If you want your business to grow over a sustained period you're
going to need a strategy. This applies no matter what size your
business is.
This is where key performance indicators, or KPIs, can help.
They help you achieve a strategy and map its progress as well as
identify your company's strengths and, perhaps even more
importantly, its weaknesses.
What KPIs can do is to give a business, and all its employees,
concrete indicators of progress.
The term KPI, though, is very widely used, sometimes being
applied simply to indicate something that can be measured.
But measuring the wrong things, or, to be more precise, things that
don't fundamentally matter (are not key), is just a waste of time;
in fact, it's more than that, it's counter-productive, because it
not only creates a focus on the wrong areas, it confuses
people.
The first task then is to define what your business strategy and
goals are. After that, you need to identify the most important
questions you would like answered to discover whether your strategy
is progressing and you are on course to reach your goals.
Here are five points to help create KPIs for a
business:
- Keep it simple, get to the nub of things and measure what
really matters and make sure everyone can easily understand what's
reported. It doesn't have to always be the case, but it's a good
idea to measure the same areas your customer will make assessment
about: time to delivery, speed at handling an inquiry and so on. To
establish KPIs you need to break down how your business works and
identify the components of its processes. Then you can work out the
best way of measuring these.
- Make sure each KPI, even if it's ambitious, can actually be
achieved. They must be based on past data and realistic
expectations, otherwise they will cease to have real
value.
- Be careful to differentiate between factors you can control and
those you can't. There are many things affecting your business,
which will be measurable, but which you can't do much about. The
price of petrol, for example.
- Make sure your KPIs can actually be measured. The classic
management maxim applies: 'What you can't measure, you can't
manage'. This rule demands that your KPIs are very tightly defined;
avoid vagueness: for example, 'increase sales'. You
need to define what 'increase' means, is it volume, profit margin,
new sales channels, or what? And then it's important to set a
clear target, not just 'increase'. The same goes for such things as
'add value', increase 'customer satisfaction' and so on. There may
be ways to measure factors that indicate these items, but
they can be difficult to measure directly.
- Make sure a person or a team is responsible for or 'owns' each
KPI.
- Keep your KPIs up to date. Things change and so what needs to
be included in your progress map may also need to change. That's
why it's important to continually review KPIs to ensure they are
still relevant.
