Two Simple Steps: Drive Business Performance with Great KPIsNov 26, 2017
Using the right performance measures and metrics is essential to anticipating your future results and to understanding what’s driving current business outcomes.
Yet few CEOs do a great job of capturing, evaluating or acting on readily available data and information. The biggest unused lever in many businesses is simply measuring what matters and using KPIs (Key Performance Indicators) to drive decisions.
Let’s fix this!
Step One: Choose the Right Things to Measure
While most businesses track financial basics like revenue, costs and margin, more finely tunes measures are often overlooked. Every business needs its unique set of KPIs as well as key benchmarks by department. It’s incumbent on the CEO to figure out the set of KPIs that will be most helpful in understanding business performance, enabling decisions and managing risk, while requiring the least cumbersome means of collection and preparation.
KPI Selection Criteria
Easily Measurable - It should not take a team of economists, statisticians and data managers to find and formulate your KPIs
Drives Strategic Performance - An improvement in the chosen metric indicate a meaningful move towards a strategic business objective
Measures Essential Behavior - An improvement in these metrics indicate behavior change that drives key business objectives
Indicates Future Outcomes - Trends, events and inputs that are reliably predictive of future performance
Group Specific - Trends, events and inputs that are controlled by and attributable to a specific group
Competitor Comparable - Provide a performance benchmark against relevant competitors
Examples of important things to track*
· Sales Team’s/CEOs revenue prediction accuracy month-to-month
· Quarterly Total Revenue over Quarterly Sales and Marketing Expense
· Employee Satisfaction Scores
· Number of “A” Rated Employee departures per quarter
· Customer Satisfaction Net Promoter Score
· Time to fill open positions per quarter
· Percentage of internal hires per quarter
*What else should you measure to track what matters most to your business?
Step Two: Increase Business Performance by Using your KPIs
The most important thing: POST THEM!
Everyone should know what’s being measured, and how we’re doing against key benchmarks. Publishing key metrics is a powerful accountability driver. Great companies regularly publish and share their metrics as a way to inspire continuous improvement, new ideas and attention to the right behaviors.
Celebrate - Engage your team to decide how to celebrate when you meet or exceed a key metric!
Use KPIs in Performance Reviews - Stop micro managing. Instead, assign department KPIs to managers and above and let them figure out how to organize and incentivize the team for better performance. Reward managers for establishing and using KPIs, and for achieving measurable results.
Use KPIs in Bonus and Salary Decisions - Select company and department KPIs that will determine salary increases. Tie bonuses to revenue, market share and other essential business performance indicators.