Using appropriate Key Performance Indicators for your business growth
Measuring your company performance against key business objectives is very important. The primary goal of performance measurement is to ensure that a business is performing well and achieving the set objectives. However, if your business is not performing as it should, what can you do?
A careful planning and an appropriate selection of key performance indicators and a strong desire to implement these indicators effectively will ultimately improve your business' performance. But, you might wonder why KPIs are so important. Well, many business owners do, but let us briefly look at the importance of KPIs and the proper utilization of the same.
As a business owner, you certainly want to know which areas of your business are performing well and areas performing below expectation. Thus, KPIs act as a mirror that reveals areas of your business that are performing effectively and highlight weak points of the business as well. With KPIs, it is easy to discover changes to trend quickly. This can be helpful in making vital decisions about your business' growth and development.
If there is a proper mechanism in place, KPIs can provide useful information needed to make insightful decisions in response to events capable of impacting the business significantly. This is because KPIs are a good form of communication that provides succinct, clear and relevant information that is great for decision making. Also, KPIs reveal useful performance information on productivity. With this, you can find out if the business objectives are being met and what decisions should be made to improve the performance.
How do you determine what KPIs to use for your business? The first thing to bear in mind is choosing KPIs you can control. Choose KPIs that are directly related to your business, its objective/high-level goals, and which you can control.
To understand the importance of choosing KPIs you can control, take the price of packaging materials as an example. The rate of these materials may be an important performance measurement for your business, but the price is out of your circle of control. You cannot influence it in any way, but you can control your business exposure to it. The exposure of your business to the daily fluctuations in prices of packaging materials is within your control, and this can form a key performance indicator.
In addition to using KPIs as a yardstick for industry performance or legislative purpose, applying the right KPIs to your business can get you crucial information such as ROI, profit margin, customers' complaints, website traffic, the total number of sales, conversions, cost per lead, appointments etc.
There is a need to be careful here. Too often, companies make the mistake of defining too much KPIs or reporting so many details under KPIs. However, to improve your business performance, you should use KPIs in two major ways. What are they?
The first way is using KPIs to discover challenges and opportunities in your business. The second productive way of using KPIs is to help departments and your employees to focus on meeting your business targets. These two ways are necessary as they have a lot do with the process of defining KPIs. Now, let us look at the process of defining KPIs for your business.
1. Define the achievements of your business: This is where KPIs start. Depending on your business sector or niche, the defining process of your KPIs should begin with finding out the successful areas of your business. Starting with identifying area of success of your business will enable you to direct energy at those relevant measurements that are achievable.
2. Discuss the criteria: The next step of defining your KPIs should be an inclusive, interactive process. This involves getting opinions from your management, users, and teams. The opinion so gathered will reveal reasons behind the successes recorded in certain areas of your business. Then, determine what can be done to improve these areas by drawing up action plans. Find out too if there are negative aspects. Your list of actions should be able to provide answers to the following questions:
3. Define certain critical measurements: After you have provided answers to the above questions, you should now be able to define your areas and criteria; and that will include a list of KPIs and their individual owners. Your next priority at this step should be finding the best way to measure them.
For instance, if you have prioritized customer experience and it is responsible for high conversions and sales (due to the high level of trust your business has garnered) from your website, you might want to focus your metric (measurement of activity) on:
It is essential to ensure that the KPIs you have defined for your business meet critical SMART criteria. And these criteria must be:
Now that you have a clearly defined KPIs and their measurements, what next? All the data must be collected, arranged, and properly managed. Managing the collection and reporting of the data can be done using various tools available. 3 common tools are being used, and they are:
Spreadsheets: You need to be careful with this. Spreadsheets have some problems and may not be suitable for the purpose of collating KPIs data. It is grossly unsuitable for KPI tracking but may be useful for single user KPIs. A spreadsheet is not appropriate for multiple users, tracking the trend, summarizing the KPIs data, and is error-prone.
Small databases like ‘Access': Access is far better than a spreadsheet. Access has the distinct advantage of allowing the collation of data from several sources. Besides, the data is stored in a single location and can be used to prepare emergency reports. However, there are disadvantages of using Access to collate KPIs such as difficulty managing users access and general security.
KPI Software: This is the one we will recommend you use. Specialized KPI software application is more efficient and most suitable for this purpose. With KPI software, several users can access the system online. It's flexible and allows you to get real-time reporting. Other benefits of KPI software include improved security, user-friendly entry, alert feature, simple setup, and user dashboard.
As already observed, it's important to focus KPI on the areas and elements of your business that are successful or profitable. The main benefit of this is that your business will be better placed to achieve sustained growth. With KPIs, you'll have a clear monitoring mechanism through which you can measure your business performance against set objectives, and identify areas needing improvement when things aren't quite rosy.
When taking critical decisions about your business growth, key performance indicators will help greatly in making well-informed decisions. Thus, KPIs measurement is indispensable to business growth, and they help avoid costly mistakes.
