to get results, you have to focus. Selecting Key Performance Indicators (KPIs) is the first step in getting focused on what’s important in your business. Once you have them established you can measure performance and take action to drive improvements.
There’s a saying in management circles – ‘what gets measured gets done’. If you don’t measure it, you can’t manage it and if you can’t manage it you can’t change it
Why is it important to select the ‘vital few’ KPIs for your business?
With so many things that could be measured, it’s important that measurement doesn’t take too much time and burn resources. Monitoring a few, well selected KPIs will enable you to keep control of your business. If results month by month are not on plan, you will be able to identify problems. Then you can focus on developing action plans to solve the most pressing problems.
What parameters should you monitor?
In business, all key functions need to meet targets to deliver a profit. So it’s logical to think in terms of the functions:
- The Managing Director/General Manager must deliver shareholder value which will be driven by profit.
- The Sales Director must deliver top line revenue and gross margin.
- The Technical Director must deliver new products on time.
- The Operations Director needs to deliver products and services to customers on time, at the right cost and to the specification.
- The Marketing Director needs to deliver market share within a budget.
- The Finance Director needs to deliver profits by controlling costs, expenses and cash flow.
Most of the KPIs will be measured in monetary terms but you should also have a few that aren’t. These are often to do with people. For instance:
- Customer satisfaction and loyalty
- Employee motivation and satisfaction
- Employee turnover
- Brand awareness
- Market share
- Shareholder satisfaction
How many KPIs should you keep track of?
There are no rules – it’s your choice. We would suggest, as a minimum, one for each key function plus one for customer satisfaction and one for employee motivation. So for a business with five key functions the minimum would be seven. The optimum would probably be two for each key function plus one for customers and one for employees i.e. around twelve. Any more than twenty is far too many. However, remember the saying: ‘spending too much time weighing the pig doesn’t make it fat!’
How will KPIs help you to improve business performance?
Keeping track of a few KPIs will enable you to identify problems before they become critical. For instance, if you don’t carry out the right prospecting activity this month it could impact profits and cash flow in a few months time. When a KPI shows a negative gap between actual and the target, this becomes a problem. Once the problem is clearly defined, it’s easier to get people working together to develop solutions and translate these into actions. Training your people on problem solving techniques is a great way to develop teamwork and quality processes. It’s also cost effective – your own people do the work and feel ownership of the process. The team work together until the performance gap is closed.
One of the characteristics of quality companies is that they set themselves the task of continuous improvement. However, if you have no objective measures of performance it’s impossible to achieve improvements year on year. Selecting a few Key Performance Indicators and managing activities to ensure the targets are met will focus resources and help ensure success.
If you would like to explore how Key Performance Indicators might help you, please get in touch with John Champion at EBS Management Resources by phone (01844 211084) or by email (johnc@ebshr.co.uk)