This is an important question. Often, businesses measure performance based on the familiar management creed, "what gets measured gets done." So, why do businesses measure performance? Let's look at this.
- Stimulate employee attention
Most of the time, measuring performance helps direct employees’ attention to the task. As they are pressed on their time, they are motivated to meet targets or get some specific tasks done because upon them their performance will be measured.
- Make good business decisions
Measuring performance supplies critical data just when they are needed. The data so gathered will help you as a business owner or manager, and management team to make beneficial decisions for the business as quickly as possible.
In most countries, there are industry regulations and governmental agencies that regulate business compliance with these regulations. Thus, performance measurement enables a company to collate necessary data and reports with a view to measuring the compliance metrics for regulatory bodies.
Since every business has something to measure, the reasonable conclusion then is that there is no limit to what every business can measure. For instance, every business use values in business transactions such as the number of goods sold or management metric responsible for employees` inadequate performance. When you have the required data, you can move to the comparison stage where you measure result against each other. Then from the results you have, enough KPIs can be formed which you would want to focus on rather than other aspects of the business.
KPIs give the management team a clear picture of what is important. However, making identified KPIs to focus on the business objective is no easy task. Often, this is as a result of poor understanding of what good KPIs should be. This can lead to developing useless and ineffective KPIs with no measurement and which may not have a positive impact on the business. The right KPIs are well-defined, measurable, and incorporate business objectives.
After you have defined your KPIs, you need to answer these questions:
These questions are important to consider, but you can make your task easier by using KPI software. With the application, you'll be able to create and distribute the KPIs in your company. Using KPI software is a smart way of creating and assigning KPIs to different users that can access it from several locations.
In addition, using the application as an end to end KPIs solution will offer a chance to analyze the data and useful information on the user's interface. KPI software is equipped with performance visualization which can help save time.
As previously observed above, creating KPIs without a clearly defined structure and outcomes will lead to ineffective KPIs. So, what are some reasons why KPIs could fail to achieve intended objectives? Evaluating your existing KPIs against the reasons below would be wise.
Measuring too much
If you attempt to measure too many KPIs, you'll make your task difficult. And if anything goes wrong, you'll have a big mess on your hand to clean up. You don't want to get stuck in the middle, do you? The best thing, therefore, to do is to use the SMART approach we mentioned earlier. Focus on that to realize your goals.
Are you measuring it despite not having control over it?
KPIs should focus on your areas of control and success. It's absurd to aim at controlling things that are clearly out of your control. Rather, KPIs should be on those things that improve your business performance. In sum, developing the right KPIs is a matter of reducing the effects of things that are out of your control.
Are you focusing KPIs on your concerns?
Too many a time, business owners are guilty of what we call ‘Personal KPIs.' These are some kind of performance indicators that are tailored to selfish interest and not to the things that matter to the customers or address their needs. It takes considerable efforts to develop and align your primary KPI performance with customer satisfaction.
Alienating primary users of the KPI
Users of KPIs are relevant stakeholders in its development. Not involving these users can lead to pitfall for the KPIs. Ordinarily, involving users and the person responsible for KPI creation and tracking should be part of any business model. This has 3 benefits: management separation, renewed commitment, and deep knowledge of KPI. When users are involved in KPI process, a more accurate and improved performance will be achieved.
To solve every issue: Create a KPI.
Understanding what KPI is and what is not is very important. KPI should not be created simply because someone requested it or because management practice requires it. Of course, KPI is very useful, but it is hardly a good option when lack of management understanding is involved. It should not be seen as the solution to every workflow and process challenges
A KPI report is better known as a presentation that summarizes your current business performance compared to the objectives. To draft the report, there must be some planning. It's very crucial for implementing KPI report. Why is planning so important?
Having a good plan of action, set of targets, and goals will make reporting easier. Maximum benefits result when there is a good planning for KPI reporting. You need to decide when and how the KPI report should be used. Monthly management meetings or daily production monitoring meetings can be the time to consider the report.
Before starting KPI reporting, you need to bear the following in mind:
Know your audience: From the word go, you should be aware who the audience is. Internal, external, and financial or operational data are your potential audience.
Define your KPIs: When defining KPIs, make it as simple as possible by including only key data. Too many KPIs can affect proper reporting, but you may add any KPI you are missing. After this, decide on the method to display the data like on a graph or an old fashioned data list.
Designate data advocate: A data advocate can offer advice regarding a manual or automated method of KPI reporting. The person can also decide if using both methods will help and what appropriate time to incorporate the data into your reporting system.
Monitor regularly: Regularly monitoring KPI reporting is an arduous task and you may commit some errors when starting out because the needs and goals of a business change from time to time. However, regularly monitoring the KPIs and the benefits can help you make the most of your reporting.
In addition to the above, you need to plan a summary of KPI Reports. The summary should contain performance information for different areas of your business. When you have done all these, you can make KPI reports available in excel, PDF or Word document. This allows you and your management team to get a clearer view of KPI performance in different areas of your business. The KPI reports can be scheduled to give timely weekly or monthly (or both) information to the owner.